Stop posting salary ranges!

Salary negotiation is tricky. It's worse than negotiating car prices...and nearly half of car buyers (48%) find negotiating price as their least favorite thing about buying a new car. The reason I say it's worse is because when it comes to salary negotiation, the numbers are usually higher, there is a great deal of subjectivity involved in all of it, it can greatly impact your earning potential and therefore your life enjoyment, and to cap it off, no one is starting from the same spot. At least with car prices you're both starting from the same place...the sticker price or MSRP, or whatever the car dealership puts on the windshield.

The understanding of both parties in a car negotiation is that the negotiation is in one direction, down. In salary negotiations, you are each starting from completely opposite ends of the spectrum. And often, the spectrum is 100% wide where the high end of the range is twice the low end. Imagine if you went to buy a car and on the window it said "$15,000 - $30,000" for the exact same car. They would never agree to sell you the car for $15,000 and you would never agree to pay $30,000. If you were the buyer, where would you start? If you were the dealership, where would you start? You both know you will likely end up somewhere in the middle but the stress of starting at wildly different ends of the spectrum for the exact same car is crazy. But as distasteful as negotiating car prices may be for some, it's nothing compared to negotiating salary for two VERY big reasons.

1 - The salary you offer is a reflection of the value you think the other person will bring. As a result, it ascribes how you value to the skills of the individual (and for many, by proxy, how you value them as a person.) Something they can feel positive or negative about depending on where things end up...or even how hard they had to negotiate to get what they felt they deserved.

2 - This is an ongoing relationship, part of which started with how little you thought they were worth until they convinced you otherwise. It's not a great way to start a relationship in my opinion. With a car negotiation, the relationship ends when you drive away...with a job, the relationship BEGINS WITH the negotiation. Start wisely.

So how do you minimize the stress, set realistic expectations, provide each of you with a little flexibility (since we all expect to negotiate, taking it away feels like they are getting cheated right out of the gate), and create a feeling of appreciation and engagement. (I've often maintained that companies don't have "engagement" issues, they have "disengagement" issues...and that usually starts with paying someone less than they feel they deserve...but I digress.) You minimize the stress by doing three things: 1) clearly articulating your compensation philosophy, 2) doing your homework, and 3) starting from the same negotiating place.

Clearly articulate your compensation philosophy

Most companies don't have a clearly defined compensation philosophy. And most enter with the intent of "getting the best talent at the lowest cost" but this isn't anchored in anything. How do you determine which talent is "best" and who determines the "lowest" cost? This isn't clear at all...and perhaps the best way to summarize it is "well, duh." EVERYONE is trying to maximize value or ROI (benefit-cost=value), even employees. Candidates are trying to get the best job for the highest salary. That is not a philosophy, that is an aspiration...and a dangerous one at that as it relates to your employees and their engagement levels. If this is your compensation approach, how comfortable would you feel telling a candidate the following honest expectation? "We'd like to hire you for the least amount you would accept." Sometimes making your implicit goals explicit will tell you how ridiculous they really are.

Every company gets to determine their compensation philosophy however they wish. For some VC led start ups that are chasing astronomical and sometimes unrealistic goals, they might adopt a "top talent for top price" approach where they aim to hire people in the top 25th percentile of talent (again, based on what?) and pay at the top 10% of the salary ranges to make it attractive. There are also non-profits on the other end of the spectrum who do not have the outrageous budgets of VC backed start ups. Their aim is to attract those who value the mission and stability more than their just a paycheck and will accept salary in the bottom 25th percentile. Then there is a whole host of companies that play in the middle of the curve...and rarely if ever do you find a well articulated compensation strategy...and certainly not one that gets communicated to candidates.

I can't help you come up with your company's philosophy, because, like philosophy...the argument you chose to make is based on the beliefs and values you have. At my current company, we believe that the market determines what talent is worth; not me, not the VP of Engineering, and not our CFO. If we are competing in a talent market where great people are mobile no matter what the economy is doing, then ignoring the market as a baseline is foolish. Everyone can (and does) go onto some kind of salary website to see what they are worth. At our company, we have what I call a "Market+" philosophy. This combines the estimated market value of an individual's skills and expertise...PLUS their internal knowledge worth to us. For new candidates we allow some flexibility for them being unknown but it is still clear what they can expect. Our compensation philosophy as communicated to candidates is as follows:

"We want our people to feel both valued for the contributions they bring and connected to the overall success of the company. As a result, for most roles we generally target market mid-point for salary after the first year. For new employees, we adjust for expected capabilities and contributions as well as include an equity grant allowing employees to invest in the Company at a significant discount via an Employee Stock Option Pool.

