by Quincy Larson

Salary Negotiation: how not to set a bunch of money on fire

All photos in this article are from Christopher Nolan’s Dark Knight trilogy. Because Batman.
Pop quiz, hot shot.
You aced the phone screen. This morning’s on-site interviews went amazing. After lunch with the team, an HR guy sits down across the table from you. He asks you, “What’s your desired salary?”
What do you do? What do you do?!

Whatever you do, don’t give him a number. Because once he has that number, he can set the tone for the rest of the negotiation. That number will become a ceiling — the highest offer you could possibly get from this job. And most likely, you’ll get even less.

Or maybe he’ll try another angle to trick you into saying a number before he does: “What’s your current salary?”

This seems like a reasonable enough question. Don’t you kinda have to answer this question?

No, you don’t have to answer this question. And you shouldn’t. Employers know that basically anything above your current salary will be an improvement for you, and they’ll adjust down the offer they were planning to give you accordingly.

So what’s the best way to deal with these questions? Just say, “I’m not comfortable sharing that information at this point,” then steer the discussion back to the job you’re interviewing for. And if they persist in asking you, persist in repeating this phrase until they get the idea.

At some point in the process you achieve something which I describe as “Yes, if…” rather than “No, but…”. “Yes, we want to work with you, if we can come to a mutually satisfactory offer,” which is distinguished from, “No, we don’t want to work with you, but we might work with you if it turns out that you’re disgustingly cheap.” After you have agreement in principle that, “We want you to work here. What’ll it take to make that happen?” — then and only then do you start talking about money. — Patrick McKenzie

Remember — you have this information. They don’t. Your current salary and your expected salary are basically the only informational advantage you have in price negotiation.

And believe me, you’ll need every advantage you can get.

The job offer negotiation process is stacked against you.

HR people have an incredible amount of information about you at their disposal. At the very least, they have your résumé, LinkedIn, portfolio and GitHub profile, which you gave them earlier in the application process. Chances are, they’ve also checked out your social media profiles and called former employers to ask about you (and not necessarily the references you gave them).

Not only do HR people benefit from a huge information asymmetry, they also hire for a living. They are professional negotiators. They have probably driven down the salary expectations of other candidates earlier that day before sitting down with you. And tomorrow, they’ll wake up and start driving down the salary expectations of candidates all over again.

What do you know about them, other than the name and title they give you when introducing themselves? You don’t know how your interviewers from earlier evaluated your performance, let alone the department’s budget for hiring you.

Your goal is to even the playing field as much as possible. One important way to do this is to take this real-time, in-person salary negotiation and switch it over to email.

Email has two advantages: it gives you written documentation of their offers, which makes it harder for the employer to rescind them (“Oh, John didn’t have the authority to make an offer that high.”) But more importantly, it gives you space to research their numbers, and even use the offer they just gave you as leverage to secure a higher-paying offer elsewhere.

Regardless of their offer, negotiate upward.

What if you’re switching from an underpaid profession like teaching to a more lucrative field like software development? The initial offer you receive from them may be for significantly more money than you or your colleagues have ever earned.

You may feel like jumping out of your chair shouting, “Yes!”

But keep a poker face. There is almost always room to negotiate upward.

Of course, there’s also the threat that the employer will rescind the job offer if you take too long to accept it, or if you push too hard for a higher salary. Employers know that humans are hard-wired to fear downside risk more than they value upside potential. They may use your own risk aversion against you.

Let’s suppress that fear-of-missing-out for a moment, and instead think practically about the incentives an employer faces when it comes to hiring.

First of all, they have already poured tremendous resources into setting up all of these interviews, and in many cases flying you out to their headquarters and putting you up in a hotel.

Let’s take Google as an example. Google only extends offers to about 1 in 7 of the people who advance to their on-site interviews. Think of the dozens of hours of engineers’ time spent interviewing — and the tens of thousands of dollars in airfare and hotel bills it costs — just to make one offer.

If you turn down that offer, they have to go and spend that time and money all over again, trying to find another candidate who meets their standards.

So if you have an offer in hand, you already have a reasonable amount of power over the situation.

Know the market.

Sure, you could find someone in your LinkedIn network who works in a similar capacity at your target employer and ask them, “How much do they pay you over at Microsoft?” That may get you one data point.

But who knows, maybe that person failed to negotiate upward. Maybe they’re being underpaid and they don’t even know it.

