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23.4 Salary Negotiation

Learning objective

By the end of this checkpoint, you should be able to negotiate a job offer effectively.

Overview​

All job offers present the opportunity to negotiate. A good negotiation, however—one that results in a happy outcome for you and the employer—requires research, planning, and the right attitude.

This checkpoint teaches you the right way to negotiate, beginning with why and when you should.

Why and when you should negotiate​

Negotiation can be uncomfortable and, therefore, tempting to skip. But often, a few awkward minutes are worth the long-term benefits of asking for more. This section details why and when it's a good time to negotiate.

Why you should negotiate​

There are lots of good reasons to negotiate an initial offer. Here are four reasons that usually apply:

  • You deserve to be paid your fair market value. Your compensation should be based on your fair market value—what employers generally pay someone with your skills for a specific task. Not your current salary. Not your previous salary. Not a company's income. Not more. Not less. If your initial offer is below your fair market value, you may be able to correct this through negotiation.

  • Employers expect you to negotiate. Negotiating is common practice. Employers aren't surprised or offended when you try to negotiate. In fact, because employers expect you to negotiate, they often initially offer you less than they are willing to pay you. They probably expect to pay you more than their initial offer.

  • Asking for a fair salary communicates your value. If you go to the store to purchase a microwave, you naturally assume that the most expensive microwave is also the highest quality and the least expensive microwave is the lowest quality. The same is true of how employers view you; if you don't contend for a salary that aligns with your fair market value, employers might wrongly view you as less skilled than you actually are.

  • Your base salary influences your future earnings. If you hope to work at the same company for a long time, your future raises and bonuses are generally based on the base salary that you start with. For that reason, negotiate the highest base salary that you can. That can amount to a difference of hundreds of thousands of dollars over the span of your career.

When you should negotiate​

Negotiating is a good idea in most scenarios, but not all. Below are some guidelines to follow regarding when you should and shouldn't try to negotiate.

  • Negotiate after you receive an offer. The best time to discuss compensation is after you receive a job offer. This is when you have the most leverage, because you're certain that the employer wants to hire you more than every other candidate who they interviewed. If an employer wants to hire you, they're more likely to be flexible when discussing compensation, because they want to ensure that you accept their offer.

  • Negotiate when the offer is below your fair market value. As stated previously, you deserve to be paid your fair market value. If the offer is less, you have an objective reason to ask for more, and you should.

  • Negotiate when you won't accept the current offer. If the offer is below what you're willing to accept, then you have nothing to lose. If you negotiate, the company might agree to pay you an amount that you're happy with. And if they aren't flexible, at least you asked.

  • Refrain from negotiating when the employer says that you're receiving their best offer. When an employer says that you're receiving their best offer, they might be bluffing. But it's also possible that they're telling you the truth and giving you their best offer to show you how valuable you are to their team. If you try to negotiate, you might seem unappreciative or insensitive to the company's budget, and it's possible that the employer will rescind the offer. Generally, only try to negotiate in this circumstance if you won't accept the position unless the offer increases.

  • Refrain from negotiating when you have no justification. In the event that an employer makes you an offer that is well above your fair market value, it may be pointless to negotiate, because you have nothing to justify asking for more.

The eight steps of negotiation​

No matter how big or small the compensation package is, the following eight steps are a great road map to follow when negotiating a job offer. You should follow the first two steps before you receive an offer and the last six steps after you receive an offer.

Before receiving an offer​

When you're considering buying a particular home, it's smart to compare it to other houses in the area, so that you know that the seller is requesting a fair price. It's also helpful to inspect the house so that you know that it has all of the features that are important to you (three bedrooms, a fenced backyard, and so on).

The same is true of job offers. To ensure that you receive a fair offer that has all of the components that matter most to you, you first need to research what a fair offer is. Then, take some time to think about what benefits you value most.

Step 1: Determine your fair market value​

Always bring data to a negotiation. In particular, know your fair market value. This is an objective number that's provided by external sources; therefore, it's difficult for an employer to disagree with.

When determining your fair market value, choose a number that is ambitious but not impossible. There is always a range, so aim for a base salary that is at or above the average salary within that range. For example, if the range of compensation is $30,000-$50,000, and the average salary is $41,000, aim for a salary that is between $41,000 and $50,000.

Here are three ways that you can determine your fair market value.

Check Glassdoor​

Glassdoor is an excellent resource for determining your fair market value. Start by going to Glassdoor's website.

Then, in the text boxes at the top, list the job title and location of the job that you're considering and select Salaries from the drop-down list. This will return a page that shows you the range of salaries and the average salary that employers in that location pay for the job that you listed.

Conduct an informational interview​

Because salary ranges differ by company, it's helpful to talk to an employee of the exact company that you're interviewing at. If you have the opportunity, you can ask that employee if they know the expected salary range for the role that you're seeking.

For example, you could ask, "If offered a job here for the data analytics associate role, what salary should I try to negotiate?" This should happen during a casual conversation or informational interview, not an actual job interview.

