Most people suck at salary negotiation.
In fact, the vast majority of you have sweaty palms and an increased heart rate just thinking about having a five-minute discussion about your future salary.
What if I told you that a few hours of preparation and an uncomfortable five-minute conversation could dramatically increase your future earnings?
It’s fine to be grateful that you got an offer but, as you’ll see from the excerpts below, most of you are leaving a lot of money on the table.
I wrote about salary negotiation more than 10 years ago, but I’ve learned a lot since then.
His advice is still as relevant as the day it was written.
If you are currently or will soon be in a position to negotiate your salary, I highly encourage the full piece.
That said, the estimated reading time on Patrick’s piece is more than 35 minutes. For those of you who may just be interested in picking up some key tenets, I’ve excerpted some of the takeaways I found to be most compelling.
Below are mostly Patrick’s original words. Any additional commentary I offered is captured in brackets.
As always, the intent with Dialed In Men is to point you to the right resources and make the information as accessible as possible.
Why Negotiation Matters
Your salary negotiation has an outsized influence on what your compensation is. Compensation can include money or things which are more – or -less fungible replacements for money.
- More time with family
- Opportunities to do tasks which you find fulfilling
- Perks that make a meaningful difference in your day-to-day quality of life
A $5,000 increase compounds over time and causes a similar increase in your 401K contribution (which also compounds), and establishes a higher peg for any jobs you take in the future. Over the next ten years, the value of a $5,000 a year extra salary is close to $100K gross.
Shifting Your Mindset to Embrace Negotiation
I think that middle-class Americans are socialized from a very young age to view negotiation as something that is vague and disreputable.
[For many of you a dishonest, sleazy used car salesmen might come to mind. This is simply not the case and that mindset needs to be set aside.]
Your salary negotiations are probably going to be the most important financial decisions you will ever make.
People say that your house is the biggest purchase you’ll ever make, but it won’t be the most consequential negotiation.
We socialize middle-class Americans to go into them unprepared, demotivated, and fearful of success.
Rich, successful people negotiate. [When done correctly it can change your life.]
Your Counterparty Does Not Share Your Mental Model of Negotiation
Salary negotiations are very asymmetrical. Companies know this and routinely exploit it.
First, get into the habit of seeing employees as employers see them: in terms of fully-loaded costs. (Lots of things go into compensation.)
The fully-loaded costs of employees are much higher than their salary. A reasonable guesstimate is between 150% and 200% of their salary.
This is a roundabout way of telling you that companies are not sensitive to small differences in employee wages because employees are too darned expensive anyhow. The HR department sees $5,000 and thinks “Meh, even after we kick in the extra taxes, that is only about 3% of their fully-loaded cost for this year anyhow.”
Virtually any amount of money available to you personally is mouse droppings to your prospective employer. They will not feel offended if you ask for it.
It’s Bob’s job to get you signed with the company as cheaply as possible, but Bob is not super motivated to do so, because Bob is not spending Bob’s money to hire you.
[Sometimes hiring managers want big-time, expensive employees so they can ask for more money and a bigger budget the following year.]
Bob is far, far less invested in this negotiation than you are.
Your Negotiation Started Before You Applied to This Job
The wrong way:
- See ad for job on Monster.com
- Send in a resume.
- Secure an interview.
- Get asked for salary requirements.
- Get offered your salary requirement plus 5%.
- Try to negotiate that offer, if you can bring yourself to.
You will have much, much better results if your job search looks something more like:
- (Optional but recommended) Establish a reputation in your field as someone who delivers measurable results vis-a-vis improving revenue or reducing costs.
- Have a hiring manager talk with you, specifically, about an opening that they want you, specifically, to fill.
- Talk informally (and then possibly formally) and come to the conclusion that this would be a great thing if both sides could come to a mutually fulfilling offer.
- Let them take a stab at what that mutually fulfilling offer would look like.
- Suggest ways that they could improve it such that the path is cleared for you doing that voodoo that you do so well to improve their revenue and/or reduce their costs.
- (Optional) Give the guy hiring you a resume to send to HR, for their records. Nobody will read it, because resumes are an institution created to mean that no one has to read resumes. Since no one will read it, we put it in the process where it literally doesn’t matter whether it happens or not, because if you had your job offer contingent on a document that everyone knows no one reads, that would be pretty effing stupid now wouldn’t it.
When Does A Salary Negotiation Happen?
Only negotiate salary after you have an agreement in principle from someone with hiring authority that, if a mutually acceptable compensation can be agreed upon, you will be hired.
