The importance of salary negotiation

I have a good friend who recently graduated from MIT with a PhD in something I can't even pronounce, let alone do. Even in this rocky economy, he has competing job offers. That's a great position to be in, and I'm happy for him.

But when he told me about his options, I was surprised to hear him say he didn't plan to negotiate his salary. One company offered him $10,000 less than another for a comparable position. “It's okay,” he said. “That seems like Enough. Besides, it's not a conversation I want to get into.”

I encouraged him to rethink his position.

My advice boiled down to one sentence: No matter how much money an employer offers you, it's never Enough. Ask for more.

Money Isn't Everything

In my own financial life, it's a constant struggle to balance finding ways to live more frugally while trying to earn more money. I believe there is some amount that's Enough; infinite money won't make my life perfect. It's not how much money I have, but how I manage that money. And it's how I manage my expectations about what I can do with the money, and what it can do for me.

J.D. is fond of quoting Charles Dickens from David Copperfield:

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Translated into modern financial language, that's:

Annual income $40,000, annual expenditure $39,000, result happiness. Annual income $40,000, annual expenditure $41,000, result misery.

This is the heart of mind over money: understanding that your financial happiness rests on what you make of your dollars, not how many dollars you make.

That said, making more dollars doesn't hurt. Having more money to work with expands your options for everything from where you live to how you travel to what charities and causes you can support.

More Is Generally Better

You wouldn't leave a crisp $100 bill lying in a gutter, would you? But you're walking away from a lot more than that if you don't negotiate your salary properly when starting a new job.

Perhaps the first thing to understand is that your salary is negotiable. I've never yet walked away from a salary negotiation empty-handed. Often, more money really can be had just for asking. In other cases, the salary has turned out to be a fixed point, but by starting a conversation about it I've been able to pick up higher paying contracts with the same clients or negotiate for additional vacation time and other benefits.

Every salary negotiation is crucial, but your first one matters most of all. Your starting salary determines the number that all of your future raises will be based on. If you get a 3% raise each year, each of those raises will be larger if it's based on a higher starting salary. Over even a few years, that can add up to a lot of money.

Your first salary is also the basis for your salary history. When you change jobs, that salary history becomes part of negotiations with your new employer. If you talk your first employer into a 5% during the initial negotiation, that increased salary will stay with you throughout your life.

Another reason to negotiate your first salary is that you're probably starting more than just your career. The moment in your life when you take on your first Grown-Up Job often coincides with other major life changes: getting married, buying a home, having kids. These things are expensive, and a lot of the expenses are front-loaded. You want money to pay for a wedding, a down payment, and all of the expenses associated with setting up house and welcoming a family sooner rather than later. A higher salary gives you a jump start on those goals.

Doing Your Future Self a Favor

It's awesome that I have a decent income and good savings habits now, but I'll never get back the chance to earn a good living in my early years. Instead, I'm still repaying debts incurred in my 20s. Over my whole life, I'll have less saved for retirement and pleasure because I'm paying interest on the start-up costs of a grown-up life, instead of having saved for them ahead of time. Having a higher salary from the get-go might have helped me better handle some of these expenses.

Asking for more money can be tough. In my friend's case, he's moving from being a grad student on a stipend to a highly-paid professional. His salary will increase by nearly an order of magnitude. It's hard to ask for more when the numbers already seem big.

But remember: In a few years, those numbers won't be so big. They'll be your new normal. Whatever salary you accept today will become the money you expect to be earning. Hopefully, in a year or two that salary will still feel comfortable, but it won't be a surprising amount of money. You'll have gotten used to it. Your lifestyle and expectations will have grown to match your income level. And if you're at all like most people, you'll wish you had a little more.

So, do your Future Self a favor and ask for more money when you're negotiating a new job offer — especially if it's your first time doing it.

Reminder: Last year, J.D. wrote about how to negotiate your salary. He's a big fan of the book Negotiating Your Salary: How to Make $1,000 a Minute by Jack Chapman, which you can download from the author's site.
More about...Career

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
76 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Derek
Derek
9 years ago

If I had two offers and one was higher than the other, I think I’d jump on the highest salary for sure! Either that or let the low-ball company know that I got a higher offer somewhere else. More than likely, they’ll match it. I actually get this a lot. When I consider switching jobs, I either have zero offers OR I’m littered with 2 or 3. It’s just odd. Most of the time, I’ve chosen the job that shows the most promise for future growth in my career field. This choice has always shown me the most money as… Read more »

MJ
MJ
9 years ago

Wow! I should have read about this 5 years ago when I had my first job. I was fooled to believe that what my employer gave me was enough. In some cases, it was. Looking back, I really should have negotiated even just a bit. I totally agree that my first salary affected the other job offers that followed, even after being with 5 companies already. Now that I realize I need more, that first salary just makes it harder to negotiate. Prospective employers rarely ask my first salary, but they are always interested on my current/previous ones. It’s like… Read more »

Twiggers
Twiggers
9 years ago

I am a PhD person as well and just recently secured my first “real” job in academia. I heard this from everyone and I did it. I negotiated a salary higher than anyone I know starting out and also negotiated quite a few other things (moving expenses, reductions in teaching load, higher start-up funds, etc.).

