Twitter is presently abuzz with #talkpay folks sharing their salaries. The movement is rather Marxist in character, but this capitalist encourages you to look beyond that, as it is in the general interests of everyone who works for a salary or rate to understand what the market is like.

Why Do I Support Talking About Salary?

I was raised to not talk about salary. This was largely for sociocultural reasons in the American Irish-Catholic middle class, where money was seen as a corrupting influence which should be kept from children for as long as possible. This decision is probably the only major point of difference I have with my parents regarding my upbringing — I would have made much, much better decisions early in life if I had any clue what the world looked like.

Employers have perfect information about salaries at their firm and fairly reliable salary information for the local slice of their industry. Candidates often have no clue whatsoever. To the extent that candidates in general have accurate impressions of what salary ranges are, these accurate impressions often travel along peer networks at roughly the speed of beer. Informal networking like this is superior to no information exchange at all, but results in people who are not present in those networks being at a negotiating disadvantage.

I’m not a Marxist — and in fact so non-Marxist that I’m honestly troubled by joining a Marxist movement on May Day — but I would have to tear up my Member of Vast Capitalist Conspiracy card if I thought that one side of a negotiation having a permanent information advantage didn’t influence how the negotiation turned out.

Compensation negotiations are presently like a stock exchange where only your counterparty can see the ticker and order book. You’d never send an order to that exchange — it would be an invitation to be fleeced. “I happen to have a share of Google and want to sell it. What’s it go for?” “Oh, $200 or so.” “Really? That feels low.” “Alright, $205 then, but don’t be greedy.”

The spot price of Google when I write this is $535. Someone offering $205 for GOOG would shock the conscience. In the years since I wrote a post on salary negotiation for engineers I have received many letters suggesting folks have received and accepted employment offers much worse than that, relative to reasonably achievable market rates.

A Quick Note About Being Fortunate

I don’t know if “fortunate” captures my position in life well, since that suggests rather more luck/chance than I think was involved.  It seems to work as a word, though, given that political implications that “privileged” have come to have are not my politics. That said, for the last couple of years I have been a rather well-compensated member of a well-compensated industry, and I’m cognizant that I have advantages that many people, including myself a few years ago, lack with regards to this conversation.

One advantage in particular is that talking about salaries can expose you to disciplinary process, either formally or informally. Salary structures are treated as corporate secrets in many places ostensibly to prevent morale-sapping internal conflict and — can we be real here for a moment, fellow CEOs? — explicitly to avoid having accurate market intelligence used against the company during salary negotiations.

Consultants/freelancers/etc also have to be cagey about their rate, because very few have just one rate, and if you disclose a previous rate then you can end up negotiating against yourself when attempting to take on a new client. (Most important takeaway about salary negotiation, by the way: disclosing a previous salary is almost always against your interests because it pegs your new salary to that plus 5% rather than your value to the new firm minus a discount, which is a brutal mistake, particularly in the years of your career where natural growth in capabilities/experience/the market/etc causes you to bring vastly more to the table with each new job.)

Happily, these days I’m a) CEO of a company I co-own, b) have no investors to keep happy, and c) have no reasonable prospect of ever having a client again, so I can publish salary/rates without blowback. I’d encourage folks who are likewise well-situated to do the same. In particular, I think that Glassdoor/salary threads on HN/etc often fail to capture the top end of the distribution due to (basically) professional courtesy/discretion, and it is really, really important that young/impressionable/lacking-information members of the industry understand that the top end exists.  (Incidentally, “the top end” suggests that there’s a ceiling/asymptote, but it’s really closer to a long tail distribution.  Pick a number, any number: somebody does a lot better than that. For most numbers you’d naively think of, its an awful lot of somebodies. $100k? Not the top. $250k? Not the top. $500k? … Not the top.)

I’d encourage similarly fortunate members of the industry to strongly consider dropping some breadcrumbs for folks who are still leveling up, either on your blog or even just informally to your peers.  Remember that nobody is born in possession of reliable market data.  Make it a point to assist other people as they journey up the career ladder.  It’s the right thing to do.

Salary History

I have a pair of undergraduate degrees, one in Computer Science, from Washington University in St. Louis.  As of graduation in 2004, my impression was that $50k was a reasonable achievable mid-career salary as an engineer and that, if I worked very diligently, I might eventually hit $100k per year.

