The 3 Golden Rules of Salary Negotiation
“How much do you want to be making by the year 2025?”
This is one of the questions we ask people who enroll in our course. At the surface this is a question about money, but to me it is about much more than that. This question gives me the opportunity to think about where I see myself in 5 years. In doing so, I am able to truthfully determine if what I am doing, today, will get me to where I want to be, in 5 years.
As it relates to where you see yourself in 5 years financially, one of the things that can prevent you from hitting your goal is a lack of understanding how to negotiate your salary. Effective salary negotiation can be the difference in you being able to save an additional $5000 - $20,000 per year for the next 5 years. In this blog post I will be focusing on what you need to know to effectively negotiate your next job offer.
Salary negotiation is tricky to generalize, because it heavily depends on the context of the specific situation at hand. However, I still believe that having an understanding of the fundamentals of salary negotiation can immediately improve anyone’s negotiation skills. My goal for this blog post is to introduce these fundamentals.
Before I go any further, I want to clarify a few things.
First, salary negotiation is not as scary as most people tend to think it is. I have actually often found that most companies expect and are prepared for candidates to attempt to negotiate their salary. Instead of having a fixed salary for a specific role, companies will typically have a salary band to accommodate this possibility.
Secondly, people who negotiate their salary are not necessarily negotiation master minds. Salary negotiation comes down to information gathering and most of this information is readily available online.
Finally, you will never damage a relationship with a respectable company by trying to negotiate your salary.
The Goal of Salary Negotiation
The first thing you need to understand about salary negotiation is the goal. The goal of salary negotiation is for you and the company to reach a mutually agreeable deal. Essentially, you are trying to get to a point where both you and the company agree on a compensation package. That’s it.
This might seem really simple, but understanding this concept is powerful. It helps you frame your approach to job searching and preparing for the interview. This is because among other things, your performance in the interview will affect how likely a company is to agree that you deserve more than their initial offer.
The 3 Golden Rules of Salary Negotiation
In addition to understanding the goal of salary negotiation, there are 3 golden rules that you need to understand about salary negotiation. As Dave Ramsey puts it, they are:
Those with the most information win.
Those with the most options win.
Those with the most patience win.
I will be diving into each of these rules below.
Rule 1: How much information do I have?
So let’s take it from the top and talk about information gathering.
How much information do I have?
This is a very important question you need to ask yourself. You can’t afford to “guess” at what a company can pay you during the negotiation process. This is because we typically underestimate how much companies can actually pay.
In almost every scenario, a company will have more information about how much they can pay you than you do. This is because they literally wrote the book on how much they’ve paid people for the role in the past and how much they are willing to pay now. So it is important for you to gather as much information, as you can, to level the playing field.
There are so many ways you can gather information. But, the first piece of information you want to gather is your performance on the interview.
So let’s set the stage, the company calls you or sends you an email telling you that you got the job. Awesome, congratulations! During this conversation, make sure you sound excited and show your enthusiasm. Essentially, you want the company to know you are glad that the team is excited about the prospect of you joining the company.
Before going into the details of the offer with the recruiter or hiring manager, try to ask for specific feedback on your interview performance. This will let you know how much the company wants you and also let you know what areas you can improve on in the future. This is a very important piece of information. Once you know this, you can proceed to exploring the details of the offer.
As you explore the details of the offer make sure you write everything down. Again, you are in the information gathering phase, so it’s important for you to write everything down. The hiring manager might give you more information on areas the team is struggling in and you might already have extensive experience solving such a problem. This will come in handy when you try to convince the company that you deserve more because of your unique skillset solving that specific problem.
Next up, spend some time on websites like GlassDoor, LinkedIn, PayScale etc to understand what the company is paying people in similar roles and also what other companies in the industry are paying for that role in your location. Not only will these websites give you insight into what the company and industry pays, the reviews on these sites will also give you insight into what the company values in an employee. This will let you know what is possible.
So once you’ve gather the initial information during the initial offer call, the recruiter or hiring manager might ask you what you think of it. This is an important stage in the negotiation process. You need to protect this information. Instead of telling them exactly what you think (such as I would like $X instead of this $Y), thank them for the initial offer and let them know that you are currently in talks with other companies so you can’t really speak about the specific details of their offer until have completed the interview process with other companies.
