Most people hate to negotiate, especially when it involves money. That’s a shame, because it’s such a critical part of life, especially business. At a minimum, everyone will be involved in at least one very important, money related, negotiation in their life: their salary. That’s why it pains me when I hear this old adage brought out:
Your first salary is also the basis for your salary history. When you change jobs, that salary history becomes part of negotiations with your new employer. If you talk your first employer into a 5% during the initial negotiation, that increased salary will stay with you throughout your life.
This is crap, pure and simple, for two reasons:
- How much an employer is willing to pay to fill a position and how much you’ve made in the past are different things that have no bearing on each other.
- We live in a capitalist economy, with a free market. Free markets have no memories with it comes to pricing. Pricing is determined by supply & demand.
So why is this such a bad thing? It limits your future earnings. If relegate yourself to incremental increases in your earnings throughout your life, you’ll never be motivated to grow your skills. That makes it difficult to negotiate a market wage for a job that’s a lateral move or even a promotion. If you’re a teacher, but learning to program on the side, you’re not going to walk into your first programming interview and settle for your old teaching salary.
So, the next time you negotiate your salary, keep two things in mind:
Never just randomly throw out numbers. If you throw out a number during an interview, you could be artificially capping what the employer would pay to fill the position. If an employer expects to pay a market wage of $80k and you say that you won’t take a penny under $60k, you’ve just cost yourself $20k. This is a form of something economists call ‘information arbitrage‘. As a side note, this is exactly how sites like priceline.com make their money. You toss out a price and they find you a hotel at a lower price and pocket the difference.
“Wait, what should I put on the application where it asks for ‘Previous Salary’?”
Nothing, leave it blank. When they ask you about it, tell them what salary you’re expecting and move on from there. Don’t be afraid if they say they’ll just call your old position. These are little tricks that companies use to try and get the upper hand on employees. Previous employers can’t legally disclose your salary ( as well as other information ) to anyone. They can only confirm your employment status. This means your previous salary becomes a part of the negotiations only if you make it.
It also means that you should ask for something that’s credible and be able to back it up. Don’t ask for $200,000/yr if you’re right out of college and other people with your level of experience are making $50k. However, if you know that Sr. XYZ specialists are making $100,000/yr, ask for that. If your qualified enough for the job, your qualified enough for the market wage.
Never let anyone else negotiate your salary for you. No one cares about your money as much as you. This is common when you’re being placed at a company through a recruiter. They’ll try and tell you that it is SOP for the recruiter to handle all negotiations and you’re just supposed to let them know what you want. This is bad for two reasons:
- The recruiters goals & incentives don’t match yours. They want to create a lasting relationship with the client first and place you second. That can lead them to be less than firm with your salary requirements. Also, because they’re probably being payed as a % of your salary, getting that “last $5000” you’re asking for has very little impact on them. They could push you to agree as quickly as possible or advise you they can’t get what you want. They want to close the deal as quick as they can. As long as the position is unfilled, the greater the chance of someone else besides them placing someone.
- The relationship between you and your new employer is going to be lasting. It could forever be seen through the eyes of your initial interactions & communications. Don’t leave that in the hands of someone else, especially someone you don’t even know. You don’t want to let someone else sour that because of a miscommunication. You and your employer could also end up on different pages. It’s better remove as many middle men as possible to make sure there’s no confusion.
Tell them you’d prefer to handle all negotiations. They’ll still get their money & nothing would change for them. If they push you, threaten to walk. Always remember, you’re the commodity here. The recruiter needs you way more than you need them at this point. Make sure they know that and you don’t get screwed.
This may all seem like a hard stance to take and it is. However, it’s worthwhile in the long run. You’ll be happier and more content with your salary & offers in the future without having to look back and regret taking a sub-standard offer. You’ll also spend less time with employers that are looking to take advantage of new hires.
“You don’t get what you deserve, you get what you negotiate”
– Don King ( ok, ok, originally Dr. Chester Karrass, but I liked when Don King said it better )