I know that this isn’t what you want to hear, but this question demonstrates the complexity of all strategic decisions and why we have to go with our gut in making them. The number you want cannot be reasoned. This question allows me to explain what the strategic problem is and how all strategic decisions are made.
It can only be established by a dynamic process of competition, that is, a comparison resulting from a search. This comparison always takes place in an environment with too much information where the key information is difficult to find. This means you need to do a search. And, in the end, the comparison must be based on limited information so it is a “gut decisions,” where you must feel what is right. If you can’t “feel” what is right, you must search more to discover the key information that makes the decisions possible.
Why is there no logical way to get to the number and any number in making strategic decisions? There are simply too many unknowns.
Let us start with what we know. We know that the number is somewhere between the lowest amount the employee is willing to accept and the highest number the employer is willing to pay. The process of negotiating the difference is a dynamic strategic process but on subjective opinions, not certain knowledge.
Why can’t we know either number precisely enough to make an objective comparison? Both the employee and employer numbers are affected by what other employers are willing to pay that specific employee and what other employees are willing to accept from the specific employer. There is a cost in gathering more information. The employee must apply for others jobs. The employee must interview other employees. That cost of research is usually high enough that people won’t pay it unless they know that they cannot come to an agreement. The advantage in process of negotiation therefore goes to the party that convinces the other that to have the best information. Again, this is true in all strategic “showdowns.”
So research is an advantage, even if it is expensive, but this brings us to the next order of strategic problems. To the degree those market prices known and an average calculated, it must be discounted by lack of knowledge by two decisions makers about the relative quality of their alternative choices. They can learn “facts” but the key aspect of quality of alternative employees and employers, what it will really be like working in a new situation, are unknowns for the people making the decision. The devil you know is always better than the devil you don’t know. This raises the question of risk. Risk is a factor in all competition comparison.
Rather than go through the best way to resolve all these problems, let us just says that in the end, all strategic decisions are “gut decisions,” made by the feel you get from the situations. The more information that you gather, the better your feel for the situation. And, given the right process, you can sometimes uncover the key information that makes the decision easy.