The company is going to spend a lot of time and effort in getting you to the point of agreement-in-principle.
The company has spent thousands of dollars just talking to you, and that doesn’t even count the thousands they spent deciding to talk to you instead of whoever isn’t in the room right now. Walking away from the negotiation means that they lose all that investment.
They really want to reach an agreement with you.
The absolute worst outcome of negotiating an offer in good faith is that you will get exactly the contents of the original offer. Negotiation never makes (worthwhile) offers worse.
You always, as a matter of policy, negotiate all offers.
You’re not a peasant. Don’t act like one.
You do not start negotiating until you already have a Yes – If.
Any discussion of compensation prior to hearing Yes -If is premature.
The ideal resolution to the job interview is, “I look forward to receiving your offer by, oh would tomorrow be enough time for you to run the numbers?”
Doing your salary negotiation over email, which is likely to your advantage versus doing it in real-time. Email gives you arbitrary time to prepare responses.
[It benefits you to have the time to prepare your responses vs. trying to do it in real-time against an experienced negotiator.]
The First Rule Is What Everyone Tells You It Is: Never Give a Number First
Let me repeat that: Never Give a Number
The company already deals with every employee that they’ve ever had who was not a doormat at negotiations, which includes essentially all of the employees they really value.
[Relationships are similar by the way.]
Objection: “I really need a number to move the process forward,” or “This form needs a number.”
What you should think: “You’re lying to me to attempt to get me to compromise my negotiating position.”
When you’re submitting a form online, just put $1 to get the ball rolling. [I’ve always done, by the way.]
What you should say: “It’s so important to me that this is a good mutual fit for us.”
When they keep pressing on salary…
What you should say: “Well, you know, salary is only one component of the total compensation package.”
Listen to What People Tell You. Repeat it Back to Them.
People love their own words.
Focus on specific words they use and the concerns they have.
Follow-up with an email recapping the important points and asking if you understood them correctly.
Do not use: “I need this job because…”
You never need a job.
Instead, try: “I’m enthusiastic about the opportunity with working with you, assuming we can come to mutually satisfactory terms.”
Micro-tip: Stop saying “I,” in interviews. Instead, use “We” or “You.” People care a heck of a lot more about their problems than your problems.
Research Research Research
Key things you want to learn:
- What do they value?
- Who do they value within the company? (Roles? Titles? Groups?)
- What does the career path look like for successful people within the company?
- Roughly speaking, how generous are they with regard to axes that you care about?
- Do they have any compensation levers which are anomalously easy to operate? (For example, if you asked around, you might hear a few people say that a particular firm pushes back modestly on out-of-band increases in salary but they’ll give in-the-money option grants like candy.)
- All the fuzzy stuff: what’s the corporate culture like? Yadda yadda.
The more you know, the more options you have when doing negotiation, because you’ll have more things and more motivation things which you can offer in exchange for things you want.
New Information is Valuable And Can Be Traded For Things You Want
Increasing your perceived value to the company will justify the company moving a lever which (again) the company isn’t really sensitive to at the end.
You Have a Multi-Dimensional Preference Set. Use It.
You can diffuse common negotiating tactics with something like, “I have to go to (external authority) to get the approval for that.” Significant others work well here, but you can just say, “We’ll have to talk that over,” or “That sounds reasonable, but I’ll have to run it by the family.”
Don’t overly focus on your salary number. It is important (of course), but there are many parts of your compensation package.
- Vacation days
- Work hours
- Remote work
- Alternate work schedule
- Project assignments
- Travel opportunities
- Professional development
These are all good areas to probe at.
Micro-Tip: “Interesting” is a wonderful word: it is a positive and non-committal at the same time.
- Negotiation matters. Over the course of 10 years, a $5,000 raise equates to an additional $100,000.
- Change your mindset. This is worth more than the discomfort or “social cost” of negotiating.
- An extra $5,000 means much more to you than it does to a company’s HR rep.
- Negotiation starts before you apply to the job.
- Negotiation takes place after you’ve received an offer.
- Never give a number first. Ever.
- You never *need* a job. You’re *enthusiastic* about this opportunity.
- Research a lot. The more you know, the more options you have in a negotiation.
- Don’t limit your focus to salary. There are many parts of a compensation package to negotiate.
If you want a deeper dive, Patrick recommends Josh Doody’s “Fearless Salary Negotiation.”
And once you’ve used these new-found skills to start earning more, consider checking out 5 Tips for Getting Your Personal Finances Dialed In.