Remember, everything is negotiable!

Money Smarts Blog
Money Smarts Blog
9 years ago

@Sierra – How much negotiation did you do with JD before accepting this gig? 😉

J.D.’s note: Believe it or not, Sierra negotiated. Kind of caught me off guard.

Liz
Liz
9 years ago

I did this just recently, and a lot of my knowledge/courage to do so came from reading JD’s earlier posts on this very subject. While it wasn’t a switch to a new company, it was an internal promotion to a higher position. I was disappointed with the new salary for the promotion (of which I’d been doing the work for for months anyway) – so I asked for more. I figured they needed me and wanted me if they were promoting me. So in one day I set myself up to an additional 4% raise on top of what they… Read more »

Janette
Janette
9 years ago

Even those of us on the lower ladder can negotiate.
In elementary teaching you can negotiate in the West. The East has unions (and much higher wages). If you have a Math, Science or SPED background- negotiate that salary with your interview committee.

I am working a part time job for the next six weeks. At the training I learned that people were being paid a range of $12- 22 an hour for the same responsibilities. I should have negotiated!

Brian B
Brian B
9 years ago

Right about now, aren’t most people just happy to get any job they can find?

Nicole
Nicole
9 years ago

I would love to see more posts from Sierra on things involving finances and children or finances and family matters.

David Hunter
David Hunter
9 years ago

My wife negotiated her income and is getting more than employees who have been at the job for 10 years.

All you have to do is ask! What’s the worst that could happen… They will say no, but most likely you will get something out of negotiating.

I heard this from my sister’s previous boss, Dan Kennedy (author, consultant), “You don’t get what you don’t ask for.”

Vanessa
Vanessa
9 years ago

I’ve never negotiated for jobs because I’m not a professional with a degree. I’m just an average person working average jobs, so I pretty much accept that their offer is the most they’re willing to pay. I have a hard time just selling myself in the interview. I don’t know if I’d ever have the nerve to ask for more money. “When you change jobs, that salary history becomes part of negotiations with your new employer.” I know this is the way it is, but why? What does my old salary have to do with my new one? This is… Read more »

Luke
Luke
9 years ago

Granted, for some highly skilled jobs (or those where you have competing offers) it sounds only sensible to negotiate your salary. However, I suspect that for vast swathes of people it’s frankly not an option. Minimum wage jobs will always be just that and a wide range of white collar professional and civil service/government jobs will stick rigidly to payscales. That said, if you’ve been offered the job you must be the current first choice of employee and I doubt a potential employer would write you off just for asking… Hey, maybe I’ll try negotiating when I go back to… Read more »

Everyday Tips
Everyday Tips
9 years ago

It is a difficult balance right now because there are a lot more applicants than jobs. Employers will always try to low-ball those college graduates, and many graduates just do not know any better. I ended up getting $1600 more a year than they offered, which doesn’t seem like much. However, that was 20 years ago, and I guess it just felt good to feel like I ‘won’ a little bit.

Luke
Luke
9 years ago

Also, why does everyone always reference Dickens?

Not very suitable for the PF bloggers, but I always liked the comment from Oscar Wilde “Anyone who lives within their means suffers from a lack of imagination.”

Nate
Nate
9 years ago

When it comes to salary negotiations, I feel like the lone voice of dissent. For my current job (at a company of ~150 people), I asked for the salary I was making at my previous company, where I was horribly underpaid. I was offered a higher salary than my asking, and I took it. Fast forward two years – it turns out my boss (who interviewed, and made the recommendation to hire me) doesn’t like when people negotiate their salary. In fact, it offends him, as he thinks his offers are fair, and when he has a choice does not… Read more »

Victoria
Victoria
9 years ago

I was hired with a company as a temp employee in summer ’09 and brought on full-time after about 6 months. They made an offer, I did research, wrote a well worded counter-offer letter and then was told that they didn’t negotiate with entry level employees (I was 1.5 years out of college). I asked about more vacation time, but got the same response. I think I was at a disadvantage because I was already an employee of the company and they knew I didn’t have another offer. Also, even though I had been there, doing basically the same thing… Read more »

Crystal@BFS
9 years ago

I wish I had enough confidence 5 years ago to follow this advice since I have been behind ever since. Big companies act like you are lucky to even be offered a position, so I didn’t even try to push my luck. Good luck to recent graduates on starting off with a bang!

