Bluffing your employer: Proceed with cautionJanuary 23, 2012: 11:59 AM ET
It's a risky move to tell your boss you have another offer when you don't want to leave. How to handle this sticky situation.
By Ethan Rouen, contributor
FORTUNE – Sometimes new job offers come out of the blue, and sometimes people go looking for them. But when an employee uses an offer of more money to argue for a raise at her current firm, she is risking serious backfire.
After five years at a small private equity firm, a mid-level executive got his dream assignment. His boss asked him to head to London to open the firm's new office.
He spent two years there and received a promotion when he returned to the United States. The executive, who asked that his name not be used, also found that recruiters would not leave him alone.
"They kept calling me, but I was never interested," he says. "I wanted to stay with the firm. I was gaining experience and on a good trajectory."
What did interest him, though, was when a recruiter told him that others in similar positions were getting paid 50% more than he was. This detail put him in a tough spot, and he decided it was time to have a conversation with his boss.
Using a new job offer to negotiate salary can be a risky step, especially when you do not want to leave where you are, says Ellis Chase, a career management consultant who works with several large companies.
"What we're really talking about is gun-to-the-head negotiating," he says. "More often than not, when somebody comes to an employer and tries to jack up the salary, the boss says no."
A rejection like that leaves an employee in an awkward spot, Chase says. The employer is saying that he doesn't value his staff like others do, leaving the employee to either stick it out while harboring a grudge or seriously consider an offer he wasn't considering before the rejection.
Even when a bluff leads to a pay raise, it often changes the dynamics of the relationship between employee and boss.
"Sometimes it creates a lack of trust," Chase says. "This guy is going to go to the first company that offers him a 10% raise."
It can also lead to weaker performance reviews and fewer – not to mention smaller -- raises in the future, since the employer can always point to that initial bump in pay.
Still, people who stay with the same company for several years often find their pay falling behind the market rate, Chase says. Salary negotiations can be necessary, especially when an offer of more pay is on the table.
While Chase cautions against using another offer to negotiate salary, he says there is a right way to do it.
First off, be prepared to take the new offer if your employer turns you down. Also, employees should be prepared to sell themselves all over again, he says. People should come to the table with salary data as well as examples of why they are worth what they are asking.
Analyzing your relationship with your boss before a negotiation is vital. If the boss knows that an employee is doing a great job, a new offer could make his job easier when he asks his supervisors for the extra money, Chase says.
Start any conversation with, "I've been recruited," instead of saying you've been looking for a job, Chase says. Employees who are looking to negotiate but unprepared to leave their firms should be flexible in their demands.
If an employer can't meet a pay offer, are there other benefits that could make up for it? Maybe a bonus, stock options or more vacation time could close the gap without leaving anyone feeling resentful.
"You need to think about your personal values," Chase says. "Know where the line is and refuse to cross it."
The private equity executive in question took most of these positive steps when he met with his boss. At that point in his career, he was supervising 12 people and was vital to the firm, but he made it clear that he liked where he was and was prepared to make compromises.
"I didn't want them to feel like I was holding them hostage," he says. "I value loyalty, and I know that my company values loyalty."
He approached his boss, with whom he had a close relationship, explained to him that he was receiving calls from recruiters and showed him the salary ranges. His boss asked for a week to discuss the situation with the compensation committee.
When the boss came back to executive, he offered a raise that would put him at the low end of the market range, but he also promised a quarterly retention bonus for the next six quarters that would bring him up to market rate.
Nearly six years later, that exec is still at the firm, and his relationship with his supervisors was only strengthened by the salary negotiations because the process showed his desire to stay with the company and his boss's desire to keep him.
"I wanted to make them feel like we were partners," he says. "Money isn't everything. Being happy in your job is more valuable. At the same time, I needed my compensation to be consistent with the market."