In part one of this series, we looked at ways to establish a value for a monetary dispute and to identify your mediator’s style. Next, we looked at managing your expectations and an overview of the mediation process. In this installment, we focus on developing your negotiation strategy.)
Developing Your Negotiation Strategy
Now it is time to develop your settlement negotiation strategy. What will you make as your opening offer? How will you respond to the other side’s offers?
- For plaintiffs, an effective strategy is to take your best day in court (your BATNA from step one, which you developed by valuing your claim), then discount it to arrive at a walk-away number. For example, if your BATNA is $100,000, but you only have a 70% chance of getting it and the cost of getting to a $100,000 verdict is $20,000, a settlement offer of $50,000 or more would equal or exceed your BATNA and you should consider taking it. ($100K – 30% probability of losing or $30K – costs of $20K=$50,000).
- Conversely, all things being equal, your WATNA or “walk-away number” (the number below which you will just walk away from mediation without an agreement) would be $50,000 (or some number slightly below it based on other factors, such as your tolerance for risk, indirect costs of continuing the litigation like losing income to attend hearings, etc.) This would be a number reflecting your worst day in court short of a total loss, unless a total loss is reasonably possible. However, your walk-away number may change based on what you learn in mediation.
- Then, divide the difference between your BATNA and your walk-away number into five or more moves ($100K – $50K = $50K/5 = $10K). Using these amounts, you might begin with your BATNA of $100K and just deduct a portion of your litigation costs to arrive at your opening number ($100K – 10K = $90K).
- In any settlement negotiation, it is unlikely your opponent will agree to your opening offer, no matter what it is because they expect you to ask for something above your walk-away number. However, they also have their own idea as to what your BATNA is and would likely be discouraged by an offer which exceeds it.
- You may couple your opening offer with an explanation of how you arrived at your number (“We took our BATNA and deducted $10K for litigation costs”) and a warning (“While that is not our final offer and there is some room for compromise, we are not going to engage in a “meet-in-the-middle” negotiation. Otherwise, our opening offer would have been twice as high. We are making a reasoned offer and expect a reasoned response from you.”)
- For defendants making the first offer, just reverse the process, add your calculated amount to your BATNA for delivery to the plaintiff with a similar explanation and warning.
- For both plaintiffs and defendants, decide how much you will move in your next three to four offers. (E.g., the plaintiff in this example may decide to move in three or four equal steps of $10K down to $50K or gradually decreasing amounts: $75K, $60K, $55K, etc. to signal you are coming to the end of your range).
- If the other side makes an unexpected move in your favor, consider rewarding it with a double move, but unless you learn new information which causes you to reconsider your position or the other side makes a strong move in your direction, stick with your original plan and don’t let a small move by them deter you from making your next move in the amount you chose prior to mediation.
- Instead, communicate to them (directly or via the mediator) that you won’t respond to a ridiculously small move on their part and you are prepared to end the negotiations without revealing what your next move would have been. This will make them curious and could result in a more reasonable counteroffer. If not, you can end the mediation without revealing any more information to them about your settlement range.
The biggest mistake some negotiators make is reacting to a move by the other side by playing “tit for tat.” Don’t succumb to the temptation. Sticking to your plan makes you proactive and is more likely to get the other side into your ballpark sooner. You can always stop making offers if they are not responding communicate your unwillingness to continue negotiations with them unless they are willing to come closer to your number. This will allow the mediator to use other tools to discover whether there is a range where settlement could occur.
However, even though you are “in the right,” there are some practical reasons to settle for something which is not as good as your BATNA. A settlement:
- avoids incurring further expense, including your own legal fees and costs;
- provides control over the outcome, including the terms of the settlement;
- removes the stress, loss of productivity and disruption for you and your family and, for businesses, its officers & employees, etc.;
- provides certainty of the result vs. the uncertainty of a verdict and collection of a judgment by a plaintiff;
- avoids potential adverse publicity;
- allows for options not available in court or arbitration; and
- may preserve or improve a relationship.
The next installment will conclude the series with a look at drafting a mediation summary, what to bring with you to mediation and how to maintain your perspective during the negotiation process.