Don’t take that first offer and don’t accept that meager cost-of-living adjustment! You are worth more than that and you know it! In this article, we are going to discuss the importance of negotiating your salary and some tactics on how to increase your overall compensation.
Some of the tips below I have gleaned from years of studying behavioral finance, but many are covered in a fantastic book, Never Split the Difference by Chris Voss. The author wrote it after spending his career as a hostage negotiator. I highly recommend it for its informative and entertainment value, especially on audiobook. Let’s get started.
#1 – Drop the Mental Anchor
Mental anchoring is the tendency of humans to let a completely arbitrary number influence their perceptions of reality. For instance, if I said the following:
“The Ohio River goes on for 981 miles. How long is the Mississippi River?”
People would tend to give an estimate which is too low, likely somewhat close to 981 miles. Conversely, if I said:
“The Amazon River goes on for 3977 miles. How long is the Mississippi River?”
People would tend to give answers which are too high, and likely close to 3977. This is called “anchoring,” and humans do it because it’s often useful. For instance, I am “anchored” to the idea that a good price for chicken tenderloins is about $2.25/lb. Therefore, when I see them being sold for $5.00/lb at Publix, or any other grocery store, I know that it’s not a good price.
The way you can use anchoring in negotiating a salary is to drop a “highball” salary, or a salary which is significantly above what you would actually expect to get paid. If it’s accepted, great. If it isn’t, then your potential employer will likely be clinging onto that high anchor when determining all of their following offers. The key is to not give such a high desired compensation that it stops negotiations dead in their tracks. You want to give a high enough number that it sets an anchor but not so high that it offends the hiring manager.
By the way, the Mississippi River is 2348 miles long.
#2 – Drop the Anchor During Your Early Career
The anchoring effect of starting salaries will resonate with you if you have ever asked for a substantial raise a year or two after you had already started working at a particular company. I’ve had this happen to me, where I asked to be paid the industry average, and my to-be boss chafed, exclaiming, “That’s a 30% raise!” It was, but I was desperate for work when I first took the job and was willing to take a lower salary until I proved myself.
Well, I proved myself, and I didn’t get the raise I felt I deserved. Sound familiar?
When you take a new job, your starting salary and compensation will anchor you as long as you stay at that job. For instance, let’s say you are offered a new job at $125,000/year. In the first scenario, you take the offer and begin working. In the second scenario, you do your research, take advantage of uncomfortable silences, and you negotiate your salary to $140,000/year. Let’s assume you get yearly raises of 5%. By not negotiating your starting salary, you will be accepting lower pay as long as remain at that job.
Here is another way of looking at it. The chart below shows the cumulative pay you have received from this specific job over twenty years with your differing starting salaries and your 5% annual raises. What you’ll see is that by not negotiating that first salary higher, you cost yourself half a million dollars over twenty years at that job.
#3 – Take Advantage of “Trigger Events”
“Trigger events” are specific milestones, accomplishments, or business changes which can give you leverage in asking for a raise. Some examples of “positive trigger events” should hypothetically make you more valuable to your employer, such as:
- Completing a higher education program
- Gaining a professional license or certification
- Getting a performance award or recognition
- A promotion
- Completing a major project which increases firm profitability beyond expectations
- Making a decision with significant career risk which turns out to be correct (my example of doing this is buying stocks when everyone else wants to sell them)
I like negotiating using positive events rather than negative events, which may be perceived by your employer as opportunities to ask for more money when your employer is vulnerable. Even if you get your raise, using negative events for more money doesn’t foster much trust. Some examples include:
- A job offer from a competitor
- Increasing employee turnover
- An increased workload due to business conditions
- Putting your employer in a place where they cannot afford to lose you (you should not be the one to make them recognize this if they are in this position)
- A major business structure event, such as a merger, acquisition, or sale
Using positive trigger events can help you gain more leverage in a salary negotiation by linking your raise to a specific event outside of your normal course of work. Your success rate should be much higher versus the all too common “I’m underpaid versus my peers” sob story I’ve seen fail consistently during my career.
#5 – Trigger Their Empathy Response
Humans are naturally empathetic – some much more than others. Therefore, if you phrase your responses using language which makes your problem (in this case lower pay), your supervisor’s problem, then you can move your supervisor into a position of negotiating with him or herself.
You: I’m looking at this job offer, but this statewide non-compete agreement concerns me. What if you fire me, or what if I decide I want to start my own business 15 years from now? I have to leave the state if I want to continue feeding my family?
Supervisor: We want to make sure that you do not steal any of our clients.
You: I’m not sure how I’m supposed to accept this. What would you do?
The above responses would not only appeal to emotions, but also put the hiring manager, who is giving you the problem of a non-compete agreement to begin with, in a position of also giving you advice to solve your problem (“What would you do?”). These types of open-ended, empathy-triggering responses are much more productive at getting you better terms than closed-end rejections, such as “absolutely not.”
#6 – Utilize Intangible Red Herrings
A red herring is a type of debate tactic which is meant to divert one’s attention and energy from the important subject being discussed to a different, less important topic. It’s a classic fake out move, and it’s especially effective when negotiating with intangibles, since it is more difficult to assign dollar values to these items.
For instance, let’s say you’re discussing a starting salary with an employer, and you’re $5000 below the minimum compensation you would accept. It’s getting nowhere. Keep the conversation going by negotiating an intangible, such as more vacation days, a shorter waiting period to participate in a retirement plan, an ergonomic office setup, or schedule flexibility. Even if these items are not as valuable to you as money, your employer does not know that.
For instance, let’s say you ask for four weeks of vacation time because (this famous 1977 study shows the power of saying “because”) that’s what your last job gave you. If the employer cannot accommodate that request because of strict company policies, it gives you bargaining leverage to go back to negotiating your salary.
#7 – Use an Ackerman Approach
An Ackerman method is for the folks who hate negotiating and just want to be told what to say. It’s a process-based method, utilizing some of the tips noted above. It gives the appearance that you are being squeezed for every cent you have when you’re a buyer, and discounting as much as you possibly can when you’re a seller. I also added some of my own tactics in the process below. Here’s how you do it. Assume you’re negotiating a starting salary.
First, determine the lowest acceptable salary (LAC) you would take. Then, follow the steps in the flow-chart below until you get a “yes” from the hiring manager
Salary Negotiation with the Ackerman Method
You can add, remove, or edit steps as you see fit – I understand most people won’t have five opportunities to give their employer or potential employer different compensation arrangements. Also, be aware that they may be applying the same method as you, so don’t be surprised or scared by an initial lowball salary offer.
My apologies for such a long article, but negotiating your salary, or any large purchase or sale for that matter, is very important! Of course, for my beloved clients, I am happy to help you with this. In fact, I have already accompanied some of my clients to various car dealerships to negotiate on their behalf (I think it’s fun). Armed with this information and these tactics, you should be able to walk out of salary negotiations and annual reviews with better offers and increased raises!