Chicago Booth Review Podcast Would You Accept a Pay-Free Promotion?

Hal Weitzman: Congratulations, you're being promoted at work, but there's a catch. There's no accompanying pay increase. What do you do? Welcome to the Chicago Booth Review Podcast, where we bring you ground-breaking academic research in a clear and straightforward way. I'm Hal Weitzman. Today we're continuing our podcast miniseries, the audio version of our popular business practice column where we ask people to script what they would say in a challenging workplace scenario, submit their responses, and rate each other's contributions. Then we bring in Chicago Booth Behavioral Science professor George Wu to analyze the results. Today, George is talking about what to do when offered a pay-free promotion. First, let's hear the scenario.

Speaker 2: You've been at your current company for three years in a middle management role. You get on well with your handful of direct reports, and your team has earned a reputation for high-quality work over the course of a number of successful projects. In fact, things have gone so well that your boss has just delivered the good news that you are being promoted, senior is being appended to your job title, and you're being given another team effectively doubling your managerial duties. This new position is a standard part of the career path at your company for those moving from middle management to executive-level positions. But it's not all good news.

"As you know," your boss tells you, "the economic downturn has really affected revenue, at least temporarily. Although we've avoided implementing a formal hiring or salary freeze, there's just no budget to give you a raise at this time. We'll make it up to you down the road." You're pleased to have been recognized for your work and to have taken a necessary step up the corporate ladder, but promotions are the key inflection points for compensatory changes at your company. You're concerned that if you don't get a raise now, your salary won't fully level up until your next promotion, which could be years away if it ever happens.

Hal Weitzman: George Wu, welcome back to the Chicago Booth Review Podcast.

George Wu: Thank you. I'm glad to be here.

Hal Weitzman: Now, George, it's been a while since you and I had a chance to talk about one of our business practice pieces. So why don't you remind us what is business practice? Why did we create it?

George Wu: I teach negotiation and my students, my alums, executives often ask me for specific advice about certain kinds of gnarly negotiation situations. I realized and got a little bit tired of giving everybody a little bit of advice, and so we created this series to deal with those kinds of questions and maybe address some demand and interest for this more generally.

Hal Weitzman: Okay. Well, this is a gnarly one, a promotion, but with no corresponding salary increase. It's a situation that we're all familiar with and so I'm interested to dig into it. But first of all, just to go back to basics, what makes this situation particularly tricky?

George Wu: Well, first of all, I think lots of people find talking about salary with their boss or even HR, difficult. This is especially true for women who... Lots of research shows that women are less likely to ask in these kinds of situations. I think what also makes this difficult is that it's not exactly clear what the circumstances are. It may be that there is no money to be had. It could be that there is money to be had except for the manager is trying to get away with things. Obviously, the kinds of ways that you would respond depend a lot on what the underlying circumstances might be.

Hal Weitzman: Okay. It's interesting from a manager's perspective, it might be that getting a promotion is itself kind of an indication that you're doing well and why would you want a salary increase as well? I can see someone, not necessarily in a malign way, saying, "Well, we're giving you a promotion. Do we have to give you a salary increase as well?"

George Wu: Yeah. And certainly, a lot of managers probably think that way. They think if we can give you a promotion, we don't have the budget, but we'd like to recognize that you're doing a great job. They're sneaking in not just a promotion. I said sneak in. But they are giving you not just a promotion, but there's additional work presumably. So I think that part is something that people might react a little bit more negatively to as an employee.

Hal Weitzman: And just to clarify. When you say women in particular don't like to talk about salary, and none of us enjoys these kinds of conversations, typically, that's not just to do with a promotion, right? That's anytime?

George Wu: Yeah. Linda Babcock from Carnegie Mellon has spearheaded a lot of this research and a lot of the research suggests that women are less likely to ask for things in organization. They're less likely to push back when managers ask them to do things. They're less likely in ambiguous situations to ask promotion or renegotiate the nature of work. And this has been shown to be one of the contributors to the gender pay differential of our career. So if you can imagine that... Whatever, do the calculations. If men ask for raises 50% more often than women and get those raises half of the time, then over a lifetime, that's a lot of money.

Hal Weitzman: Okay. So we could assume in a scenario where somebody is being asked to do more work in the guise of a promotion without more pay, that a woman would be doubly harmed because they're less likely to say no to the more work and perhaps less likely to raise the issue of salary if it's clear... In this scenario, it is clear that we don't have a budget for this.

George Wu: Yes, absolutely.

Hal Weitzman: Okay. So maybe you can talk about some other insights, George, from behavioral science that it has to offer us in this kind of situation. You talk about the research about women and how they respond to being asked to do more and perhaps not raising the issue of salary. What else from behavioral science would be relevant here?

