Salary negotiation: we’ve been doing it wrong
For as long as I can remember, the standard advice to job applicants has been ‘never be the first one to name a number’ when it comes to negotiating compensation.
Penelope Trunk, founder of Brazen Careerist, says so in no uncertain terms:
… when it comes to discussing your potential salary, never give the number first.
The right answer to the question, “What’s your salary range?” is almost always some version of “I’m not telling you.” The person who gives the first number sets the starting point. But if that’s you, you lose. If you request a salary higher than the range for the job, the interviewer will tell you you’re high, and you’ve just lost money. If you request a salary lower than the range, the interviewer will say nothing, and you’ve just lost money.
So you can only hurt yourself by giving the first number.
Similarly, Ramit Sethi of I Will Teach You To Be Rich has a 15-minute video in which he and a friend roleplay different ways for job applicants to avoid naming a salary number first, even under repeated direct pressure. Watch it if you’re curious — though I warn you, for anyone who’s socially sensitive it’s slow torture.
If that scenario makes you cringe, I have some good news: it’s the wrong strategy.
A few weeks ago I was reading through an online forum, and I saw someone’s post about a job interview she’d just landed. The discussion had turned to a question of when and how to negotiate a salary.
Always eager to help, I started to type out what I knew, including: “She who gives the first number loses.”
And then I stopped cold. As in, my fingers literally froze on the keyboard, while I experienced severe cognitive dissonance.
I’ve been on a mission for a couple of years now to learn everything there is to know about behavioral economics. I’ve spent thousands of hours studying the inherent cognitive biases to which all humans are subject.
One of those biases is called “anchoring.” The central premise of anchoring as it relates to negotiation could be stated as: “She who gives the first number wins.”
Why, I suddenly wondered, is the standard advice for salary negotiation exactly opposite from everything we know about human psychology?
I’ve mentioned anchoring before, but without any explanation beyond a link to the Wikipedia page, so let me take a moment here to sketch it out for you.
Anchoring is the human tendency to be influenced in decision making by outside information, regardless of relevance.
It works for lots of things, but numbers are particularly easy to measure and understand. Imagine that you are asked to write down the last two digits of your Social Security number. And then you are shown an object — a box of chocolates, for example — and you’re asked how much you would pay for it.
The lower the last two digits of your SSN, the less you’ll be willing to pay. If you have a high number (like me with 94), you’re going to end up paying more.
This is true despite the fact that the Social Security number has zero relationship to the worth of a box of chocolates. This is true (and this is the part I hate) even if you’re aware of the concept of anchoring and try to compensate for it. Our brains can’t help but use that random number as a reference point.
This has been tested up, down, and sideways in dozens upon dozens of studies going all the way back to the 1970s. Marketers everywhere are aware of it; it’s the reason for MSRP on the new car sticker and the ‘regular’ price above the sale price on the grocery shelf and the idea that two months’ salary is the proper amount to spend on an engagement ring — an idea that originated with an ad campaign by diamond conglomerate De Beers.
Anchoring comes into play in negotiations as well as purchase decisions: studies consistently find that making the first offer works in your favor.
I couldn’t imagine any reason why salary negotiation would be exempt from this universal reality. But I wondered, had anyone tested anchoring with regard to salaries specifically?
Happily, the answer turned out to be ‘yes’: one Dr. Todd Thorsteinson, University of Idaho psychology professor, published a paper just last year on anchoring effects in initial salary offers.
In his study, university students were put in the role of employer and asked to make a salary offer for a qualified candidate.
All participants were told that the applicant’s salary at her last job was $29,000. (The researcher made the hypothetical candidate female because prior research has shown that ‘initiating salary negotiations [is] particularly harmful to female applicants’. That’s from a 2007 paper, so yeah, women still getting the short end of all the sticks. Awesome.)
Some of the interviewers were also told that the candidate, when asked what salary she wanted, replied, “Well, I’d like $100,000, but really I am just looking for something that is fair.”
The control group participants made an average salary offer of $32,463. The ones who additionally heard the candidate mention $100K offered, on average, $35,523.
That’s over $3000 — a 9% higher salary — just from making the right sort of joke.
It didn’t matter whether the joke number came before or after the interviewer’s knowledge of the $29K former salary. It also didn’t make a statistically significant difference how crazy-huge the joke number was — if anything, the crazier the better. When Thorsteinson repeated the study and used ‘a million dollars’ instead of $100K, the average salary offer was $36,184.
Now, mind you, this study was done with college students, not with seasoned hiring managers, and Thorsteinson acknowledges that the effects “are likely larger than what would be found with employers with considerable experience negotiating salaries with job candidates”.
But it’s clear enough that salary negotiations are not exempt from the effects of anchoring. And that means that the common advice to job applicants to avoid naming the first number is wrong.
So what should you do in a salary negotiation?
Don’t be afraid to name a number — just make sure it’s high. There are two basic ways to go about this:
One tactic is to know in advance the relevant salary range — you can research salaries on Glassdoor — and confidently name a number near the top. In this scenario, you’ll need to be prepared to justify your worth to the company, and to walk the fine line between self-confidence and arrogance. You should also indicate a clear willingness to negotiate (see the comments below for examples).
The other strategy is the joking method used in the above study — name an obviously outrageous number, then laugh it off. This is a good tactic for anyone who’s uncomfortable with the level of immodesty required to defend the premise that you’re worth top dollar. It also might be the better path for women who are being interviewed by men, as the other study referenced above shows that men often penalize women for negotiating.
Here’s the thing: even if you have admitted to a low past salary, or if you bow to pressure and follow the joking comment with a merely average amount, you will still benefit from having mentioned the larger number. Science is clear on that point.
There’s one thing I do think Ramit was right about: that rehearsing the negotiation is the best way to prepare. Ask your spouse or a close friend to play the role of interviewer and practice tossing off your best high-salary jokes. Here are a few I cooked up to get you started.
What sort of salary are you looking for?
“Well, I’m looking for a million dollars, but I suppose I could be convinced to take a little less than that if the job were really awesome.”
What is the minimum salary you would accept?
“One point five million and not a penny less.”
What are your salary requirements?
“Three hundred thousand dollars, full family health premiums, and a 10% 401(k) match. And a pony.”
Okay, the last one might be a little corny, but it gets the job done. Got a cleverer suggestion? Leave it for us in a comment!