Jake @ NotRichYet
Jake @ NotRichYet
9 years ago

Take this with a grain of salt – couple of thoughts from someone who has been on both sides of the table: a.) Not every salary is negotiable – e.g., law firms and other industries with large incoming “classes” of new hires from college or grad school tend to have very clear salary rules that they absolutely refuse to deviate from (or else everyone else would feel upset / would demand a pay raise). b.) Being too pushy in asking for a higher salary can absolutely poison you career start. There is a thin line between reasonable and expected salary… Read more »

Eric Lowery (Thrifty, Wealthy & Wise)
Eric Lowery (Thrifty, Wealthy & Wise)
9 years ago

I work in a fixed pay field so I don’t have first hand experience with negotiating salary, but I do have a lot of negotiation experience high dollar sales. One thing I’ve found is that willingness to ask and be forward about what you want exudes a desirable level of confidence. Even if they just say no (which is the worst that could happen), you still gave it a shot and that shows you’re willing to go after what you want. That’s good business in general and will be noticed if not acknowledged. Just remember to be confident and polite… Read more »

s
s
9 years ago

“civil service/government jobs will stick rigidly to payscales”

Been with a govt agency since 2006 and never had a raise. The only path to a “raise” is to transfer to a higher postion through self-promotion and start at the lowest pay rate for higher position.

Financial Samurai
Financial Samurai
9 years ago

$200,000 is definitely the magical income for MAXIMUM happiness. Try and negotiate to earn up to that point. After that point, your happiness plateaus and it doesn’t matter as much b/c of government persecution on taxes, and the masses who are upset.

After $200,000… just let the market dictate your salary and don’t get too bent out of shape.

Greg
Greg
9 years ago

The message I always received was: “Always try to negotiate your salary, but you only get to do it once.” If you have a decent salary gap between positions, the solution is simple. Negotiate up the position you want least (regardless of salary) FIRST. Then, take that number to the position you want more, and they will typically meet or beat that salary. (At least relative to local norms.) Ideally, the position you want most is already offering you the higher salary. Then, you just use the bidding war approach. Take the salary for the position you most want to… Read more »

Alex Matjanec
Alex Matjanec
9 years ago

Great post Sierra, and best of luck to your friend as they choose their path. If you have two offers, I would definitely do what Derek (comment #1) mentioned, which was go back to the lower offer and see if they will match it. This way you are making a decision on quality of life, work balance and benefits over just salary. While having the highest salary at the start of your career is a good move, I would counter by asking the question if you are in a field where you plan to be with the same company for… Read more »

Samantha
Samantha
9 years ago

I am going up for promotion in the next few weeks and I am considering asking for a little more than they offer me. I found out that when I was hired they offered me the base of the tier I was hired at (which i didn’t care about because at the time I was happy to have a job). My boss worked hard to get me more than a 3% merit increase this past year because she sees how much work I do above my responisbilites. Now that myself and a few colleagues are going up for promotion and… Read more »

Mark
Mark
9 years ago

The biggest problem with not bargaining for a higher salary is how much it affects your retirement. Remember, every dollar you make directly impacts how much you are saving for retirement, if you are using a percentage of salary to save. Even if you are maxing out your contributions annually, your company might have a match, and that is definitely percentage based.

Lina
Lina
9 years ago

I graduated four years ago and I have negotiated my salary in two of three jobs. The first job had pay grades so the pay was not not negotiable. But I have negotiated my salary in my current job and the position before. It has resulted in a 30 % increase in salary in 3 years. I wouldn’t have had that much if I hadn’t negotiated. I didn’t accept the initial offering from the employers. If they have decided that they want you there is always room for negotiation because you are number one in their ranking of the candidates.… Read more »