George Wu: Yeah, there's a pretty interesting study by John List who's at the University of Chicago, and Andreas Leibbrandt who's at Monash University. It was an online study in which there was a real job, but there were two versions of that study, one version which explicitly indicated that the salary was negotiable and one in which it was ambiguous. And one of the interesting things is that there was no gender differential in the situation in which it was salient that negotiation was acceptable, it was normative, et cetera. And in situations where it was ambiguous, they found the standard finding, which is that women were much less likely to essentially negotiate that job.

Hal Weitzman: All right, so let's dig into it, George. Because one of the most fun things about business practice, of course, is that we get people to share their insights about what they've learned through the course of their careers. So talk about some of the responses that we received and how they were rated by other participants.

George Wu: Yeah, one of the fun and novel parts of the series is that when people submit a response, that's presumably when they're most hungry to see what other people's responses are. So at that point, we invite them to look at other people's responses and we ask them to rate those responses on a 1 to 7 scale as well. And so when I write this up, I show responses, top-rated and not so top-rated responses, and we also rate responses on various different characteristics. So one question is obviously what people do. And a very small percentage of people reacted very stringently, they declined the promotion. And I think it's probably not surprising, at least to most people that declining the promotion is not a good idea. Others rate that about 2.6 out of 7.

Hal Weitzman: So they simply say, no, thank you.

George Wu: Yeah. If you're not giving me a raise, I don't want the promotion. And maybe even something a little bit more harsh and strident than that. While most others, only 7% of people say something so Draconian, and those are rated very negatively, 2.6 out of 7 versus all others, which are about 4.2.

Hal Weitzman: Okay, because that seems to be shutting the conversation down rather than opening it up presumably. So what are some of the ways that people opened it up?

George Wu: There are a lot of reasonable reasons why there might not be money now. In fact, one of the things that this scenario implies is that times will be better in the future, we'll make things right in the future, and so on. And the question is whether that is just really earnest or whether that's cheap talk. If that's the conversation or if that's the nature of the conversation, then it raises the question of when do you negotiate. So you could negotiate right now or you could negotiate never, or you could plan on negotiating in the future. And obviously, you could partly negotiate now and partly negotiate in the future. I think one of the difficulties of talking about stuff in the future is that you may actually not carry through with this. I mean a lot of people have plans to do things that are easy to say right now, but they don't actually carry through with them. What's interesting is about 30% of people think that negotiation is the right strategy. About 80 to 90% of those who think you should negotiate say that immediately is the right response.

Hal Weitzman: Okay. So 30% of the people think that negotiation is the right strategy. What about the rest?

George Wu: Well, the rest basically differ in some way. And I'll talk about the nature of what they do.

Hal Weitzman: You are a professor of negotiation. So this is an interesting situation because essentially one side is saying there's no negotiation. Here's an offer. I can't negotiate, I do not have any budget. So essentially take it or leave it. And you're saying that the people who say no thank you are lowly rated by other participants. So it's a case where somebody's offered a situation where there really isn't a negotiation and yet they turn it into a negotiation. Am I reading it correctly? And are there other instances in life where similar things would happen?

George Wu: I probably overspoke in saying that a lot of people, or a large percentage of people did negotiate. What's more accurate is that a large percentage of people accepted but the nature of the acceptances was very different. So some people obviously didn't accept, but what we did was we coded things in terms of what we call conditional acceptances and non-conditional or unconditional acceptances. And an unconditional acceptance I think is basically acquiescing. You can think of that as just saying thank you or something of that sort or passively basically accepting that this is the way things are. And then the conditional acceptances are recognizing the situation. For example, I get the fact that we're under budget constraints and I really want to be a team player, but let's talk about when we could have a different conversation.

Hal Weitzman: That's what I was trying to get at. Is this an example of somebody creating a negotiation where apparently there is no negotiation by throwing it forward or changing the terms?

George Wu: Yeah. I think that's right. And I think that this is a soft balance because it allows people to skirt the difficulties of a hard situation that may have no solutions right now, but also create a possibility if there is indeed a solution in a sense.

Hal Weitzman: When you say negotiating, I mean presumably there's two things. You talk about passive acceptance versus conditional acceptance. There's two things, isn't there? One is sort of going straight into negotiation, the other one is saying yes, and. I really want to do it and I want to talk about the salary.

George Wu: Yeah. Well, presumably it's also managing expectations in the employer's mind. So I think when you say that you expect there to be a conversation in the future, presumably you're saying to them that if there is not a conversation in the future and you want me to stay in this job, don't be surprised if I don't because you got the warning that I'm expecting this. If a year from now we haven't had that conversation, or if you promise to have the conversation in six months and then in six months you kick the can down the road a little bit more, then I might be out of there.