We regularly conduct thorough market research based on a variety of factors to establish a competitive mid-point for each role and adjust accordingly.

It's not flashy, but it clearly articulates how we benchmark our salaries, and how we plan to adjust them as we learn more about how someone can contribute. Sometimes that is in the interview, and sometimes it is after. We reserve flexibility while creating a clear expectation, a common baseline, and ensure everyone is starting from a similar understanding by sharing our market research in the offer letter.

Do your homework

When I first started out, the internet did not hold all the information it does today. And much of what you could find on salaries was from an "expert-model" perspective. When it came to salaries, you went off what others told you you should be worth. You would hear stats and numbers about what the average starting salary for certain graduates from certain programs were and that is where you started. And almost to a fault, we all quickly realized that those numbers were part of the University propaganda machine. For most of my friends, it took them 5-7 years to get to that "average starting" salary for their degrees. I had a philosophy degree...so...yeah.

But today is different. There are a myriad of sites that can tell you the salary ranges for any multitude of positions. Some can even factor in industry variables, company size, location, and company structure. Both parties should start there when talking about a baseline. And similar to any research paper (or social media headline) it's best to compare a few different sources and build your market ranges from that. In response to the question "what are your salary expectations?" My response in the last decade has been "If we've both done our homework, we shouldn't be more than a few thousand dollars apart. If we are farther apart than that, one of us has not done our homework." (with the subtext of, "and when it comes to what I earn, you can trust me to do my homework.")

That gets you a range of the 25th percentile, the median, and the 75th percentile. But we aren't done yet. This is where you apply your range to the compensation philosophy. And settle on a central target. Now there is a little Dunning-Kruger that happens here that you need to take into account. 80% of drivers think they are better than average. But that is not how math works. Statistically speaking, only 50% of drivers could even possibly be above average...meaning 50% are below. And since we are talking statistics, the normal distribution curve applies...which is a fancy way of saying the the majority of people are about average. Statistically speaking, 68% of people likely have little to no discernible difference in their driving ability. The same is true for your candidates. 68% of them are only different to a minor degrees. This means, the majority of the people you interview are likely worth somewhere very close to the median. Especially, if as I said above, you are not a VC funded startup or a non-profit. With that knowledge, here is where you really simplify things and take away some of the stress.

Set a central starting point

The market defines the median. That is what the average employee earns in the role across the market. And if you are a VC funded start up that is targeting the top of the market, then maybe 75th percentile is your central spot, or for a non-profit, maybe it is the 25th percentile. Regardless, where you determine your talent target to be is your central starting point for negotiation and something you can communicate with clarity. You are both starting from the same spot. A candidate can tell you why they are worth more than the average employee, and you can hold on to the position that they are an unknown and most people take 6 months or more before they perform at 100%. This gives you some flexibility in the starting salary and generally keeps you from being 50-100% apart. In my experience, it generally results in you being 10-20% apart...which is much easier to close without either of you feeling you got rooked.

And if your compensation philosophy, like ours, is a projection of the future "average" value, it both helps set the expectation that their starting salary may be below the "target" initially while helping the employee understand how compensation may change as they increase their skills, knowledge, and contributions. (to which you must follow through if they are performing satisfactorily in the role by the end of their first year.)

A cheap way to increase engagement from the onset

As an added measure, I suggest this small token of generosity that, in my experience, yields a huge ROI. Whatever salary number you and the candidate agree to in a verbal exchange, add $1000-2000 on top of that amount for the final offer. If your goal is dedication and incremental effort, I suggest you give a small increment first. I promise you, it will not go unnoticed or unappreciated. And at what cost? $80-$170/month? It will continue to pay dividends long after the honeymoon of a new job fades. It's tantamount to presentation value on a delicious dish. Sure the steak doesn't taste any better with parsley on top, but we are a visual species. Garnish is always worth the small extra effort. Consider the $1000 as the whipped cream on a sundae. And given the choice between two identical sundaes but one has whipped cream and one does not...I'll take the whipped cream...especially if it is a surprise add on.

Fix the gaps by changing the system

The system for negotiating salary is a key contributor to the pervasive gender and race wage disparity (even when women or minorities negotiate, there is a negative impact to their reputation afterwards that does not apply to white men.) To help close the gap, we need to change the system. Starting from a central salary point is a great leap ahead. Adding a little sprinkle to the sundae doesn't hurt either. If you care about your people, are interested in higher engagement, and want to reduce wage gaps...this is an easy starting place at adjusting the power differential. At the very least, it closes the psychological distance between the buyer of talent...and the provider of it. And wouldn't it be nicer if we were all just a little closer?

And, as always, I could be wrong.