Bogey@BackNineFinance
9 years ago

Sierra said: “My advice boiled down to one sentence: No matter how much money an employer offers you, it’s never Enough. Ask for more.” I disagree. As everyone knows, there are no hard and fast rules that apply to every situation. I urge you to be careful with blanketed advice such as this. Take this example… When moving up from an entry level job earning about $50k, the potential employer finally pressed me into naming the salary range that I was looking for. I had done my homework, so I name a range that was at the top of the… Read more »

indio
indio
9 years ago

When I started my current job, I negotiated a $3k increase over what they were offering. It was a good move to do that because I’ve been with the company for 17 years. When I have my annual performance review, I continue to renegotiate my salary and increase. They prefer to give the increase in bonus rather than salary, but I’ve been pushing for an increase in base. About 10 years ago, I had another job offer and I gave it to my boss and asked him to counter it. He did!! All of this talk about linking money with… Read more »

Steve
Steve
9 years ago

I am not certain if JD did the Dickens translation, or Sierra. But I believe the point was that Ebenezer Scrooge was so TIGHT with his money that he wouldn’t share it. As a result, he was miserable. So, the income vs. expense would be: $40,000 income – $1,000 spent = MISERY.

J.D.’s note: Sierra had the Dickens quote in her post, but I added the modern translation. What I didn’t do, however, was double-check the quote itself. We had it wrong. I fixed that. Sorry!

Pat S
Pat S
9 years ago

It is hard to talk about money with friends and family, let alone strangers during a job interview. But it is absolutely imperative. Thank you for reminding us all of the importance of being assertive in salary negotiation. Just remember, “you are your best and only advocate”!

Andrew
Andrew
9 years ago

I once had 2 job offers and I accepted the lower paying job due to some work benefits they offered. When I told the 1st company that I accepted another position they offered about 10k more to entice me to take the job.

retirebyforty
retirebyforty
9 years ago

I’m terrible at salary negotiation. I think most technical people are like that.

Chris P.
Chris P.
9 years ago

I graduated with an MS in Engineering. When I came out of college in 2009, I narrowed down my choices to two companies. The first was a very small (14 people) company that had HUGE room for improvement. Because of the small size, I would gain experience in all areas of running a business. The 2nd was a huge (60,000 worldwide) company where I’d be groomed. I didn’t really have to actually make a decision at the time because the large company had a hiring freeze and cancelled the position. When I got my offer from the small company, it… Read more »

M.
M.
9 years ago

Great post – because I was in this exact position 6 months ago. For my background – I am a technical person. I negotiated my salary with the company that had given me the BEST job offer, and was still able to get more than a thousand extra per month. Here’s the thing that many people don’t know – and I wasn’t aware of this UNTIL I started asking around: it’s really difficult for companies to find talented people to hire. Companies will get over several 100 resumes for a few positions. They will interview a fraction of this. They… Read more »

Andrea @ Consultant Journal
Andrea @ Consultant Journal
9 years ago

You know, people think they have to tell employers their old salary. There’s no rule. In fact, you may be violating your non-disclosure agreement by giving away your company’s compensation information, which, in many industries, is sensitive information. When I was still in the working world (as opposed to the self employed world), I generally avoided telling my past salary. “I’m under non-disclosure and I take that pretty seriously. I’m sure your company does too and I want you to know I will take your privacy just as seriously. Let’s focus on this position and the value I can bring… Read more »

Tyler Karaszewski
Tyler Karaszewski
9 years ago

If you include the original salary negotiation and count it as a “raise” over my initial job offer, then over the course of time I’ve been with my employer (well, technically also a previous employer that was purchased by my current employer) the numbers work out like this: Annual salary increases that I’ve gotten by asking: 71%. Annual salary increases that I’ve been given without asking: 22%. (based on my original job offer as 100%) The “asked” category also includes a salary increase associated with a promotion that I asked for. My company makes on average something in the neighborhood… Read more »

brooklynchick
brooklynchick
9 years ago

I work in HR and I couldn’t agree more. While there are exceptions listed above (law firms, minimum wage jobs, etc.), I can tell you from experience that in my world (jobs that require an AA or a BA), those that don’t negotiate lose. We base our offers on past salary, and we routinely end up paying more than the initial offer if someone asks. Not always, but often. AND, once you’re hired, merit raises are small. It’s not fair, but there it is. I also agree with #17 that you don’t want to play hardball – just one round… Read more »

Adam
Adam
9 years ago

Merit raises are barely going to keep up with inflation, and in a recession as we’ve all seen, they are stopped entirely. So negotiating a bump up from your past salary when you change jobs or get a promotion is key. My last 3 jobs (2 for one company, 1 for the company I am in now) have been new positions, so I had to do negotiating as the salary expectations were almost completely based on my prior jobs rather than the current job since it had no frame of reference. It was actually JD’s posting last year that made… Read more »