Hal Weitzman: If you're enjoying this podcast, there's another University of Chicago Podcast Network show you should check out. It's called Big Brains. Big Brains brings you the stories behind the pivotal scientific breakthroughs and research that are reshaping our world. Change how you see the world and keep up with the latest academic thinking with Big Brains, part of the University of Chicago Podcast Network.

George, we talk generally about what the scenario is. Let's get into some of the details about how people responded when they read some of these scripts that people sent in.

George Wu: Well, first of all, I should just say that like all our business practices, these are hard situations. So we ask people to rate these responses on a 1 to 7 scale, and the average responses are about 4, so not exactly great. And in fact the best responses, the best out of all the responses typically are in the 5s or mid-5s. These are not Uber ratings in which people... You're disappointed with your Uber driver if your Uber driver has 4.8 out of 5. These are-

Hal Weitzman: These are real ratings.

George Wu: These are real ratings.

Hal Weitzman: No great inflation here at the University of Chicago. And why is that, do you think?

George Wu: There's a couple of things. One is that these are hard and that people are recognizing that even the best responses are not going to deliver great outcomes for sure. And then it turns out that there are lots of different ways of seeing this. I think that what happens with all the ratings is there's quite a big variation in terms of how people see that situation. I think that for sure is real. In these very difficult situations, unlike easy situations, you could use the same response with the same manager or different manager, maybe those managers being at least abstractly in the same organizational situation and one says, "That's great, Hal," or one says, "I never want to see you again." That's the nature. So what that said is the conditional responses are rated the most highly, which is 4.4 out of 7. Unconditional responses basically acquiescing are 3.2, and non-acceptances are in the middle of 4.0.

Hal Weitzman: Okay. Maybe give us an example of each of those categories. What was the worst-rated response that we received, for example?

George Wu: Well, let me just give you an example of... This is a response that was rated at the 10 percentile. So 10% of responses were rated more negatively and 90% were rated better answer. I am not able to accept this promotion without a raise, 2.4.

Hal Weitzman: Okay. Which still sounds like it could be the opening of a negotiation. It's not saying no.

George Wu: Could be, but presumably-

Hal Weitzman: Saying, no, not to this offer.

George Wu: Yes, it could be except presumably people... If this was the start, people were looking for more elaboration. It sounds like this is both the start and the end. I mean it could be the start. And for sure if you plan on saying such a thing, then you should either be prepared to walk out the door or have something more to say if you really plan on negotiating.

Hal Weitzman: Okay. So the polite refusal is not highly rated. Talk us through a more popular-

George Wu: Yeah, let me actually give you the most popular response. It's a little long, it's rated 5.6 out of 7. And we can go through this and it's pretty good. So thank you. I appreciate your support and all the support my team members, peers, and colleagues have extended over these years. I appreciate the current challenges and that the organization will make it up to me down the road. However, I think it's reasonable to define what this actually means in terms of timing and compensation. Given my direct impact on the organization's performance and growing potential impact, I think it's worth by considering increasing my compensation by X percent. Obviously, that might depend on the situation before the end of the fiscal year or whatever the appropriate time is, given the actual situation. Is that reasonable?

What I think is appealing about this is it signals that you're empathetic, you get it. You want to be a team player and reflects the fact that you're not a boorish person who's insensitive to what's going on at the organization. You don't want to do what's wrong for your peers and colleagues in the organization. That said, is that you are looking out for yourself as well in the sense that this is something that you should be compensated for in the future and you want more specificity about that.

Hal Weitzman: Okay. What about a slightly lower-rated response, somewhere in the middle of the two you gave us?

George Wu: So this is something which is right in the middle, 50% rated 4.4. It's actually more of a sort of statement about what you should do than actually a set of words that you might use with your employer. Take on the new title and promotion, despite the lack of a pay increase. Opportunity and experience are more valuable than higher salary. Later as business conditions can improve, if you continue to be underpaid relative to value, you can have a conversation with your manager or leave for a job that compensates you appropriately.

So my guess is that the reason people like this and the reason people don't is they probably don't like the fact that you've been really passive right now and largely planned a strategy without talking to your manager explicitly. But what is admirable about the situation is that it recognizes that there's value in a promotion and a title, and it's value inside the organization. And if it's not value eventually inside the organization, it's value outside in terms of outside offers and looking elsewhere. And I think one of the things is that some of the responses reflected exactly that, which is that when people were looking or talked about external options, at least in terms of their strategy, sometimes explicitly, sometimes it's just as a way of thinking, about 25% talked about external options and those are rated about 4/10 of a point higher.

