There is probably no more stressful stage in the interview process than negotiating your salary. You usually don’t know entirely what to ask for. You have a feel for what you would like, but most of us have a healthy fear of leaving money on the table. We are less worried about asking for too much and usually more concerned with asking for too little. And why not? Your starting salary is the basis for everything that comes after: raises are typically a percentage of base, and bonuses are almost always a percentage of base.
So what is the key to negotiating your salary?
The first thing to know is that a salary negotiation is fundamentally no different from any other negotiation. There is angst on both sides. Your would-be employer doesn’t want to overpay any more than you want to accept less than you deserve. And neither one of you wants the negotiation process to be painful because it can frame up how both sides view the other when employment actually begins.
The reason negotiation is hard is that there is information asymmetry. In most cases, neither side knows what the other side is thinking. In the absence of information, the most common negotiating ploy is what is called positional negotiation. Basically, you start high and expect to come down. They start low and expect to come up. And then you hope that you meet somewhere in the middle.
The challenge with this approach is deciding who is going to make the first move. If you act first, you run the risk of tipping your hand. If you wait for the other party to act first, then they get the advantage of setting an anchor – the starting point for the negotiation. It’s all ridiculously nerve-wracking.
What is the better position to be in? Are you better off making the initial offer and anchoring high, or countering an offer once you get more information?
I actually think both approaches are sub-optimal. If you ask me, the best way to get to a positive outcome is to remove the information asymmetry entirely. The foundation for any negotiation is trust. If you don’t believe that the person you are negotiating with is trying to get you a positive outcome, you don’t trust them. Similarly, if the employer believes you are just trying to extort a bunch of money, they don’t trust you. But you can counter all of this by being open and honest.
When I negotiate salary, I lay my cards on the table. I tell the recruiter or HR rep (the person normally handling compensation negotiations) what my current actuals are. I make sure to talk about cash (base salary), bonuses (target bonuses with some history and a prediction of the next 1 or 2), and stock (current holdings, strike prices, and vest dates). By being open about this information, I establish that I am negotiating in good faith (removing the trust issue entirely).
With trust established, it puts me in a position to ask questions and get truthful answers. I typically want to know a couple of things:
- Based on the job grade, what is the pay range (the high and low for that particular position)?
- What is the average salary penetration (how far into that range is the average compensation for this position)?
- What is the average merit increase (how quickly will I move up the pay scale if I perform)?
- What is the average bonus percentage (how much is an annual bonus if I perform)?
Companies have all of this information, and even if they don’t share specifics, asking the questions establishes a rational thought process for determining salary. And it doesn’t serve the employer well to lie because, if you are hired, you will know fairly quickly that they lied, and losing an employee is far more costly than negotiating in good faith up front.
With the data in hand, the negotiation shifts to your skill level relative to others. If you are an all-star player, you can reasonably expect to be compensated above the average. Both you and the hiring manager know this, so this tends to be a straightforward conversation. If you are not an all-star (like if you are less experienced, for example), you need to be self-aware and honest. If the position is risky (a new business, a new role, a new team, whatever), you can reasonably ask for a premium to compensate for the risk.
The point in this type of exchange is to avoid trying to anchor arbitrarily high. Ideally, the offer you sign should be pretty close to the numbers you start at. The key is making sure your negotiating partner knows that this is not a positional negotiation based on some unrealistic anchor.