Salary Negotiations Revisited

I’ve written before about botched job offers - how employers can hurt themselves by extending a job offer without considering all the factors.   In this post I want to debunk revisit the conventional wisdom about salary negotiations.  

First, while salary negotiations may feel stressful,  in today’s job market, I find that many savvy job seekers have a decent sense of their own market value - such information is much more readily available than it once was.  So there is not really much confusion about “market rate” or the market value of one person vs. another.  Second, salary negotiations are not particularly complex for most jobs.  There is little need for haggling or clever negotiating ploys.  The job seeker is always free to walk away – decline the offer or make a counter-offer, but with few exceptions, the employer decides when and how to talk money – and most employers are willing to pay pretty close to “market rate.”

So before we debunk it, let’s review the “conventional wisdom.”  When job seekers ask advice on salary negotiations, they are almost always given this (well meaning, but bad) advice:  

• “Never talk about salary in the first interview.  The longer you wait to discuss salary, the better the offer.”  (Let’s put this old chestnut to rest right away:  Yes, it’s true, your value as a job seeker goes up as the employer learns more about your capabilities, but recruiters give this advice mostly just to stop people from asking about salary in the first interview – which is a common interview mistake and is considered impolite by most employers.  This advice is not really about negotiating salary, but rather it’s about smart interview strategy – don’t impatiently skip ahead to the offer when you should still be interviewing to get the job).
• “When negotiating, always make the other party give their number first.”  (That presumes both parties have equally good information and are negotiating one to one, which is not accurate.  So let’s delve into this a bit more.)

You have to pay attention to who has the power in the negotiations – who can most easily walk away.  And in this economy, by and large, that’s the employer – they control the whole interview sequence and gather information when it suits their needs.  Frankly, even when they are not in control, most employers act this way, and most job seekers play along.  (In our searches, we always ask job seekers to share with us, up front,  either their current salary or their target salary range.  If that is near the range the employer can consider, then we are comfortable continuing the process and potentially putting someone forward to interview.  Until we gather this information, we will not proceed).   

So, while some job seekers might consider interviewing for a job without knowing the salary, frankly I don’t know any employer who will wait until the very end of the interview sequence to even begin thinking about money.   Salary budgets don’t work that way, and employment applications ask for current salary information.  So in reality, job seekers almost always give the first number and thereby set the stage for the salary conversation.  But that is not necessarily a bad thing for the job seeker … and I’ll soon explain why. 

Another factor in the negotiations is the one to many relationship of employers to job seekers.  Rarely do our searches come down to just one potential candidate – there are almost always several people being considered as finalists, so if one person is being “unreasonable” about salary, the employer can simply move down the list to the #2 or #3 candidate.  In fact I often hear employers tell me that “any of these 3 finalists are perfectly well qualified to do the job”  Hiring then becomes a simple matter of preference, not a desperate attempt to hire the only qualified person presented, which again reduces the perceived negotiating leverage of the job seeker – but not their actual advantage.   

So why do job seekers potentially still have a winning hand in salary negotiations, even if they gave their number first?  And why will employers often pay more than they budgeted in order to hire the right person?  

• First, because hiring managers tend to “stretch” to hire great people, and are often willing to pay a small premium for an ideal candidate.  (Even when 3 perfectly well qualified people are in play, managers will often stretch to hire their first choice. )
• Second, the person who speaks first in a negotiation gains the “anchor effect.”   In their book “The Art of Woo” authors Richard Shell and Mario Moussa, describe this as setting the other person’s expectations about the range of final agreements that may be possible.

In “The Truth About Negotiations” Leigh Thompson described experiments showing that the anchor effect has a powerful impact on people’s judgments - even when the number given is arbitrary!  In one astonishing experiment the anchor number was literally set by a roulette wheel, and yet it still affected people’s judgment in later conversation. 

So, in salary negotiations, I think there is a very real advantage to being the job seeker who shares their salary expectations upfront.  When they are selected for the position, they have often framed the conversation about what salary level would be acceptable.

