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Salary Negotiations Revisited

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I’ve written before about botched job offers – how employers can hurt themselves by extending a job offer without considering all the factors. In this post I want to debunk revisit the conventional wisdom about salary negotiations.

First, while salary negotiations may feel stressful, in today’s job market, I find that many savvy job seekers have a decent sense of their own market value – such information is much more readily available than it once was. So there is not really much confusion about “market rate” or the market value of one person vs. another. Second, salary negotiations are not particularly complex for most jobs. There is little need for haggling or clever negotiating ploys. The job seeker is always free to walk away – decline the offer or make a counter-offer, but with few exceptions, the employer decides when and how to talk money – and most employers are willing to pay pretty close to “market rate.”

So before we debunk it, let’s review the “conventional wisdom.” When job seekers ask advice on salary negotiations, they are almost always given this (well meaning, but bad) advice:

  • “Never talk about salary in the first interview. The longer you wait to discuss salary, the better the offer.”  (Let’s put this old chestnut to rest right away: Yes, it’s true, your value as a job seeker goes up as the employer learns more about your capabilities, but recruiters give this advice mostly just to stop people from asking about salary in the first interview – which is a common interview mistake and is considered impolite by most employers. This advice is not really about negotiating salary, but rather it’s about smart interview strategy – don’t impatiently skip ahead to the offer when you should still be interviewing to get the job).
  • “When negotiating, always make the other party give their number first.” (That presumes both parties have equally good information and are negotiating one to one, which is not accurate.  So let’s delve into this a bit more.)

You have to pay attention to who has the power in the negotiations – who can most easily walk away.  And in this economy, by and large, that’s the employer – they control the whole interview sequence and gather information when it suits their needs.  Frankly, even when they are not in control, most employers act this way, and most job seekers play along. (In our searches, we always ask job seekers to share with us, up front, either their current salary or their target salary range. If that is near the range the employer can consider, then we are comfortable continuing the process and potentially putting someone forward to interview. Until we gather this information, we will not proceed).

So, while some job seekers might consider interviewing for a job without knowing the salary, frankly I don’t know any employer who will wait until the very end of the interview sequence to even begin thinking about money. Salary budgets don’t work that way, and employment applications ask for current salary information. So in reality, job seekers almost always give the first number and thereby set the stage for the salary conversation. But that is not necessarily a bad thing for the job seeker … and I’ll soon explain why.

Another factor in the negotiations is the one to many relationship of employers to job seekers. Rarely do our searches come down to just one potential candidate – there are almost always several people being considered as finalists, so if one person is being “unreasonable” about salary, the employer can simply move down the list to the #2 or #3 candidate. In fact I often hear employers tell me that “any of these 3 finalists are perfectly well qualified to do the job.” Hiring then becomes a simple matter of preference, not a desperate attempt to hire the only qualified person presented, which again reduces the perceived negotiating leverage of the job seeker – but not their actual advantage.

So why do job seekers potentially still have a winning hand in salary negotiations, even if they gave their number first? And why will employers often pay more than they budgeted in order to hire the right person?

  • First, because hiring managers tend to “stretch” to hire great people, and are often willing to pay a small premium for an ideal candidate. (Even when 3 perfectly well qualified people are in play, managers will often stretch to hire their first choice. )
  • Second, the person who speaks first in a negotiation gains the “anchor effect.” In their book “The Art of Woo” authors Richard Shell and Mario Moussa, describe this as setting the other person’s expectations about the range of final agreements that may be possible.

In “The Truth About Negotiations” Leigh Thompson described experiments showing that the anchor effect has a powerful impact on people’s judgments – even when the number given is arbitrary!  In one astonishing experiment the anchor number was literally set by a roulette wheel, and yet it still affected people’s judgment in later conversation.

So, in salary negotiations, I think there is a very real advantage to being the job seeker who shares their salary expectations upfront.  When they are selected for the position, they have often framed the conversation about what salary level would be acceptable.