R2. Creating value in negotiation - Chapter 2.pdf

Creating value in negotiation 71 1 contingency

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CREATING VALUE IN NEGOTIATION 71 '1> Contingency contracts are useful only if uncertainty wiIl be re- solved in ways that can be measured objectively. If you hire an employee and offer to promote her "if she performs weIl," make sure that both parties understand what "performs weIl" means. Will you base performance on revenue generated? Hours worked? Projects completed? A good work ethic? Not all of these standards are easy to measure objectively. A rule of thumb: if you're going to argue about who won the bet, it's not worth betting in the first place. In the Moms.com negotiation, parties could agree to base the contingency clause on ratings reported from a specific source (e.g., Nielsen Media Research). "" Make sure you understand the effect of contingency contraets on the incentives of the other party. Imagine that your contingency clause in Moms.com was not for $1 million but $20 million. If you were to calculate your expected value for the clause, you would discover that your expected revenue is $10 million. Sounds great! But there's a big problem. You have just bet a lot on the possibility that the show wi1l receive high ratings-but who now has the in- centive, and the ability, to make sure the show receives extremely poor ratings? WCHI. They can choose not to advertise the show, to air it on an unpopular day, or to air it in the middle of the night. While this would hurt their revenues (worth approximately $7 million), it would help them receive $10 million from you based on the contingency clause. For this reason, make sure your con- tingency contracts are incentive compatible. That is, the clause you negotiate should provide incentives for the other party to behave in ways that are compatible with the spirit of your agreement. PREPARATION STRATEGIES FOR VALUE CREATION' Now that we have considered the logic of value creation and high- lighted sorne key methods for doing so, let's step back and consider how negotiators who are interested in creating value and aehieving efficient agreements should prepare for negotiation. In the previous chapter,
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72 NEGOTlATlON GENIUS we discussed the necessity of assessing your BATNA, calculating your reservation value, and evaluating the ZOPA prior to every negotiation. In this section, we add ro this list bf preparation tasks. STRATEGY 1: IDENTIFY YOUR MULTIPLE INTERESTS Most negotiators take the domain of negotiation as given. For ex- ample, they enter talks thinking, "Today we're going to be haggling over salary," or "We're meeting with the client to negotiate an exten- sion of the contract length," or "This negotiation is about the sale oE our company." A more effective strategy is to think about al! of the things. that you value that the other party might have the ability to provide. For example, in addition to negotiating your salary, perhaps you should also negotiate your start date, vacation days, signing bonus, job description, promotion schedule, and stock options.
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