We’re Going to Double Next Year … No, You’re Not

I love, love love working with entrepreneurs.  I love their indomitable spirit, the reckless relentless optimism.   I choose to spend my time with visionaries, not skeptics – firmly believing that the person who says “It can’t be done” is often interrupted by someone doing it.   And I think you should never doubt your ability to change the world.

That said, when an executive who has not grown their business in any of the past few years tells me they expect to double their business next year, I am skeptical.   One magical hire will not make this happen for anybody.  Venture capitalist Tony Tijan calls this simplistic thinking the “Fallacy of Financial Metrics” in a recent post on the Harvard Business blog.  Tony makes several excellent points including:

“In both entrepreneurial and larger companies, we too often spend time focusing on the desired financial performance target, rather than the inputs that drive those numbers. Because boards, investors and management demand an objective way to measure performance, we often go right to the result without focusing on what caused those results.

Financial performance is a result, a by-product, a consequence of something else. The financial “numbers” ultimately represent the scorecard we care about, but they do not help us understand how to score.”

Executives often tell me they want someone with “fire in the belly” or a “burning desire to win” – they want someone who can “run through walls”, someone who does “not need a handbook” to figure it out.  And once hired, the CEO often tells me they plan to ”set them loose” on these thorny, still unresolved problems.  Except here is the problem.  While the problem is probably old, the new hire is going to be, well, new to the organization.  So the new hire needs to learn how the problem came to exist, and understand all the contributing factors.  And the new hire will not, despite assurances to the contrary, have carte blanche to change the company.  Therefore, the new hire is coming into a company that will constrain their actions in all kinds of subtle and not so subtle ways.   Einstein put it this way “We can’t solve problems by using the same kind of thinking we used when we created them.” More directly to the point – as my friend Jamie Notter puts it – “Culture eats strategy for lunch.”

Top performers know all this.  They are called top performers because they know how to find work environments that give them a chance to shine.  And they often find ways to shine in work environments where others fail – but they never stack the deck against themselves.  So if you want to recruit them, talk to them about your actual challenges, don’t feed them happy talk about financial metrics that may occur once their hard work is done.  (Read:  The Truth is Great Marketing).  If you want to assess their fit to your job, look for the competencies they have to solve your actual problems, their proven track record of relentlessly driving the actions that will get results, and stop looking for “fire in the belly” and other attributes that are nearly impossible to quantify.

And after you do these things?  Yeah…  THEN I believe you will double next year.

Pssst. Job Seekers. Want the Insider Advantage?

Let’s face it, when you are a job seeker, you get a lot of well meaning, but terrible advice – mostly from the people who love you most – your friends and family.   Even after I was working in the search business for over a decade, I still got regular career advice (unsolicited) from my mother-in-law…but that’s another story.  

Because the blog you are reading right now is geared for employers, we started a second blog exclusively for job seekers – The Search Firm Insider.    As search firm insiders, we know how the hiring process works, and more importantly, how it does NOT work.   So every day we plan to share one worthwhile idea that we hope will be useful to job seekers.

Are you on Facebook?  You can also follow the new blog on our fan page.

10 Suggestions for the Job Seeker

My niece’s roommate was a miserable, depressed,  unemployed, self-absorbed wretch of a recent college graduate.  Slept till noon, never left the apartment, never saw friends.   Then a couple weeks ago she “caved” and took an unpaid internship in her field.  Got up early, got dressed, went out in the world and did some work.   Within days, her mood brightened, she made some new friends and reconnected with old ones.  She reengaged with life.  So yeah, work matters.  And while you are looking for work, you need to find ways to engage and connect with others . . . and there are A LOT of new ways to do that.

I’ve been there.  Looking for work is scary, lonely, emotionally draining and can feel much harder than actually working.   It’s inefficient, uncertain, and there is no guarantee of success (just like, you know, having a job in these turbulent times).

But if you are a job seeker listen up.  I talk to A LOT of you.  And almost all of you make at least two serious mistakes when you look for work.  You either expect recruiters to find you a job, or you expect your friends to sympathize with you  and agree with you that your approach to job hunting is fine.  Both expectations are wrong.   

