Content Highlights
Negotiating contract terms can be daunting, especially when it feels like the other party has all the power. As we discussed in “Executive Compensation,” understanding and using leverage is key to securing better terms.
At Gardner Employment Law, we understand the importance of leverage in negotiating contract terms. If you have questions about leverage, why it’s important in negotiations, and how to effectively use it to your advantage, read on.
What is Leverage and How Does It Influence Negotiations?
Leverage in negotiation refers to the power or influence you can exert to improve your position. Leverage is about having something that the other party values or wants to avoid and using that to your advantage. In other words, you have the power to withhold the value and the other party will pay more to get that value. Or you have the power to inflict some type of damage upon the other party and he or she will pay more to avoid that damage.
There are two types of leverage: positive leverage and negative leverage.
-
- Positive Leverage: This is when you have something of value the other party wants. For instance, if you’re a highly skilled professional in a competitive field, your skills or experience create positive leverage because the employer needs you. Positive leverage can be used to negotiate for higher pay, better benefits, or more favorable working conditions.
- Negative Leverage: This occurs when you have the power to create discomfort or risk for the other party. For example, an employee who has multiple job offers can create a sense of urgency by signaling that they might choose a competitor if their terms aren’t met. The employer stands to lose the employee’s expertise. Similarly, the threat of a lawsuit or contract dispute can create negative leverage.
Both positive and negative leverage give you power in negotiations. The key is knowing when and how to use each type effectively.
Why is Leverage Important?
Leverage is critical because it shifts the balance of power in negotiations. Without any leverage, you may find yourself in a weak position and forced to accept terms that don’t serve your best interests. But when you have leverage, you can push for changes that better align with your goals.
Here are a few reasons why leverage matters:
| Stronger Bargaining Position | Leverage allows you to negotiate from a position of strength, rather than simply accepting what is offered. You can counter low offers with your own demands, knowing that you have something valuable that you can withhold. |
| Flexibility and Freedom | If you have leverage, you have options. This freedom enables you to walk away from a bad deal without feeling trapped or pressured. It also means the other party is more likely to compromise to keep you on board. |
| Increased Confidence | Understanding your leverage gives you confidence in the negotiation process. Knowing that you bring something valuable to the table empowers you to push for terms that better serve your long-term interests. |
How To Use Leverage in Negotiations
Using leverage effectively involves strategy and timing. Here are a few ways to capitalize on your leverage during contract negotiations:
- Show What You Bring to the Table: Know your worth and understand the market demand for your skills or services. The more information you have, the better you’ll be able to leverage your strengths and negotiate from a position of power. Make it clear to the other party why you are valuable. Whether it’s your unique skill set, industry connections, or past successes, be prepared to present a compelling case for why they should offer better terms.
- Be Willing to Walk Away: One of the strongest ways to use leverage is the willingness to walk away from a deal. If the other party knows you have other options, they may be more inclined to meet your demands. This is especially true when dealing with multiple offers or competing bids.
- Time Your Requests: Leverage is most effective when used at the right moment. For example, in job negotiations, if you wait until after you’ve received a job offer to mention other offers or requirements, your leverage is weaker because the employer has already decided they want you.
Leverage is a powerful tool in any negotiation. By understanding what leverage is, recognizing its importance, and knowing how to use it effectively, you can negotiate contract terms that better align with your personal and professional goals.
Contact an Expert.
No matter the situation, there is always some form of leverage—you just need to identify it. At Gardner Employment Law, we know how to find, identify, and use leverage. Contact us today.