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A Right Recruiting Newsletter, 10/2008
If you’ve done well in an interview, the next step is normally the discussion of salary. This is the third rail of the employment process, the place where good deals can get undone. A candidate who mishandles salary negotiation can jeopardize getting an offer. I have seen offers pulled back by companies for candidates whose negotiating has so offended the company that they decided that, on second thought, perhaps the candidate is not right for them. I can sympathize with a candidate who thinks they are cleverly negotiating to get an extra $3,000 in an offer and who is then told that instead, the company is going to move on to another candidate. I had to tell that to a candidate once last summer and he was shocked. The ironic part of the story is that the decision wasn’t truly based on the candidate’s salary demands. It was based on the timing and justification of the demands. Salary negotiations, poorly handled by the candidate, can make a candidate seem like Jekyll and Hyde. The company sees an enthusiastic and energetic person in the interview and then sees a niggling, whining person in the negotiations. In the instance last summer, in the interview the candidate was effusive about the job, location and company and compared everything favorably to their current situation. Once the company started talking about an offer, all the candidate talked about were the negatives of the new job and the positives of their old job. It was as if a different person had appeared. My client did not want to hire that different person.
Occasionally, when I give people general advice about salary negotiations, it can sound one-sided. I spend most of my time talking about things a candidate can do wrong and don’t mention the things a company can do wrong. There are two reasons for this. The first is that, in these Newsletters, my audience is candidate-focused and my goal is to help the candidate avoid mistakes. The second reason is that the company has the money. A banker once told me about the golden rule for business – he who has the gold makes the rules. It’s the company’s money to spend as they see fit on salaries. If they are wrong about a correct salary level for the job, time will show them so and they will correct the salary or level of the job. If a candidate is wrong about their worth on the market they may lose months of income and career advancement while learning of their mistake.
The best way to help yourself when faced with a potential offer is to understand how companies actually determine salary levels for new hires. It’s one of the most misunderstood aspects of employment. There are two factors that companies use to determine salary levels for new hires – market rate and internal equity. Let’s explore them separately. Lastly, we will discuss how being out of work affects your negotiations.
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 are, like the children of Lake Woebegone, 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 a reasonable request.
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 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 I had gotten him, thankfully. 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. Beware of Macho Managers. Your entire employment relationship with them will be one long and tiring battle.
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. 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. They 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 eventually punishes lousy companies.
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 becomes a consistent problem with candidates, it means that the market we spoke of earlier is telling the company that it’s 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 do’s 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. The best way to shop your true market rate is to interview. Of course, you may not like what you hear. I remember a candidate who was making $55,000 and was convinced he was worth $80,000. Five interviews over 6 months later, the candidate had received 1 offer for $58,000, a clear message if I ever heard one.
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 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. By being stubborn, you can be costing yourself money. Every month you are underpaid by a lot, magnifies your losses.
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 present 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. 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.
All this is magnified if you’ve been laid off and are out of work. That makes you decisions on offers much more dangerous and nebulous. You want to maximize any offer but you know, in the back of your mind, your current income is actually zero. Worse, so does the potential employer. How does that affect negotiations.
Actually, if you know your true market value and the state of the market, it affects you very little. It’s all about knowledge. In these situations, unfortunately, the laid-off candidate who has worked for one company for years and who has stuck their heads in the ground like an ostrich, is often totally lost. Not only are their interview skills weak, so is their knowledge of their true worth. These candidates often have the highest level of disconnect between their self-worth and the value the market places on them. Sometimes it’s personal with them and any indication, imagined or otherwise, that they are being used or cheapened, often brings out anger in them. If that’s you, remember one thing – the person who is interviewing you did not lay you off. They may actually want to hire you. Be angry at the person who laid you off. If the market ends up telling you that your prior employer was paying you a lot of money, maybe too much money, be thankful that you got away with it for so long. No one is going to feel sorry for you if the market shows that you were actually overpaid. After all maybe that’s why you got laid off, huh?
As someone who is out of work and looking for a job, the only way to magnify your offers is to have multiple interviews. A candidate who has had 4 interviews over a month and has two offers is in a good spot. But, if you’ve had multiple interviews and no offers, you need to see that as a data point that should affect your decision on accepting an offer when it eventually comes. A few years ago I had a candidate who had had 5 interviews with no offers and who then got an offer that made them unhappy because they thought it was too low. The market was saying that only one out of six employers in the region for their skill set thought they were worth hiring. Their negotiating power was zilch. Maybe at that time the market was very soft. Maybe they weren’t very good. Maybe they interviewed poorly. Whichever the answer, they should have learned from that and used it to prepare themselves for another move in years to come. There is nothing wrong with sucking up bad news, accepting a disappointing offer and improving your skills so that when the time comes for your next negotiation, either at a salary review or an interview, the market works for you and not against you. A career, like life, is a marathon. Don’t try and turn it into a series of sprints.
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. Don’t hesitate to call with any questions/comments and look for our next Newsletter on balancing multiple offers.
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