Step 2: Familiarize yourself with the components of an offer​

Compensation is more than just the base salary. When considering a job offer, you should weigh all of the monetary gains, the future potential that the job would provide you with, and how happy it would make you on a day-to-day basis.

Monetary​

Base salary is just the tip of the iceberg. Monetary compensation generally includes healthcare and a retirement plan.

Sometimes, it also includes a signing bonus, annual pay increases written into the contract, and equity or stock options. It may also include various other perks, like a bus pass, meals, a gym membership, or continuing education funds.

Future potential​

Although your next job might not be your dream job, ideally, it will lead you to your dream job. Consider how the job title and responsibilities will look on your resume to a future employer, and see if there are opportunities for mentorship and growth within the company.

Happiness​

It's the small, day-to-day details and interactions that either provide you with job satisfaction or make you resent going to work. These details comprise the people who you work with (the company's leadership as well as your direct managers and coworkers), the number of hours that you're expected to work each day, the type of work that you're assigned, the environment that you get to work in, and the length of your commute.

It also involves other details that matter to you personally, like the ability to work from home or bring your pet to work. Take some time to think about which offer components are most important to you and which ones you're willing to compromise on.

Upon receiving an offer​

Surely, the happiest part of a job search is receiving an offer. Should you choose to negotiate, you can use the following steps as a guide.

Step 3: Take a step back​

Upon receiving an offer—even a good one—it's best to take a step back. Don't accept or reject the offer immediately. Instead, warmly but neutrally thank the employer, ask for a written version of the complete compensation package, and ask for time to look it over.

The amount of time that you ask for is up to you. If you're actively interviewing at other companies and expecting more offers, it might be good to ask for a week. This way, the other companies will have the chance to finish interviewing you and make you an offer. If you're confident that you want to accept this offer, no matter the result, you might only need a day.

For example, you could say, "I appreciate the offer! Are you able to email me a copy of the entire Employee Agreement? I'd love to have a couple of days to look it over and make a decision."

Or you could say, "Thank you! I'm glad to hear that you want me on the team; I really enjoyed talking to everyone last week! Can you email me the offer details? If possible, I'd like to discuss this at home and get back to you next week."

Step 4: Strategize​

With the full details of a job offer in front of you, it's time to strategize your negotiation. In this step, you should review the offer, determine what you would like to negotiate, gather supporting data, and rehearse your talking points.

Assess and plan​

First, write down what the offer includes and what changes you want to see. Is the base salary aligned with your fair market value? Can you ask for more based on your prior experience or education? Does the job title accurately reflect the responsibilities? Is there a retirement plan? How much time off is included? What else?

When you're determining a base salary and benefits to ask for, it's helpful to ask for more than you want (remember: ambitious, but not impossible). Why? Because the employer may try to negotiate down, but also because the employer might give you exactly what you ask for.

Gather data​

Whatever you decide to ask for, have data that supports your request.

If you ask for a higher base salary, you should be able to point to an outside source, like Glassdoor, that demonstrates your counteroffer's reasonableness. Or, if you ask for a different title, you should be able to show the employer other job descriptions that show why your title makes more sense.

And if you ask for a higher base salary to compensate for a lack of healthcare, you should have the math ready that shows exactly how much you will need to pay for healthcare out of pocket each year. And so on.

Have these notes on hand so that you can refer to them if necessary.

Practice​

It might feel silly, but you should practice negotiating aloud. This helps you get the wording and tone right, and it makes it easier to follow through when you're talking to the employer.

Rehearse how you're going to start the negotiation, as well as what you're going to ask for. Also, rehearse what you're going to say if the employer responds favorably or negatively to your requests. You may also benefit from writing out a script or talking points that you can refer to.

Practice speaking in a tone that is warm but neutral. Your tone should not be aggressive, because this can sour the relationship between you and your new employer. Conversely, you shouldn't seem overly excited about the offer; the employer won't feel the need to negotiate if they're sure that you're going to accept either way.

Step 5: Schedule a time to reconnect with the employer​

The day before you said that you would reconnect with the employer (or earlier, if you're ready), email the employer to request a time to discuss the compensation package over the phone. Don't negotiate over email. It's easier for an employer to say no to a computer than a human who they're actively talking to, and email creates an opportunity for tone to be misinterpreted.

Here's an example of an email that you could use to request a phone call:

Hi, Sabine,

I'm excited about the offer and was wondering if you have some time tomorrow to discuss a few questions that I have?

I look forward to speaking with you!

Best,

Darnell

Step 6: Negotiate​

It's time!

After you greet the employer (remember that your tone should be warm and neutral), begin the negotiation by naming the items that you would like to negotiate. Indicate which items are most important to you and provide data to support your case. This is better than negotiating each item one at a time, as the employer can lose patience and generosity the longer that it goes on.

Here's an example:

Hi! How is your day going so far?

So, I had a chance to look at the offer and I have a couple of questions. I'm wondering how flexible the base salary is and if it's possible to increase the signing bonus. Base salary is most important to me. After doing some research, I saw that the average salary for this role in San Francisco is closer to $100,000.

Now, wait. Let the employer speak next.

