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A Right Recruiting Newsletter, 10/2007
Our last Newsletter was about “Bunny Rabbit Season”. That’s the time when those who were forced to take lousy jobs in a recession suddenly decide to change jobs and get back on track. It seems like everyone hops at once, hence the name Bunny Rabbit Season. For an overview of that discussion, you can access the Newsletter on our web site www.rightrecruiting.com and look under the Newsletter tab.
I promised that we would devote this Newsletter to how to properly approach the market if you are a Bunny Rabbit (BR). An understanding of salary is critical. BR’s have legacy salary issues because, in many instances, they were laid-off in a bad market and had few employment options when they were out of work. Sometimes they needed to take jobs that paid less, or ended up giving weaker reviews, than the jobs that they left. Many BR's are looking to catch up.
The key to catching up is almost always money. Certainly there are other reasons to change jobs but money is almost always in the top 3. For BR’s it’s usually the driving force, for reasons mentioned above. You can maximize your chances of catching up by understanding how companies determine salaries. The purpose of this Newsletter will be to tell you how companies make dollar decisions and hope that education can be an effective tool for you. There are lots of misconceptions about salaries and those misconceptions can cost you a good opportunity. At the end of the salary discussion we will re-address how this applies to those of you who are BR’s.
There are two factors that companies use to determine salary levels for new hires – market rate and internal equity. Let’s explore them separately.
Salaries are decided in a market and, no matter how great a negotiator you think you are, the market is what determines your salary. You can’t sell a house for $300,000 when someone else will sell a similar house for $200,000. You can’t buy a car for $25,000 if everyone else will spend $35,000 for the same car. You can’t get $90,000 for a job that everyone else will do for $70,000. That’s a fact and it’s a fact that can hurt if you don’t understand one thing. The market is impersonal.
The market for your skills does not care what you need to make. Sometimes candidates say to me that they need to make $95,000, a $25,000 raise, because their wife is leaving her job and they need to make up the income. If that candidate needs to make $95,000, they need to have a skill that the market values at $95,000. If a company says to you that you are asking for too much money, they are not saying that you personally are not worth the money you are seeking. They are saying that the skills you possess in that particular market do not warrant that amount of money, in their opinion. It might sound like a subtle difference when it’s your candidacy and income that they’re talking about, but it’s an important difference.
The market is also asymmetric. In other words, both sides are not equal. Right Recruiting is an honest broker between company and candidate. We present information in a matter-of-fact way to both sides, sometimes information which that particular side may not want to hear. However, you need to remember that in the end, the company has more data and power than the candidate. It’s not a level playing field. Candidates who try to equalize their power in relation to the company almost always fail. Salary negotiations are not places for gamesmanship. You have too much at stake, especially compared to the company. You risk a job. The company only risks having to interview a few more people.
That does not mean that you should just roll over and accept anything that any company offers you. You have some leverage. You have two very important levers. One, you have valuable skills. Two, you are good at what you do. If you don’t possess those two levers you will start from a weak position. However, since all those on our mailing list, like the children of Lake Woebegone, are above average, we can assume that everyone reading this is very sought-after and very talented. Let’s get to some practical advice.
I can start with something you might not believe. Most companies are not trying to cheat you when they make an offer. Most companies want to make fair offers. In fact, most companies want to make offers slightly above fair. There are two exceptions to this.
The first exception is what I call the “Macho Manager”. Occasionally, even in a well-run company, you will find a rogue manager who sees everything as a win-lose contest. For the Macho Manager, salary discussions are always about him winning and the candidate losing. I remember a Macho Manager I ran into in 1999. He was IT Manager for a company in South Jersey and he had just interviewed a programmer from me. The fellow had good skills and liked the job. He had interviewed with 3 other companies but liked this company because it was closest to his home. He was making $65k and wanted $70k. At that time, for his skills, that was reasonable.
The manager said he was going to offer $66k. I was stunned and tried to explain to the manager that the candidate was looking for $70k and from my experience I didn’t think that request was out of line. The next sound I heard was the manager exploding at me over the phone. Since, like the next person, I don’t enjoy being yelled at, I said goodbye and hung up. I called the candidate and told him what happened. He laughed and said he wasn’t surprised. When he interviewed with the manager this manager came across, frankly, as a competitive jerk. He still had his sports trophies from high school in the office and was obviously insecure.