This implies that you need to do your very best to always interview at multiple companies at the same time.
Rule 2: What are my options?
This brings us to the next question you need to ask yourself: what are my options?
The most common form of options when it comes to salary negotiation is having multiple job offers.
To increase the number of offers you have, it is important to try to interview at multiple companies at the same time. Interviewing with multiple companies (that you truly want to work for) during the same time frame increases your chances of getting multiple job offers. I will talk about how this works shortly.
Okay great! You have been able to land multiple interviews within the same time frame. It is likely that all the companies you interview at will not move at the same pace. So once you get an initial offer from any of the companies, you should reach out to the other companies you are interviewing with to let them know you have received a strong offer, without revealing the details. You need to do this, while also reassuring them that you are still excited and dedicated to moving forward with the process.
This helps increase your market value by essentially letting the other companies know that the supply is limited and that they run the risk of losing you. The sad part is that this typically works. Some companies might be dragging their feet for whatever reason, but will ultimately decide to make you an offer if they know other companies want you.
I was once involved in a hiring process at a previous company where we were initially deliberating on if we wanted to move a candidate to the next stages of the interview. As soon as the hiring manager heard that the candidate had other offers and was in the final stages of the interview process with other companies, he immediately moved the candidate to the next stage of the interview and ultimately made the candidate an offer.
More personally, a while back, I was interviewing with a company and told them that I was wrapping up my interview with a few other companies and wanted to make a decision soon. A few days later, the company came back with a strong offer that meant my expectations. Notice that I did not yet have a different offer in hand, instead I was only wrapping up my interview with other companies, but still, this motivated the company to act swiftly. This is why it is important to try to interview at multiple companies within the same time frame.
Before, I proceed, it is important to note that having options does not always need to mean having other offers. Sometimes, your other option might be that you will stay at you current company or if you are a student, your other option might be that you will go do your masters. Essentially, you want the company to know that you can go in a different direction if the offer is not right for you (side note: if you don’t have a real alternative, don’t try to bluff, it won’t work).
Rule 3: What is my time horizon (aka how much patience can I exercise)?
Once you’ve gathered enough information and know what your options are, you need to need to exercise patience. This is something most people, including myself, struggle with. You need to exercise patience before accepting an offer.
As a matter of fact, unless you have a really good reason, I will go as far as to say that you should never ever accept an offer immediately you receive it, no matter how much you want to work for the company or how great you think the first offer is. This is especially important if the company knows you have other options. If a company knows you have other options, you might not need to say much before a company increases your offer.
I have a friend that once got an offer from a company and 72 hours later the company called him and gave him a 30% increase simply because they felt he was not going to accept the initial offer. He did not even try to ask for more, he just had patience and allowed time to pass. So I ask you, why did this company just not give my friend the best they could initially? It is simply because they did not want to. Not because they did not have the money. Now this is an extreme case, that rarely happens, but it highlights the importance of having patience during the negotiation process.
So when you receive your next offer, let the recruiter know that you need time to discuss the details with your family, significant other, close friends and so on, before making a decision. This does two things: first, it gives you more time to think about it and secondly, it lets the recruiter know that you are not the only person they need to win over. It is much harder for them to put pressure on you if they know the decision will not be made by only you. In fact, you want to get the recruiter involved in the process of ensuring the offer you accept is acceptable by your family, significant other etc.
Salary negotiation is a lot less scary when we understand that we are simply trying to have a conversation with a company with the goal of getting them to agree that we deserve more than the initial offer. Giving yourself the time to gather enough information and interview at different companies will greatly increase your chances of getting the salary you want, which will ultimately help you reach your 2025 financial goal!
This post was greatly inspired by Haseeb Qureshi’s article on the Ten Rules for Negotiating a Job Offer, Dave Ramsey’s video on How To Negotiate and Christopher Voss’s book on Never Splitting the Difference. I highly recommend reading the article and book and also watching the video to get a deeper understanding of salary negotiation.