Should you accept or counter a job offer?
Dieter van de Scheur
Managing Director @ TWS Partners B.V. | Economic Strategy Consulting
Recently I ran across a LinkedIn post that argued to “Never take the first offer” when receiving an offer for a role in an application process.
The argument for this recommendation was that the recruiter and hiring manager have an upfront discussion on:
1.?????The initial offer for the base salary; and
2.?????How much they are willing to ‘budge’
Then there was an additional statement that a company will not rescind your (counter)offer just because you ask for more (I agree!), while you probably do not want to work for them anyway.
I disagree with that last statement and so did quite a few others, while in addition there were also quite a few hiring managers and recruiters who argued that they in fact do make a best (and final) offer with their first offer.
This led to the original poster adjusting the post to state that the conclusion is that it is okay and sometimes even good to accept the first offer.
This however was for me a very unsatisfactory outcome and an unclear recommendation, which does not help people, and which begs the question: “When is it then okay to accept a first offer?”
A problem for the candidates is that they do not know at the time of the offer whether the offer is made by a recruiter/company that:
A.????has room for adjustment; or
B.????directly makes a best offer.
To find out which type of company they are dealing with, the candidates will have to challenge the initial offer, in order to:
1.?????find out whether they are dealing with company type A or company type B; and
2.?????keep companies of type B 'truthful', as if their offer never gets challenged, they might be incentivized to become type A
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As this process is a strategic interaction between two players, this qualifies as a game theoretic setting, which means that #gametheory can help us understand what the best course of action is, when presented with a first offer from a hiring company.
In the overview below I have depicted the interaction in this game in the following manner:
-???????PLAYERS: There are 2 players, namely the Candidate and the Hiring Company
-???????ACTIONS: Both players have two actions:
o??The Hiring Company can either make an opening offer or directly present their best offer.
o??The Candidate can either accept the received offer or make a counteroffer to the Hiring Company
-???????PAYOFFS: The payoffs are depicted in terms of money bags which aim to illustrate either a bigger or smaller monetary payoff. When the Hiring Company receives a counteroffer, they will make a concession when they did not make their best offer initially, giving the Candidate more value. Note that the payoffs here analyse a monetary optimization, while this will not always be the goal in practice, and I will elaborate a bit on this further below.
-???????RULES: The Candidate’s action is always in response to the Hiring Company first making their offer
The game theoretic analysis above shows that the Hiring Company has a weakly-dominant strategy to provide an opening offer with some room to manoeuvre, while the Candidate has a weakly-dominant strategy to always make a counteroffer. This to prevent missing out on value in the event they are dealing with a company of type A (which the Hiring Company has a monetary incentive to be).
As I already alluded to when discussing the payoffs, many companies do not intend to optimize their job offers from a monetary perspective. There can be a negative exposure effect for companies when presenting an offer and then making concessions when faced with a counteroffer. Especially if there is a very big discrepancy between the opening offer and the final offer (worst acceptable outcome). This can lead candidates to have a very unpleasant feeling (not a great start to a new job) and potentially lead to them withdrawing. The awareness of this negative exposure effect leads to many companies directly making a best offer. This makes a lot of sense, as if candidates always end up countering the opening offer, which they have a weakly-dominant strategy to do, Hiring Companies would much rather get to the same payoff without the negative exposure effect.
In summary, when presented with a job offer: always make a counteroffer!
P.S. Turns out the initial statement in the original message was correct after all.
Professor for Market Design - Application of Game Theory - Bidding in Auctions - Auction Design
2 年Essentially, there is a commitment story here. It seems if the company can commit to a best and final offer, most of the problems disappear and overall welfare improves. So the question becomes how to create commitment? Reputation to be a "fair negotiator" can be hard to build given that such interactions are alway private and the company does not want to disclose salaries of other employees (a view that can be challenged). So it seems that the best way is to build reputation to be a fair company in general. Having a public company culture that builds on treating employees fairly and living up to promises, goes a long way. Now you can tell your future employee: "This is my best and final offer. We are well known for living up to our commitments to our employees." This is a fact that can be easily checked by the applicant by talking to current employees.
Finding People Passionate About Sustainability || Founder of InterVerse || Force For Good
2 年If only it was this simple ??
MAKE IT YOUR GAME - Strategy & Execution | game theorist | negotiation expert | business angel
2 年Thanks Dieter van de Scheur for the analysis. 2 questions: 1. what if the company has alternatives? 2. what if the candidates are risk averse or not experienced???