The employer will likely do one of three things. They will improve the offer, they will say that they need to ask a manager for approval and will get back to you later, or they will say that they're unable to change the offer.

If the employer isn't willing to negotiate one or all parts of the offer, don't try to negotiate a second time; it's unlikely that they'll change their mind. If you try to negotiate again, the employer might rescind the job offer altogether, because they won't want to hire an employee who seems unhappy with their compensation from the start.

Step 7: Take another step back and assess the new offer​

If the employer gives you everything that you've asked for, you can skip to step eight. Otherwise, thank the employer for their willingness to listen and consider your amendments. Then, ask for an additional day to consider the new offer (the offer might be the same, but now it's official and final).

You might already be leaning toward accepting or rejecting the offer, but it's a good practice to never make big life decisions on the spot. You might change your mind.

You can say, for example, "Thanks so much! I'm going to run this by my partner one more time and will get back to you with an official response tomorrow morning, if that's OK."

Step 8: Accept or decline the offer​

After considering the final offer, it's time to make a decision.

If you choose to accept the offer, congratulations! You can email or call the employer and tell them that you accept, and that you're thrilled to begin working with them.

If you choose to reject the offer, remain kind and professional, even if you're frustrated. Why? The world is small; you might cross paths with the employer at another company in the future or at a local meetup.

Also, you represent PMcademy and your other classmates. So, conduct yourself professionally so that the employer is willing to work with other PMcademy alumni who want the offer that you rejected. You can even consider recommending a classmate for the role.

Here's an example:

I really appreciate you and the team taking time to get to know me. While I'm a big fan of your company, I don't think that this is the right choice for me at this time. If you'd like, I'd be glad to introduce you to two of my classmates who have similar skill sets and, I believe, would be perfect for the job.

Frequently asked questions​

What do I do if an employer asks me about my salary expectations before they make me an offer?​

Employers sometimes ask you about your salary expectations early in the interview process to see if your salary expectations are aligned. If you say a number that's more than they want to pay, they might remove you from the application pool. If you say a number that's too low, they might offer you a salary at the bottom of the range that they're willing to pay. Otherwise, they will assume that you're less capable than you are.

For this reason, to the best of your ability, sidestep or redirect questions related to salary expectations before you're made an offer. You can do this by providing a general answer, asking for more time to think about it, or asking them a question.

For example, you can say that you'll happily consider all offers that are in line with the market. Or you can say, "There's still a lot that I need to learn about this role. Would it be okay if we revisit this question after I have the chance to do more research?" Here's yet another option: "Great question! I was actually going to ask you what your pay range is for this position."

If the employer insists that you provide a specific number, you can refer to objective data and ask them what they think of that figure. For example, you could say, "Glassdoor says that the average salary for a junior data scientist in Seattle is about $100,000. Does that sound right to you?"

The point is to make salary an open discussion rather than a take-it-or-leave-it ultimatum. If you show that you're flexible, then most employers are happy to move forward with you.

How do I respond if an employer asks me to share my current or past salaries?​

Avoid disclosing your current or past salaries. All job offers should be based on your fair market value—not your current or past salaries. If asked, you can politely respond that you prefer not to disclose that information since it's in a different industry.

Alternatively, you could say, "I'm a student, so I currently don't have a salary," or, "I'm glad to consider any salary that's aligned with the market rate for this role."

What do I do if an online application requires me to list my salary requirements or a current or past salary?​

You can try writing N/A or Prefer not to disclose.

If you're required to list a number, however, write $1. The employer will know that you want more than $1 or that your current or past salary is greater than $1; this simply communicates that you don't want to discuss it at this time.

How do I calculate an hourly rate?​

If you're asked to provide an hourly rate, it's generally because you're considering a contract role. Many contract roles don't include standard benefits, like healthcare or 401(k) matching. So, it's helpful to add these lost gains into the hourly rate that you provide.

Calculate the following:

  1. Your market value.
  2. The amount of money that you would need to pay out of pocket each year for healthcare.
  3. The amount of money that you will miss out on by not having a company retirement savings plan, like 401(k) matching or a Registered Retirement Savings Plan.

Add these three numbers together, then divide that number by 2,080 (the number of work hours in a year). Voilà! That's your hourly rate. Alternatively, you can use this handy salary calculator to convert an annual salary to an hourly rate.

What things can I do to give myself more leverage when negotiating?​

Here are five things that you can do to give yourself more leverage when negotiating:

  • Be certain that the employer wants to hire you. In other words, don't negotiate until the employer gives you an official job offer.
  • When you receive an offer, maintain a warm but neutral tone. If it's obvious that you're happy with the initial offer, an employer will have no motivation to increase it.
  • If possible, interview at multiple companies simultaneously. If an employer knows that other companies are interested in you, they will be more motivated to make you a good offer so that you choose them.
  • Build allies at the company. If current employees are eager for you to be hired, they will put pressure on the employer to ensure that you're hired, no matter the rate.
  • Have a good attitude and aim for a win-win result for you and the employer. If you seem unfriendly, annoyed, or self serving, the employer might not feel like doing you any favors. They might even second-guess having you on their team.

Supplementary resources​