Instead of trying to triangulate a reasonable salary by asking sensitive salary questions to a bunch of people, go straight to the data. There are three main variables that matter here: location, company, and job title.

In Mumbai, a US$100,000 salary buys you a life of luxury. In San Francisco? Not so much. If you are relocating for a new job, be sure to take the city’s cost of living into account. Here’s a recent breakdown of the cost of living for most major world cities.

Some companies pay better than others. Netflix is famous for paying its developers well above market rates, for example. So be sure to calibrate your offer against the salaries of other people at the same company, in the same position. You can use a tool like GlassDoor for this, but there’s a much more objective way to go about doing this: search data directly from the US Department of Labor.

Wait, the US government shares data about how much companies are paying their individual employees? In the case of employees who come to the US on an H1-B work visas, the answer is yes. Employers are obligated to publish these figures.

And some genius put all the data into one big searchable database of more than 1.6 million salaries. You can search by company, city, and job title. It’s free, and even has charts and filtering options.

Considering that non-US nationals need a visa — and thus have less bargaining power than US nationals — these salaries would probably be on the low end for people who can already legally work in the US. So make sure that whatever offer you ultimately accept at least clears these averages given its location, company, and job title.

Stock options may prove worthless. Focus on cash.

If a company is offering you stock as part of your compensation, and it isn’t already publicly traded (with a liquid marketplace where you can sell their stock), the stock probably isn’t worth anything.

Many large companies issue their employees stock options that vest over time, as an means of trying to lock you into your job. If you can profitably exercise these stock options, then sell them on the open market, great. They are in many cases almost as good as cash.

But a vast majority of startups will fail, and their stock will be worth nothing. For every graffiti artist who makes $200 million off the Facebook shares he received for painting a mural, there are thousands of startup employees whose stock options are literally worthless.

Even if you’re at a successful startup, tax implications may prevent you from being able to exercise your options. Uber has used this trick to basically force employees to stay with them. Through this compensation structure, they are essentially saying, “Stay with us until we IPO, and you may eventually be rich. Leave, and you’d better have a multi-million dollar line of credit so you can pay the mother of all tax bills.”

Keep in mind that if an employer willingly offers you stock in their company instead of just paying you more cash, this says a lot about their own view of the company’s prospects, and how much they expect their stock to ultimately be worth.

If you’re still interested in spinning the stock option wheel of fortune, here’s a database that can help you figure out how much equity you should expect on top of your diminished salary.

Yes, a high starting salary really is worth all of this hassle.

A friend of mine went back and forth with Apple for weeks over his starting salary. After six counter-offers, he finally locked in the salary that he needed so that he and his wife could afford a house in Silicon Valley. It was nearly twice Apple’s initial offer.

And another friend was able to get offers from several different companies over the process of a few weeks, then play employers against one another. Even though he already knew from day one which company he ultimately wanted to work for, and kept interviewing. He then used these additional offers as leverage to maximize his starting salary at his dream job.

If you have time for a long, crazy read, Haseeb Qureshi — pro poker player turned developer — wrote a detailed account of how he negotiated like crazy and pitted employers against one another, ultimately landing a $250,000 compensation package at his first developer job.

“But these are outliers,” you may be thinking. “This all sounds like so much hassle, interviewing so many places, conducting so much reconnaissance. I’ve got bills to pay.”

The reality is that your future raises — and to some extent your salary at subsequent jobs — all depend heavily on your starting salary at this next job.

Starting out with a lower salary — like, say, most Americans who graduated from college during the Great Recession — will cast a long shadow over your life long earning potential. This is in part because pay raises are generally awarded as a percentage of your current salary.

What’s the difference between a $100,000 salary and a $120,000 salary, five years out? Assuming you get a 10% raise each year (which is a conservative figure for US software development jobs):

At $100k salary: 100k + 110k + 121k + 133.1k + 146.4k = $610.5k earnings

At $120k salary: 120k + 132k + 145.2k + 159.7k + 175.6k = $732.5k earnings

That’s right — just an extra $20k in starting salary can translate into more than $120k in total additional wages inside five years. To put this number into perspective, it’s more than most Americans spend on their entire college education.

Wouldn’t you spend a few weeks searching databases and sending emails back and forth, if it meant that you could get back all that money you spent on college?

Yes. Salary negotiation is worth it.

I only write about programming and technology. If you follow me on Twitter I won’t waste your time. 👍