Negotiating your salary when applying for a new job is crucial and an essential life skill everyone should know how to do. Your career is your number one financial asset and you should treat it as such. This post, based on a section in my book Kicking Financial Ass, will go into how to negotiate salaries tactfully and methodically.
I will be the first to admit I did not negotiate my salary for my first job out of university. Graduating in 2010 and coming out of the 2008-2009 Financial Crisis, I told myself I was lucky to even have a position in finance, even if it only paid $40,000 per year. In retrospect, it was a mistake. Fortunately, I learned quickly, and for my second job, when the company came back with an offer I was not happy with, I negotiated a $15,000 increase over my previous salary.
Everyone should negotiate their pay when starting a new job. You can easily make $5,000 to $10,000 more per year by negotiating. This increase can add up to over $300,000 over a career. Invested properly into index funds, assuming a 25% tax rate, you are looking at between $639,403 (with a $5,000 increase) and $1,278,806 (with a $10,000 increase) over 30 years. You must negotiate. Every dollar counts.
Do Your Homework
Before you go into the interview, have a minimum salary in mind. Base this on careful research using tools like Salary.com, PayScale.com, and GlassDoor.com. Quiz people you know in the industry on what the position is likely to pay. Research, however, is often not enough. You must sell yourself during the interview. Focus on the value you bring to the company not what comparable salaries are. Negotiate for more than just money. Job titles, bonuses, stock options, and vacation days are all benefits in the total compensation package.
Postpone Salary Negotiations Until the Job Is Offered
It is important that salary negotiations should only occur once you have a job offer. Talking compensation too early, especially if you are initiating the discussion, shows you only care about money, and you will likely be cut from the interview process. If the potential employer is asking you about your salary expectations, avoid giving a number.
Let the Other Side Make the First Offer
If asked what your salary expectations are before the job offer, say that you want to know more about the responsibilities and challenges of the role before discussing pay. You do not want to price yourself out of the job. If you discuss compensation early in the interview process, you have not yet demonstrated enough value to the employer. And, they could put a red flag on your application that you are expecting too much. Salary talks should happen at the end of the offer process after you have had a chance to prove your value, meaning when they do not want to lose you.
How to Negotiate Your Salary
Noel Smith-Wenkle was a job headhunter in the 1980s and developed the following method, which has proven successful for salary negotiations. In practice, his technique involves 4 steps:
1) If the company asks for a number on the application, leave it blank.
2) When the company verbally asks how much you will take, say, “I’m much more interested in doing [type of work] at [name of company] than I am in the size of the initial offer.” Smith-Wenkle says this will suffice about 40% of the time.
3) If the company asks a second time, your answer should be, “I will consider any reasonable offer.” Smith-Wenkle says this polite stalling tactic will work another 30% of the time.
4) About 30% of the time, you will reach this final step. Again, your response will be a polite refusal to answer the question, “You’re in a much better position to know how much I’m worth to you than I am.” This is your final answer, no matter how many times the company tries to get you to go first.
The purpose of this method is to make the company name a number first. Once the company makes an offer, repeat the number, and then stop talking. Jack Chapman in his book Negotiating Your Salary: How to Make $1,000 a Minute calls this “the flinch.” “The most likely outcome of this silence is a raise,” he says. This technique will buy you time while putting pressure on the employer. Often, they will come back with a higher offer thinking that they gave too low of a salary. Using silence is more effective than tears, anger, or aggression. Silence is golden.
Counter with a Researched Response
Base your counteroffer on what you know about yourself, the value you can bring to the company, the market, and what competitors pay. It is crucial to do your research beforehand. Tie your work to the company’s strategic goals, and show how you will make the manager look good. If you are just out of school and do not have much work experience, focus on your strong work ethic and positive attitude. Ask for at least 10% more than what the offer is and see what they say.
Be persistent. In many cases, the employer will reject your first request for a higher offer. Gently push back, justifying your reasoning again. It is essential to show the value you are providing the company, whether your work experience can save them time or make them money. Without demonstrating how you can achieve either, it is unlikely they will raise their offer.
Have a Second Job Offer
Another technique is to have a second job offer. When an employer knows that they have competition for you, it increases your value. So, interview at multiple places at the same time. In addition, see which company you would be happier at because money is not everything. Do not say the name of the company you have the second offer from. You do not want any side channel conversations between the firms.
Accepting the Offer
Once a company makes an offer, you have two options. If the offer is above your minimum salary expectations, take the job, assuming the complete compensation package is satisfactory. If it is below your minimum, tell them it is too low, but do not say by how much. Consider more than just the salary if your employer offers the following:
- Health insurance
- Life / Disability insurance
- Matching retirement contributions
- Vacation days
Be flexible, too. If the company will not budge on salary, negotiate other perks. Ask for things like an extra week of vacation, a different title, a private office, or a flexible schedule. If they say no at this point, it is acceptable to stop negotiating. You do not want to seem greedy and create bad will.
For more on negotiating techniques, check out The Negotiating Technique That Can Change Your Life.
Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.