by Lewis Schiff
But Babcock had added another set of questions in the salary survey, questions that are rarely included in such studies. She wanted to know more about asking. How many of these graduates had tried to negotiate higher salaries for themselves before they accepted their job offers? Babcock knew that the career planning office at Carnegie Mellon strongly encouraged student job applicants to turn down their initial salary offers and ask for more money. She was curious to see how many students were actually following through on that advice.
Much to Babcock’s surprise, more than half of the male graduates had asked for more money (57 percent) but only 7 percent of the female students had. Instead, 93 percent of the women (and about 4 out of 10 of the men) had accepted their initial salary offers with no questions asked, even though they’d been specifically advised to ask for more. The survey also revealed there was a significant reward for asking. Average pay for students who negotiated—men and women alike—was $4,305 higher, a 7.4 percent premium above salaries of the nonnegotiators. Almost all the pay disparity between men and women could be attributed to the fact that the men were eight times more likely than the women to ask for more money. The gender gap in Babcock’s salary survey was actually a negotiation gap!
Babcock went on to coauthor a book called Women Don’t Ask, in which she further explored the general aversion among women to negotiate on their own behalf. But the problem is hardly confined to women. Recall that nearly half the men in that survey suffered from the same aversion to asking. If you consider Babcock’s survey results without regard for gender, you see that a meager 25 percent of all Carnegie Mellon graduate students asked for more money when they were offered their first jobs.
These were not unsophisticated people. All of them had earned master’s degrees at a top university. They had been coached by the career planning office to ask for more money. They were offered tips on how to do it in a way that was reasonable and respectful. And yet, only 1 out of 4 of them followed through on that advice and asked for more money. Figuratively speaking, 3 out of 4 chose to walk out of the hiring office with $4,300 sitting on the desk. The money was theirs if they’d asked for it. They just didn’t ask.
Other studies have shown similarly poor pay-negotiation habits among new hires in a vast number of fields. In their book, Get Paid What You’re Worth, business professors Robin L. Pinkley and Gregory B. Northcraft write that only about half of all business executives—probably the most sophisticated job applicants around—report having negotiated their last job offer. Since that’s a self-reported number, Pinkley and Northcraft suspect that in reality the share of nonnegotiators is probably much larger. Executive recruiters, for instance, told them that only about 1 out of 4 of their clients negotiate their salary offers. That’s the same anemic negotiation rate that Babcock found at Carnegie Mellon.
In the coming year, 50 million U.S. workers will start new jobs. Most of them will accept the first salary offer they receive. For the simple want of asking, they will walk away from billions of dollars, and each of them will do it with a handshake and a smile.
If that seems unbelievable to you, consider the hiring process from management’s point of view. Earlier in the chapter, I cited surveys that show 9 out of 10 hiring managers are ready to pay more money if they’re asked. They deliberately keep their initial salary offers unrealistically low. A manager with a budget to control can’t afford to start a salary negotiation with a “fair” offer if there’s any chance that the new hire will accept a lower figure. More to the point, the manager making that initial offer needs to be prepared to raise the offer if the candidate asks for more. For that reason, the first offer needs to be very low as a precaution, in order to allow room for negotiation.
So with the possible exception of some civil service and union jobs, it is all but certain that every initial salary offer you have ever received in your life was deliberately unfair. Each one was significantly lower than what the hiring manager was fully ready to pay. And if you have ever accepted that first offer without even asking for more, you almost assuredly walked away from a significant pile of cash.
When Pinkley and Northcraft tried to probe the underlying reasons why so many highly professional and skilled businesspeople avoid negotiating salary offers, they discovered that most candidates feel vulnerable and afraid once they’ve been offered the job. It’s that simple. The most common fear they express is that asking for more will displease the new boss. Negotiating, they say, might make them look “cheap, selfish, cocky [or] ungrateful.” Another worry was that requesting more money would put the job offer itself in jeopardy. Asking for more, they feared, might prompt the hiring manager to withdraw the offer and try to find someone else for the job.
Both fears, however, are completely unfounded. When Pinkley and Northcraft surveyed employers on this subject, every one of them said they fully expected job candidates to negotiate initial salary offers. Negotiating doesn’t harm your image, and in some cases it can actually help. When the researchers polled executive recruiters, 8 in 10 said that a candidate who negotiates in a professional manner will make a better impression on the new employer than the candidate who accepts the first offer right off the bat. It makes sense once you think about it. If you were hiring someone new, wouldn’t you want that person to have a healthy level of self-worth and self-esteem? If a new employee is afraid to negotiate salary, what other difficult tasks will he or she prove too timid to handle?
Pinkley and Northcraft also found that job offers are almost never revoked, and in the rare instances when they are, the problem is usually that a résumé or application contained misrepresentations. Yes, they say, occasionally a candidate will negotiate himself out of a job. If you act unreasonable and drag out your salary negotiations too long, then it is possible that the company might withdraw its offer. But that’s because you were a jerk, not because you negotiated.
