Salary Negotion 101

by Dan on August 31, 2009

In a competitive job market, the most uncomfortable question to answer is the one about how much you are expecting to get paid.

Whether you’re talking to a recruiter, an HR representative, or the CEO himself, the goal of the hiring manager is to get you in at the lowest rate possible.  At the same time, they don’t want to hire someone without enough confidence in their abilities to charge a decent amount.  If you are a five year accounting veteran expecting only $15 an hour, no good company will take you seriously.

Since the ideal situation is hiring a high value candidate at a low salary, there are some tricks to get you to shoot low.  There are a couple of tricks that employers utilize.

Trick #1:  Asking for your current and past salaries.

The idea here is that if you were making $75,000 at your last job, your request for $110,000 will seem less reasonable.  If they can get you to reveal your last salary before you state your current pay goal, then you may even feel embarrassed asking for much more, even if they know your last job was clearly underpaying you.

Solution:  Treat your desired salary and current salary as two separate, irrelevant factors.  There is no logic to the idea that that your last hourly wage should be only 15% or so under your new one.  If this company is a better fit for your talents and would truly profit from your skillset, then it would not be unreasonable for your salary to double.  Stick to your goal, and be unfazed by anyone asking your previous rate.

Trick #2:  Phrasing the salary question cleverly.

Look at the questions below, and tell me which would get your highest and lowest answers:

A)    “What is your desired salary?”
B)    “What are your salary requirements?”
C)    “When considering your expenses, what salary do you absolutely need?”
D)    “What type of pay are you looking for?”
E)    “If you knew you were our favorite candidate by far, how much would you prefer we pay you?

Not surprisingly, you will never get asked choice E.  If your company is clever, it will be some version of choices B or C.  They want you to state your minimum level of cash needed to survive.  The aim is to put you on the defensive where you are hoping to just barely make your rent and eat out once a month.

Let’s get something straight.  Your monthly needs are completely irrelevant to what your salary should be.

Warren Buffet’s expenses don’t require him to have any pay whatsoever.  He’s set for life.  If you wanted to hire him though, you would have to be prepared to shell out millions or possibly billions.

It’s the same with you, but at a smaller scale.  If you can provide a ton of value for your prospective company, it doesn’t matter if your rent is $450 a month or $10,000 a month.  Charge according to your value.

The Solution:  Pick a salary ahead of time, and stick to it, no matter how the question is asked.  Don’t try to calibrate if your stated “requirements” sound too high in light of how the question was phrased.  Let them negotiate you down if they have to.

Trick #3:  The Illusory Budget.

“Sorry <your name>, your asking of $50,000 is legitimate, but we only have the budget for $45,000.”

This is a negotiation tool built on a lie.  The “budget” is a piece of paper saying what they prefer to pay you.  Budgets are changed and broken all the time.  Almost every month, the financial reporters of the company report how much spending was “over budget.”  When they overspend, guess what?  No one dies.

More important is the fact that you can’t see their balance sheet so you actually have no idea whether this budget concern even exists.

Mini Case Study: At one company I worked at, I asked for $60,000-70,000 and they offered $52,000.  I said that wasn’t what I was expecting, and the HR rep said “All we have budget for is $55,000, is that ok?”  I was in a pinch, and it sounded reasonable enough.  During my first week, not only did they hire someone else for the same position at $5,000 more, but a company VP revealed I could have gotten $10,000 more but didn’t fight hard enough.  While I don’t think most companies are as blatantly dishonest, I learned my lesson.

The Solution:  Be willing to walk away.  I know several professionals who stuck to their guns when given the “maximum budget” talk, and won out in the end.  What happens is the HR person waits a couple days and then calls you back with a new salary proposal.  You have to be willing to risk losing the job altogether.

In closing, I’d like to give you the results of a study from Robert Cialdini’s classic book  Influence.  A university did a study on how reasonable people appear depending on how much salary they ask for at a job.

Suppose a company seriously did have maximum budget of $45,000 for a job, and are interviewing two candidates.

  • Applicant A asks for $55k, and lets himself get negotiated down to $45k when they explain the situation.
  • Applicant B asks for $45,000 exactly.

You might assume that Applicant B appears the most reasonable for asking for precisely the amount the company can give.  However, the research revealed that if you compromise from a higher asking rate, you actually are the more reasonable one in the employer’s eyes.  They respect someone willing to compromise more than someone who just shoots low and gets it.

Since you can always expect the employer to try to negotiate down, try asking for $10k more than you actually think you can get.  If you’re in over six figures already, try asking for $20k or $30k more.  You just might get it.

–Dan

{ 1 comment… read it below or add one }

1 Carter Cole September 8, 2009 at 11:44 am

nice post and a good read. thanks

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