David
David
9 years ago

Before you negotiate your salary, you should be aware of the average salary for your desired position, where you want to live, as reported to the US Bureau of Labor Statistics. If you can, you should also look up the cost of living. (Glassdoor is also a decent, if biased resource.) I have heard stories of people moving from the coast, leaving jobs paying $100,000 annually, and trying to negotiate a 10% salary raise in the midwest where the average income was $60,000. So yes, obviously, it can backfire. Other than for the Bureau, does anyone have any links to… Read more »

Jeanette Glass
Jeanette Glass
9 years ago

I negotiated my salary at my first ‘real’ job as an articling accountant. Not only salary, but also study leave, and how much and WHEN the company was going to pay for all the courses I would be required to take over the next 5 years to become a Chartered Accountant (in Canada, but I understand the CPA process is similar). My starting salary ended up being $5400 higher than the first offer, and my study leave a day longer per course, and the courses themselves were paid for up front and not ‘on successful completion’. For a student those… Read more »

akajb
akajb
9 years ago

“Your lifestyle and expectations will have grown to match your income level.”

Why does your lifestyle have to grow to match your income level? If your goal is to save, then the better plan is to try to LIMIT how your lifestyle grows so that you can save more.

I never get why people seem to think that they HAVE to spend more when they make more. And yet, the people who pay off their student loans fast are always the ones who say they DIDN’T spend more.

Tyler Karaszewski
Tyler Karaszewski
9 years ago

@akajb:

Because it turns out that being kept up till 2:00AM every night by your neighbors’ parties in your college apartment sucks. So does using milk crates for furniture. So does living with roommates. So do a lot of things about the way we live in college.

Sure, you *could* keep doing that, but why would you want to if you had the means not to?

There are really only a few things people really strive towards — companionship, family, a sense of meaning, comfort. The easiest one to get when you’ve got extra money is comfort.

akajb
akajb
9 years ago

@Tyler Sure, find a nicer apartment, get some decent furniture and stop living on mac and cheese. But, that doesn’t mean you have to choose the nicer apartment, new furniture, food budget, etc so that it maxes out your new salary. Then again, I’m a lucky grad student. I’m not broke. I have no debt. I live by myself in a fairly nice place (no loud crazy neighbors). I prefer to spend my money on good fresh food vs alcohol (huge savings there :P). I don’t live off my parents or anyone else – just the stipend I make as… Read more »

Kevin M
Kevin M
9 years ago

At minimum, I’d tell the company offering less you have another offer for $10k higher, perhaps they will match or go higher, or provide some other benefit – flex time, vacation time, etc. It doesn’t have to be a lose-lose negotiation, remember if the employer didn’t want you to work there, they probably would have fired you by now.

I used payscale.com in the past as a starting point to what I thought I should be paid.

Susan
Susan
9 years ago

When I was heavily recruited for a position about 15 years ago, it was for a non-profit position. I figured that the salary was not negotiable because they operated within a pretty tight budget. I kick myself for not taking the opportunity to be more specific with my needs. Not only did I take a pay CUT, I was working more hours. Even non-profits have some wiggle room, vacation or comp time, training, something, anything, if you know what you need. I know now that I could have done better and will do better the next time.

jim
jim
9 years ago

I probably should have negotiated when I started my job but I didn’t. I was honestly thrilled to get the job and the offer was more than I had expected at the time so I just said yes.

Generally I think that negotiating on wages shouldn’t hurt. If employers get upset about it then that is their problem.

Of course some jobs negotiating is not going to work at all. THey’ll have fixed wages or just not want to budge.

BrentABQ
BrentABQ
9 years ago

Signs point to that I’m overpaid. I never followed any negotiating tips. Instead of always negotiating, I’d say, never settle.

Wayne Mates
Wayne Mates
9 years ago

As someone who has hired a great number of people over the years, I can tell you this: 1. You are my candidate of choice. I want you as much as you want my position. 2. I only have so much money in my budget to pay you. 3. I start a little lower than where I will go knowing you may want to negotiate. 4. I have a maximum I will go to before I will withdraw an offer and turn to my second choice candidate. I will share that number with you if you think you want or… Read more »

El Nerdo
El Nerdo
9 years ago

This is nice, but I wish there was more stuff for the self-employed among us. Not just as “things to do for extra money”, but how to make more money when there’s no boss. JD and staff writers fit that category anyway, right?

Eric Lowery (Thrifty, Wealthy & Wise)
Eric Lowery (Thrifty, Wealthy & Wise)
9 years ago

@Wayne Mates

I think that just may be the most concise and best advice on this whole topic!

brooklynchick
brooklynchick
9 years ago

#47, Wayne hits the nail right on the head!! As an HR professional, I agree with all his points!

shares