Most hiring managers told Pinkley and Northcraft that they’d like their new employees to start out feeling satisfied about what they make. They don’t want to bring in people who feel bad about their salaries and wish they’d asked for more. To test this idea, the researchers made up a chart of how a hypothetical top candidate for a job would react to various salary offers. Then they gave the chart to some hiring managers and asked them what would be their top salary offer if they knew that the best job candidate for the job would:
• Reject an offer of $35K.
• Accept an offer of $38K with dissatisfaction.
• Accept an offer of $41K with satisfaction.
• Accept an offer of $44K with pleasure.
• Accept an offer of $48K with great pleasure.
About 40 percent said they would make an offer of $44,000 if they knew the offer would be accepted with pleasure! The extra dollars, they figured, were worth it to ensure bringing in a happy new employee. About half of the managers said they would offer up to $41,000 to ensure that the job candidate at least felt satisfied. Only 10 percent said they would offer the minimum amount needed to gain the employee’s dissatisfied acceptance. “In each case,” Pinkley and Northcraft write, “they told us they would ultimately pay more to get this applicant if the applicant negotiated, but that they would be delighted to get the applicant for less.”
What does this really mean? To me, it says that if you respond to an initial salary offer by telling your new employer the exact dollar amount that would make you happy, you have a 40 percent chance of getting it! You also have a 90 percent chance of getting a counteroffer that will at least leave you satisfied.
The differences in dollars in the above chart are significant. They fit right in with Linda Babcock’s survey results and suggest that negotiating your salary might typically yield a 7 percent premium in pay. Other surveys have shown more modest results from negotiated salaries, more in the 4 percent range. But a pay raise of even 4 percent would mean an extra $2,000 to $4,000 in household income for the middle-class respondents to our surveys. In the words of one popul
ar negotiating guide, your salary discussion may be the only chance you ever get to make money at the rate of $1,000 per minute.
The financial benefits of that single $1,000-per-minute conversation can keep piling up for years to come. Once you start a job at a higher salary, the following year’s salary bump will be calculated off that higher base. The total value of that one negotiation session will continue compounding each year for all the years you work at that job. It can even impact your base pay when you decide to change jobs.
Pinkley and Northcraft did some additional calculations to compare the career income trajectories of two hypothetical college graduates. Both start out with base salaries of $50,000. They each are given annual pay raises of 3 to 4 percent, and they each change jobs every eight years. The only difference between the two is that the first employee never negotiates salary when changing jobs. The second negotiates a 4.3 percent boost with each new employer. Over the course of their two 50-year careers, the employee who negotiates that minor 4.3 percent increase every eight years ends up earning $1.7 million more than the one who never negotiates.
After her first book came out, Babcock started giving workshops in negotiating techniques at Carnegie Mellon. She knew that despite the pay advantages enjoyed by job candidates who negotiate, it was also true that most of them conducted their pay negotiations poorly. They made more money than those who didn’t negotiate at all, but most had failed to realize the full potential of their opportunities. Inept negotiators fare better than nonnegotiators, but they still wind up leaving money on the boss’s desk.
Among the men and women who negotiated their salaries at Carnegie Mellon, Babcock discovered a secondary gender gap in outcomes that exposed one important point about negotiating: Higher goals always attract higher results. Even when women do ask, Babcock found, they usually start by asking for a more modest amount than the men, and they complete the negotiation too quickly. As a result, they end up with less. A famous study of MBA candidates who negotiated their first salaries showed that the men earned a 4.3 percent increase over the initial offer, while the women earned a 2.7 percent increase. The difference was explained by the fact the men went into the negotiation with higher expectations. They didn’t get what they asked for, but they still got more than the women.
In her negotiation workshops, Babcock stressed how underselling yourself can be as costly as not negotiating at all. (The workshops were geared toward women, but men were welcome and some participated.) She encouraged the students to research the highest comparative salaries in their respective fields before discussing a salary offer. Then, when you get that initial offer, you should be prepared to respond with a number much larger than what you would reasonably want. If your first request far exceeds what you hope for, you’re much more likely to end up with what you really want.
By 2005, after Babcock had been offering her negotiation workshops for about three years, the Carnegie Mellon annual salary survey revealed some big changes in behavior among the recent graduates. For the first time, female master’s degree graduates negotiated their salary offers at a higher rate than the men (68 percent versus 65 percent). Even more impressive was the percentage gain in income. Women who negotiated increased their income by 14 percent, and men increased theirs by 16 percent. There was still a small gender gap, but everyone was earning more money.
Even if you don’t want to change employers, you can use the same strategy to negotiate your current salary upward. The key is knowing your true current value in the workplace and in your industry and then “asking high” during salary review time. The Internet has made information about comparable salaries easier to find than ever. But you also need to ask around and network within your field to find out which of your skills and abilities are in highest demand, and then point to those in-demand abilities in the negotiation.
