Executive Summary
Nobody really likes negotiating (especially when it turns into something more like haggling). Setting the bar where you want it and sticking to it firmly can be more effective than playing mind games with a hiring professional.
How to Think About Salary Negotiations
I'm sure there are many people out there who will disagree with me strongly on this point, but I believe that salary negotiations should not be about what you can get, and rather what you will be satisfied with. People like Dan Pink point out that money does not create happiness (though a lack of money creates unhappiness). Focusing on getting the most money is not going to get you the most satisfaction long term, so I recommend focusing on making sure you get enough to be satisfied, and not worry too much about getting more.
The three keys to being satisfied for most people are:
- Your quality of life won't suffer (or improve slightly)
- Your quality of life will be similar to your peers
- You are not getting paid well below market value
So if you're unsatisfied with your current level of pay, you have to figure out how much more you'd need to be content. Would it be an extra $100 a month? $500 a month? Just do the math to see what your salary would need to be (pre-taxes) to achieve that level.
Compare that to the salary range the company is advertising (e.g. $50-75k/year) -- is it in the range? On the high end? On the low end? Your coworkers are probably aware of how much the company is paying new employees, and it is likely within the range of what your peers are getting (otherwise there will be some unsatisfied employees internally who feel they're getting shorted).
Compare it to what similar jobs in the same area are offering. If all the other similar companies with similar positions are offering 60k-85k, you should take that in to account (and possibly apply there as well -- no sense in kicking yourself for not even trying).
If your desired level of salary is within the range of your peers/the market, then your job is to negotiate to get at least that salary. And if you get that salary, your job is not to kick yourself for not getting an extra $5k/year that you didn't think was necessary before you started talking about money.
Outwitting Hiring Professionals
Many people are overly optimistic. The logic behind having the company make the first offer is that you start with more information (what the company values you at). The issue is that they are hiring professionals. They are much more experienced negotiators, and have a much better idea of market value than you do. They can use this knowledge for good (by giving you a fair market offer), or evil (to con you in to accepting a below-market deal and feeling you 'won' the negotiation).
Don't fall victim to the Dunning-Kruger effect and believe that companies would fall over backwards to overpay for your skills. You are applying to their company -- they have the bargaining position, and they know it, and this is where they thrive. If you were that much of a stud, you would have recruiters banging down your door with very generous job offers from companies that realize your value and are willing to pay market value (or above) for it.
If you already know what you want, and you are confident you can get it (or find some place that will), then there is absolutely no reason to play games to "win" the exchange, especially when the game is loaded so far toward the employer from the start.
Cognitive Bias and Salary Offers
Many people who have read a book on behavioral economics or popular psychology is probably familiar with the nutty ways that people think. I'll bring up Anchoring in particular.
From wikipedia:
In another study by Tversky and Kahneman, participants observed a roulette wheel that was predetermined to stop on either 10 or 65. Participants were then asked to guess the percentage of the United Nations that were African nations. Participants whose wheel stopped on 10 guessed lower values (25% on average) than participants whose wheel stopped at 65 (45% on average). The pattern has held in other experiments for a wide variety of different subjects of estimation.
Who fires the first shot sets the anchor. Whenever dealing with contract negotiations, it's wise to understand how it can work both for and against you. Giving an offer with knowledge of what it's doing (setting the basis for negotiations) is much better than throwing a number out there because they asked.
Knowledge of this bias can be used for good or for evil, by both employees and employers alike. For instance, giving a higher offer than you can expect sets the start point at a higher level. On the company's side, giving a lower offer may lower your perceived value (what you will ultimately settle for) even if you actually wanted higher at the beginning.
That's why it's so important to think about your salary beforehand -- so you won't fall victim to this cognitive bias to mentally adjust your 'worth' during the negotiation. And that's why I don't think it's a mortal sin to tell them what you would like to receive.
You Are Evaluated on How You Negotiate
If you've ever been to Southeast Asia, you will realize how annoying it is to haggle. You find a nice woven tissue box, and are told it is $4 (the monthly wage of someone in the area). So you say, "I'll give you $0.20 for two." This starts a back-and-forth that spans several minutes for the sake of saving less change than you probably have lying underneath your sofa cushions.
It also leaves you with a less-than-pleasant taste in your mouth, because really, did you need to take that extra $0.35 out of their pocket for the sake of "getting a good deal"?
The clever shopper says, "That tissue box is worth $2 to me" and goes by each shop that sells them and says, "I'll give you $2 for that." If they say yes, you end up with a deal in 15 seconds. If they say no, you go to the next one. Most shopkeepers will realize that it's better to get $2 in 15 seconds than waste 5 minutes to try to get $3 out of the next tourist.
Employers are generally positive on people who know what they want and are content to settle with what they decided on. If the company wants you they will pay what you are asking, and if they were going to offer more a good company will give it to you anyway to prevent potential dissatisfaction later -- better to make you overjoyed to take the job than wonder if you made the wrong decision. Though some people still aren't satisfied!