Hal Weitzman: Okay. So if you've got a sense of how this promotion will help you get a job elsewhere in the market and you feel that you're unfairly treated here, but you could be fairly treated elsewhere, then it might be worth taking the promotion and parlaying that into an opportunity elsewhere.

George Wu: That's right. In terms of takeaways from this, I think part of it is being really clear-minded about exactly what you're looking for in this conversation. I think it's easy to have this conversation and just want to vent, and of course, you're going to be angry, and venting for venting sake is probably not the best thing to do. But if you understand that promotions are valuable, sometimes they come with raises and that of course is good, but eventually, in the long term, it will help you inside or outside the organization. Now helping you inside and outside of the organization is more likely to happen if you are more clear-minded about what you're actually going to do with this extra status and extra work that you're doing.

Hal Weitzman: But the result of that response is that you essentially just say, yes, thank you. I'll take this.

George Wu: Yeah. I think most people in this situation end up saying yes. The reflection is that it is something in which the risk of pushing back on a situation where there really is no money to be had is much less than the value of maybe getting a few extra cents here and there when there is. And if an organization really use this line reliably in good and bad situations as just a sort of first offer in negotiation, I think that's not a situation in which... It would be known that bosses do this and it wouldn't be known that this is what the company's strategy is. That would get known pretty quickly and employees wouldn't be that-

Hal Weitzman: And that would merit a no, unless you pay me more response.

George Wu: Probably you wouldn't even have gotten to this situation because you would be out the door already.

Hal Weitzman: But even in that scenario, it strikes me that no, unless, it may be inferior to yes, if.

George Wu: Yeah, that's right. My guess is that most people reading the situation probably take the boss's inability to give you money as earnest. It may not be earnest, but I think that's the presumption in a lot of situations. And one of the things that I tell my students more generally is that, and there's a lot of psychology that bears this out, is that we don't form these beliefs in vacuums. And that one of the things that you might be worried about is that having this conversation is hard and therefore you justify to yourself that there's no money to be had instead of saying, there's no money to be had and therefore I'm not going to negotiate with this. And I always say to them, if you cope out of something, you basically have to ask yourself the hard question, are you copping out because that's the right thing to do? Or you're copping out because you're just being a wimp in some way? Obviously, we don't have the data and that's something that people just have to introspect about.

Hal Weitzman: We've all been in a situation that resembles this, whether it's a job or whether it's buying something. I wonder in this sort of situation where you're going to be working together, presumably longer term, is it worth registering your displeasure even if you essentially say, yes, but I'm not happy about it.

George Wu: I think so. I mean, I think in general it's good. The research in prisoner's dilemma, I think everybody knows what a prisoner's dilemma is, is interesting because it says that the best behavior is essentially what's called tit-for-tat. Or a different way of saying it is, it's conditional cooperation. And I think what's good about conditional cooperation, what's good about this kind of behavior, it says is that I'm cooperative as long as you are too. So I am willing to be a good guy as long as you're a good person as well. And if you are not a good person, then I'm not going to be a good person. And so part of this is essentially saying, I am trusting you to do the right thing in the future, and if you don't do the right thing, I'm out of here.

Hal Weitzman: Except here, there's a subtlety, isn't there? Because the signal might be that the boss hears you say, yes, I'll accept the promotion-

George Wu: That's right.

Hal Weitzman: ... and assumes that the trade is you accept the promotion, therefore you'll do more and they'll give you the promotion. As opposed to you'll accept the promotion, but you understanding that there's not really money right now and you would prefer to have money.

George Wu: My students oftentimes accept jobs in startups, and of course, they'd like equity. And then oftentimes the conversation is let's talk in a year about equity. And that makes a lot of sense. My fear in a lot of those situations is that conversation never happens. And part of it is I think that this conversation of yes, I accept, but, is something where... I think it does two things. It basically says this is the kind of person I am, is somebody who is willing to be a team player if this organization deserves having a team player. So setting those expectations.

But the other thing it does is it puts the second conversation on the schedule, so to speak. I don't think you want to be as explicit as saying, "Well, on September 15th we should have this conversation." But I think to say that I'll be pinging you in six months. This is a situation of temporary financial austerity. I think there's some talk that basically we're going to lift our hiring freezes and things like that in six months, and so that might be a good time to come back and have this conversation.

Hal Weitzman: And presumably, you could say, if you are happy with my work, at that point, we can discuss whether the promotion is working out and whether I should therefore be payable.

George Wu: Yeah, absolutely.

Hal Weitzman: All right. Well, George Wu, thank you very much for guiding us through another business practice. Great to have you on the podcast.

George Wu: Thank you. It's been great to be here.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.