Babcock acknowledges that it is easiest to underestimate your value as an employee when you stay with one employer for a long time. In her second book, called Ask for It, she tells the story of a housekeeping manager at a luxury hotel in Bermuda. The woman was so good at her job that other hotels on the island were always trying to recruit her. The woman didn’t want to leave her employer, but she used each competing job offer as leverage for requesting a raise. Her only question was, how much should she go in and ask for?
The woman’s husband also worked in the hotel industry, so he was a useful adviser. He asked his wife to name a number that she would consider “outrageous.” When she told him that she felt a $5,000 raise would be outrageous, he advised her to ask for $10,000. She did what he suggested and she got the $10,000 raise. When the next offer came along, she told her husband that a $6,000 raise would seem outrageous, so he suggested she ask for $12,000. And she got the $12,000. Every time she was offered a job elsewhere, she repeated this process. Within six years, she had raised her salary by $36,000, because she always requested twice as much money as what she personally considered to be outrageous.
Not everyone can get away with making salary demands like that. It probably helps to live in a tight labor market like Bermuda. But Babcock, like Pinkley and Northcraft, makes a pretty good case that most people could make a lot more money if they would just use a few simple techniques to get better at asking. Unfortunately, popular culture doesn’t give much support to this idea. For whatever reasons, Orman’s books sell much better than either Babcock’s or Pinkley and Northcraft’s. Orman appeared on The Oprah Winfrey Show many times while Babcock, Pinkley, and Northcraft never did—even though their ideas are better researched, and, as it turns out, much more reliable.
Of all the Business Brilliant strategies you’ll read about in this book, asking is among the most powerful, if only because it costs nothing and it never hurts to ask. In the brave new world of work, in which regular raises and promotions have become things of the past, asking for more, asking well, and asking often are the only ways to ensure that you’re earning what you’re worth.
The Wages of Fear
In her latest book, The Money Class, Suze Orman tries to acknowledge how the 2008 financial crisis has shaken her fans’ faith in the frugality gospel. Orman’s past advice echoed a lot of other financial advice, which assumed that a dollar saved and invested in stocks today would reliably earn a 10 percent rate of compounded interest for 30 years or more into the future. Since then, the stock market’s volatility has soaked mutual fund returns and made the long-term outlook for savings very hazy. Orman has reduced her expectations for returns on savings to just 6 percent. The problem with 6 percent, though, is that you need to earn a lot more than the average American wage in order for a 6 percent return to amount to anything in the long term.
Suze admits, “We are long past the days when trimming the cable bill and stretching out the time between haircuts was enough.” Now she recommends that we all downsize our idea of the American Dream itself. Don’t buy a house. Take any job you can get. Send your kids to cheaper colleges. Suze has abandoned her past talk about following the example of the rich, because clearly, this is not what the rich are doing.
It’s true that the working world for the average American is changing faster than most people realize. Not only is job security all but gone, but the future outlook for wages is stagnant. The Department of Labor estimates that there are 17 million Americans with college degrees who are doing jobs that don’t require a college education, including 317,759 restaurant workers and 107,457 janitors. And with this poor outlook, the risks of retirement, uncovered medical expenses, and paying for college have all gone up. In 1979, about 28 percent of American workers in the private sector had defined-benefit pension plans at work. Today only 3 percent do. The management consultant Umair Haque, whom I quoted in chapter 1, assesses the current career picture this way: “It’s one thing to offer a life of meaningless work in exchange for a huge paycheck. It’s another to offer it for a stagnant median wage.” Salaried employment looks like an increasingly challenging path unless you manage your career a
ggressively.
A recurring theme in this chapter is fear. It’s the number one factor preventing people from earning more money. Most people won’t ask the new boss for more money because they are afraid. Most people won’t bring a competing offer to the boss for the same reason. And in those precious few moments when you’ve been offered the job and the hiring boss is sitting there, fully expecting you to ask for more money, it is fear that tells you—if you’re like 3 out of 4 people—to accept that first lowball offer.
In the responses to questions about negotiating, the Business Brilliant survey reveals evidence of this general fear of asking among the middle class. The wide differences in negotiating styles between the middle class and self-made millionaires boil down to this: The middle class chooses conflict avoidance and being well regarded over earning more money. For self-made millionaires, it’s the exact opposite.
For instance, about half of the middle-class respondents agreed in the survey that “when making business decisions, it’s important to consider how the other side will view me.” Just 2 in 10 self-made millionaires agreed with that. The middle class also seems to reject the essential clash of interests that every negotiation requires. Just 1 out of 3 middle-class survey respondents concur that “In negotiations, I expect people to try to take advantage of me.” Among self-made millionaires, 2 out of 3 agreed.
Frankly, I’m surprised that this last result wasn’t nearly unanimous. As Robin Pinkley and Gregory Northcraft showed in their research, every job offer you’ve ever gotten and will ever get represents an attempt to take advantage of you. Every hiring manager begins your working relationship by handing you a deliberately lowball salary offer. This is not because hiring managers are mean or selfish. It’s because the job of a hiring manager is to secure your services at the lowest possible cost to the company.