I told the candidate that I felt bad because obviously I did something wrong. His comment was instructive. He said that what I told him just confirmed something he felt but hadn’t internalized. He did not want to work for someone like that. He picked up the vibes in the interview but dismissed it as his imagination. A few days later he got a call from the manager offering him $66k. He calmly told the manager he had just accepted another offer for $71k, which was true. The manager then immediately upped the offer to $70k, which the candidate still turned down. He later told me that he could almost hear the steam coming out of the guy’s ears, like Yosemite Sam in a Bugs Bunny cartoon.
That’s a classic example of a Macho Manager. His desire to make a low offer was not generated by a limited budget. He originally told me he could go to $75k. His desire was not driven by a candidate’s greedy request - $65k to $70k is not a big bump. His desire was driven by the need to win. He wanted to be able to brag about how he got someone for less than another manager. In this instance, it didn’t work.
The second exception to my statement that most companies make fair offers is, of course, the fact that there are some truly lousy companies out there. Here at Right Recruiting we call them sweatshops. You’ve seen them and maybe worked for a few. If they could save a buck by offering someone $49,999 instead of $50,000, they would. Like the Macho Manager, these companies give off many hints and clues. In the interview, for example, they always insist on asking for your bottom line figure. The seem defensive when asked about benefits or bonuses. Everyone seems tense and no one you see in the halls smiles. I could list about a twenty sweatshops in the region without even thinking hard. Fortunately, that would be twenty out of about 3,000 different companies in the region.
To get back to my earlier statement that most companies want to make a fair offer. I base this on two facts. One that is what I’ve seen during my 25+ years of recruiting in the region. Two, the internal equity concept I raised earlier. Remember, that was the second component, besides the market, that determines salary. It punishes unfair companies eventually.
Internal equity requires that companies pay people with similar experience/background/education who are doing the same job equivalent amounts. Hence, they try to avoid bringing someone in from the outside higher than a similar existing employee doing the same job. If you’ve been interviewed and have a BS degree and 5 years experience, the company will look at someone internally doing the same job now and try not to bring in you in higher than that. Keep in mind that this applies only to when you first join the firm and have no track record. Over time, salaries will diverge as job performance becomes more of a factor in your raises and reviews.
In real life, here’s what this means. If you are making $65k with a BA in Marketing and 5 years experience and want $70k, that will be tough to get in a company where people with your experience make $65k to do the same or similar jobs in their marketing group. It will mean that you will be paid more than your peers before you have done any work. If that ever happened to you, you would think it unfair. Companies try and avoid that.
Here is what happens in those situations. Most of the time the company will just say, “We can’t go that high so let’s look for someone less expensive.” However, if, after a few other interviews, salary become a consistent problem with candidates, it means that the market we spoke of earlier is saying the company is not paying enough for the job. Then the company will do one of two things. First, they might give the internal person in the job now an early review, thus raising the internal equity ceiling and allowing them to pay more. They might do that if the differential is not too great and if the person is near their review. If that is not practical they downgrade the experience level for the job and hire someone more junior than the internal person so that salary is not a problem. Because they are more junior, they will make less and that will bring them under the cap.
Internal equity always screws up sweatshops. By taking advantage of every employee in salary negotiations they save money but, in return, they make it impossible to bid on people who they really need. That’s why most good companies will try and be fair. If they aren’t fair, they might save a few bucks today but it will cause them a lot of headaches in years to come.
You can tell a Macho Manager and a sweatshop in an interview. One of the best ways to enhance your salary when you enter the market is to try to only interview with and only work for good companies. Keep in mind that many big-name companies can be sweatshops too. Also, they are more likely to have Macho Managers because of the constant, arbitrary budgetary pressures in larger firms. Don’t judge a company on it’s name recognition. One of the firms that I would name as a sweatshop is often listed as a “Best Place To Work”. Why the disconnect? Because their budgets go to a PR effort to burnish their name. The shine coming off their awards blinds candidates into accepting lower than normal offers. Your first rule of salary negotiations is simple. Only negotiate with people who have a long-term and positive perspective about your employment.
But of course you still want to maximize your offer. Here are some basic dos and don’ts to help you with the process.