First, please realize that search firms don’t exist to help people find jobs, we exist to help companies find self-reliant people.   Heck, even career counselors don’t exist to help you find a job – they exist to teach you the skills you need to find a job on your own.  Most people are simply terrible at looking for work, and even if you did it before, the way to look for work now is different than it was before.  It’s not just about resumes and cover letters and meeting people for lunch and coffee to network – you need to do MORE. 

Your approach to job search is NOT fine, and I won’t tell you it is.   I will, however, happily share with you some tools and resources you need now, to help you on your path toward self-reliance.  If you take these actions, I will be terribly impressed with you and absolutely delighted to help you in any way I can.    So here are my top 10 suggestions: 

Topgrading for Small Companies? Still No

 Brad Smart, the author of Topgrading, wrote a very thoughtful reply to my recent post called “What Exactly is a Top Performer?”   I was pretty hard on Topgrading in my post and Brad intelligently rebutted my arguments in several areas, suggesting I read his free 50 page e-book “Avoiding Costly Mis-Hires.”  

I did read the e-book, and I will get to that, but first I have to say… this is great!  We’re having a conversation about my favorite topic, in a public forum, with a renowned expert on hiring.   And when I say “we” – that includes you – so post a comment, send me an email if you are shy, share your experiences!  

• First a bit of context.  I consult with, and write this blog for, small to midsize employers. 
• Brad Smart consults with employers of all sizes.  He is best known for his work with GE and the global 100, but he has plenty of raving fans among smaller employers.  One big fan is the very well-respected Verne Harnish -  founder of Entrepreneurs’ Organization (EO) – who calls Topgrading the “Best Approach to Interviewing.”   Verne also says Topgrading is “not for amateurs” and warns that it takes time and focus to make sure you are getting it right.

And there is the rub.

I read Brad’s free 50 page e-book (pdf).  It does indeed make a strong case for Topgrading, with lots of links to other resources.  (One link that grabbed my attention was ”Most Personality Tests are Shams“).  Naturally you cannot learn Topgrading in 50 pages, because, as Verne notes, it’s not easy to learn.  

The e-book’s primary objective is apparently to rebut the (common?) argument that Topgrading is hard to learn, by proving that it’s worth it.   He makes the case well, and I really enjoyed reading it, and loved seeing my favorite quotes from Jim Collins and Peter Drucker about the competitive advantage of hiring great people – Brad and I definitely agree that hiring high performers makes a huge impact on your ability to get results.   

But in reading it, I found nothing that would help my clients make better hires, short of implementing a massive, formal, top heavy initiative to learn how to conduct a Topgrading interview.  And that is simply not practical when you are hiring only one or two of each kind of person, and not 50 or 100 like they do at GE.  Smaller organizations need to think hard, move fast, and make the best decisions possible with imperfect information – jobs are not static, they change rapidly.  You can’t look back at the last 50 people hired in a job or look forward to tracking their results a year from now, because you hired ONE.  As someone who runs a search firm, I am also cognizant of the candidate perspective, which is generally not favorable toward Topgrading.  

So I’m sorry Brad, I sincerely appreciate your comments, but I still think Topgrading is too top heavy for 99% of small and midsize companies – and I just don’t think it’s necessary – there are better ways to achieve the same results.  Maybe Verne will prove me wrong, but I just can’t recommend it.  We’ll continue putting all our energy into developing faster, less expensive, less cumbersome ways to help our clients consistently hire people who will drive business results.

Now, that said, here is where I absolutely, positively agree with Mr. Smart:

Slash Your Recruiting Costs AND Your Turnover

When was the last time your job advertising eliminated 80% of your employee turnover? 

I’ve written about how bad job ads tend to attract only desperate candidates, wasting your time and money.   But let’s face it – candidates from job boards still fill a lot of your open jobs.  So for most companies, improving the performance of your recruitment advertising will have an outsized impact on your ability to attract top performers, control your recruiting costs, and hold down the cost of employee turnover.  