1) Don’t quote a web site that says you are worth 20% more than you are making now to justify a higher offer. There are only three figures that the company is interested in. One, what you are making now. Two, what their internal equity figure is. Three, what they think their market rate should be. Web site salary surveys, from IEEE, AOL, Google or anyone, are notoriously inaccurate. The data comes from candidates, they are not balanced for cost-of-living and they don’t reflect nuances between different jobs. A BSME doing machine design may make 5% more than a BSME doing manufacturing, for example. For every web site figure you can find, I can find one that says something totally different. It’s like quoting Wikipedia for your Masters thesis.
2) Don’t say that you were told never to change jobs for less than a 10% increase. When I first heard that it made some sense. That was 1980 with a 9% inflation rate. A 10% increase in a 9% inflation means changing jobs for 1%. Right now, when most people average a 4% raise with their current company, changing jobs for 8% means getting your next 2 raises up front. That’s pretty good.
3) Don’t lie about your current salary. Not only is it wrong but occasionally companies will do a reverse reference. After you are hired they will call your prior employer to confirm salary, dates of employment, etc. If they find out you have lied, it is grounds for immediate dismissal.
4) Do let the company know you are interviewing with other firms. That let’s the market work for you. After all, if they know that you might be getting other offers, they are then under some pressure to make a better offer.
5) Do let the company know that you are interested in their job. Inexplicably, some candidates think that acting coy or playing hard to get helps their interviewing posture. It doesn’t. At best it makes you look pompous. At it’s worst, acting uninterested makes you look, well, uninterested. Would you hire an employee who wasn’t interested in the job? Remember, positive feedback starts a positive feedback cycle.
6) Do let the company know if you get another offer. For the reason see #4. If the offer is higher than your favorite company’s, let your favorite company know and then tell them that if they match it you will take their job. When you say that, make sure that you mean it, which leads us to …
7) Don’t play people off against each other. There is a big difference between keeping people informed and acting like a jerk. It is possible to go from 2-3 offers back to none by playing your cards too aggressively.
8) If you ask a company to enhance an offer as a condition to accepting a job, accept the job if they enhance the offer. To do otherwise cheapens your word. It’s a small world and, throughout your career, you will meet the same people 2 or more times.
9) Don’t tell a company that your current salary is not relevant to the job for which you are applying. Don’t say that you want to be paid based on the job you will be doing for them, not what you are making now. Keep in mind that the only current data point that is available to your potential employer is your current salary. After all, the people who know you best are paying you that now. If you are a Bunny Rabbit who has taken a step back in their current job and want to catch up, you should definitely give a salary history that also shows your prior salary as another, higher, data point. If you are underpaid and want a big raise, the best way to get that is to ace the interview, get the highest possible offer in a good company, and then to excel at your job. It is virtually impossible to catch up all at once.
Specifically for Bunny Rabbits, the last point is the key point. Do not fall into the temptation of chasing a phantom dream. If you are so consumed with making up lost ground in one fell swoop, you will not interview or negotiate well and good companies will turn away from you. Or, you will be so obnoxious in the process that, if hired, you will be programmed to fail because of a bull’s eye on your back. You be so focused on the tactics of making more money that you forget about the strategy of career advancement. The single best way to improve your salary is through promotion, not job changes. You are better off moving to a job/company that gives you a strong opportunity for promotion than taking a job for a few thousand dollars more.
I know salary is a murky area. Some companies make it unsavory and make candidates feel as if they are buying a used car. You should avoid those situations, even if they end up in your favor, because they portend what your review process will be like year after. Good companies posture offers by explaining why they have come up with the figure on the table. Good companies will usually listen to and respond to reasonable counter-proposals. However, the operative conditions are “reasonable counter proposals” and “listen and respond”. That doesn’t mean they will always agree. Although, you should get a sense in the discussion that they have at least listened. A candidate making $70k who gets a $76k offer who makes a counter-proposal of $95k will not get very far, for example. Use the negotiation process to analyze how the company communicates with you. I often counsel employers that candidates can reveal their true selves during salary discussions. So can companies.
Hopefully, this helps. Like most things in life, there is no silver bullet that will allow you to master salary negotiations. Instead, like everything else in life, improvement is often a series of small decisions and actions based upon education. With any luck, this has helped start the process.
Have a good holiday season and please don’t hesitate to call/email with any questions or comments. Thanks for your time! Jeff
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