When I refer to the ”performance” of your advertising  I am not referring to how many resumes you get – more is not necessarily better, and often worse.  No, I’m referring to your ability to reliably, predictably recruit the calibre of people you need, exactly when you need them, at the lowest possible cost.

Great ads give you leverage – once they work,  you can use them over and over again, keeping your candidate pipeline full, and dramatically reducing your downtime (time-to-fill) between hires. 

We helped one of our clients eliminate agency fees, cut employee turnover 80% in a critical job, and build a very low cost candidate pipeline for people with specialized skills. . . simply by improving their online advertising:

• Turnover in the position in 2006 was 27 people. 
• Turnover in the position in 2007 was 21 people. 
• We developed and ran the new ad for them in late 2007, resulting in 5 hires from the initial slate of of 8 candidates.  The client then ran the ad on their own a few times in 2008, resulting in an additional 5 hires. (10 hires that year from the same ad). 
• Turnover in the position in 2008 was just 5 people – an 80% reduction.   Also, agency fees in 2008 were eliminated. 
• Managers who formerly lived in fear of turnover are finally free to manage employee performance courageously,  knowing with certainty that if someone is not working out, they can be replaced quickly and at low cost.   

That’s the kind of leverage smart online outreach can give you.

Bad Job Ads Attract Only Desperate Candidates

All online advertising attracts some bad candidates, but poorly written job ads seem to attract only desperate candidates.   Bad ads look like all the other ads:

 ”XYZ company, located in Washington DC, is the foremost widget maker in the region.  We are seeking a Controller.  Responsibilities include… blah blah blah”

Research shows that job seekers look for jobs using the title they have, or the title they want.  So for fun, I took a common job – controller – and I went to Indeed (where all the candidates are going these days) and looked at the first 10 non-agency ads for a controller in my zipcode.  I cut and pasted all the job descriptions into a fun site called wordle that gives you a visual representation of the words you are using - you can see the word cloud here  – it’s a very cool representation of some really dull ad copy.  (For a bit of contrast, this is the word cloud for what this blog is about).

Time will not permit me to cover all the things wrong with the ads, so I’ll just give you the highlights (lowlights?). 

Recruiters: Be More Like Amazon and Less Like Kmart

Even with the right skills, even in a good job market, job hunting is a miserable experience.  In difficult economic times like these, small changes in your recruiting process can pay huge dividends.  Oddly, common courtesy is now a competitive advantage.

Powerful forces have forever changed how consumers get information to make purchasing decisions.   Before the internet, companies controlled most of the information.  There were very few ways to learn about a product or service, except from a salesperson.   If you wanted to buy something, and you did not know anyone else who already owned it, you had to read the company catalogue or talk to a sales rep … but that has all changed.  

Now that information is freely available, buyers are more in control and they like that, a lot.    College students wouldn’t consider selecting their classes from a syllabus; they go to RateMyProfessor to read what other students say.  Easy grader?  Engaging teacher?  It’s all there.   (Based upon 10 other student comments, my daughter already knows she can skip one of her classes this semester, as long as she keeps up with the reading). . . Yeah, it’s a whole new world.  If your buying experience is not on a par with Amazon, your buyers assume you just aren’t trying very hard. 

Sales reps used to be a good source of information, but now their ”information” is greeted so skeptically, they almost get in the way.  Buyers reduce their risk of making a mistake and feel more in control by reading unbiased sources of information that are outside the control of the seller.  We all visit consumer-focused websites to read customer reviews before making major purchases and often arrive at a showroom knowing more than the sales reps.   Why do we all do this?  Because we have all had the experience of trusting the sales rep,  getting burned,  and walking away saying “never again.”     Sadly, there is a reason old jokes like this one keep being told:  ”How do you know when a headhunter is lying?  His lips are moving.”   Marketing guru Doug Davidoff puts it this way:

“ Value is binary. If you are not creating it, you are reducing it. . . Every activity has a cost, whether it’s time, attention, opportunity or money. Any time a customer or prospect interacts with your company and they don’t feel they’ve received more benefit than what it cost them in time, they feel cheated.”  (Read more here)

So how does this apply to recruiting?