Order entry (ages 18 ~ 20, Chicago suburbs): $10/hr, no benefits, $0.25/hr incentive pay for working in non-airconditioned parts of the operation.
Work Study (ages 18 ~ 22, St. Louis): $10/hr. Positions included data entry and basic technical support for e.g. printers.
Undergraduate research (age 22, St. Louis): $12.50/hr. My first position where I shipped code for a living.
Technical translator/researcher (age 22 ~ 25, Ogaki, Gifu, Japan): 3 million yen per year (quoted post-tax) with housing benefit with a fair-market value of approximately 500k yen per year. This was roughly equivalent to a $35k to $40k professional salary in the US, with a comparable benefits suite.
Engineer, first-class (age 25 through 28, Nagoya, Japan): ~260k yen per month (age * 10k yen is approximately the salaryman expectation for engineers in and near Nagoya), overtime pay (a lot of it — as a salaryman I routinely was compensated for more than 50 hours of it in a month… and worked “rather more than that implies”), and the standard benefits suite for professional workers in Japan. No housing benefit. Standard non-taxed transportation benefit covered more than 100% of transportation costs, as is common in Japan. I don’t want to dig out my pay stubs because seeing the number of hours I worked might cause PTSD (not a joke) but my US tax returns were generally in the $45k per year region.

A brief digression about salarymanhood: Salaries are not just internally transparent at Japanese megacorps but they’re so predictable that any middle-class adult in central Japan can accurately predict my salary history at Japanese organizations. I mention this partly because it’s an interesting cultural note and partly to say that salary transparency by itself does not guarantee happy outcomes for employees.

Consulting Rates

After that I quit my day job and started consulting simultaneously with running my own business. Now things get a little… crazy. I reiterate that this isn’t to brag, it’s just to hopefully show people how the world works.

My consultancy is shuttered now, so I can’t hurt myself with revealing the following information, but in deference to identifiable past clients I will be vague about details about particular engagements. I consulted in Tokyo, Chicago, New York, San Francisco, Germany, LA, Austin, and remotely from my then-home in Ogaki, Japan. My typical client was a privately owned software company with $10 million to $50 million a year in revenue. People generally assume that I must have been working for funded Silicon Valley startups to earn the following rates so I think I’ll explicitly call out that they represented less than 10% of my consultancy’s business.

While I was still consulting, my rates were private, largely so that I had freedom to price new engagements.  This worked out rather well, as I walked my rates up rather quickly.

First consulting gig: $100/hr
Second consulting gig: $4k/wk
Third consulting gig: $8k/wk
Fourth consulting gig: $8k/wk “Hey I wonder what happens if I just put $12k on the proposal?” $12k/wk
Consulting rack rate, year 2: $20k/wk
Consulting rack rate, year 3: $30k/wk
Highest accepted proposal: $50k/wk (The gig fell through. Had it not, my rack rate after it would have been $50k per week, at least until I convinced a firm to pay more than that.)

There were a few engagements which I priced at below rack rate, for longstanding clients, clients operated by friends, and the like. I also did a modest amount of semiformal pro-bono work.

What I did to earn those rates:

I combined a modest amount of programming skill (typically Rails, Ruby, and Javascript) with substantial experience with using engineering skills to move marketing/sales levers, including by doing SEO, email marketing, A/B testing, (light) UX design (typically around high-value parts of a SaaS business like signup flows or purchasing pathways), etc. I turned down essentially any gig which was strictly engineering in character and rather aggressively went after bigger projects which were “closer to the money” every couple of months.

I aggressively solicited formal and informal case studies from clients who had had successful outcomes, which went directly into proposals for subsequent engagements. Most of the discontinuous jumps in my consulting rate were directly occasioned by an engagement which had gone exceptionally well.

The main thing holding my rate down for the early years was personal discomfort with being “worth” the types of rates which I desired to charge. I dealt with (deal with?) impostor syndrome frequently and had little context for what alchemy one needs to work to justify professional rates.

Spoiler alert: there is virtually no difference in the mechanics of work done between $100 an hour, $200 an hour, and $30k a week — all of the leveling up there is in sophistication on who you go after, what engagements you propose and deliver, and how you package things for clients.

By the end of my consulting career, I pointed to a small pile of mostly satisfied customers and other evidence that I could do the work, sketched out a “Here’s how I plan to create a couple million dollars of value for your company” in proposals, and then just announced my rate. I received rather less pushback than I expected and virtually never negotiated on rate, using a trick from Thomas Ptacek (“If a client says you’re out of the budget, start talking about the scope of the engagement to find something they can afford rather than slipping your rate.”)

One under-appreciated benefit of charging premium rates is you get to be really picky about engagements. This lets you both deliver only engagements where you have an expectation of being able to do meaningful, successful moves-the-needle-for-everyone work, and it improves your negotiating position. If you charge $60 an hour and desire to be middle class, you have to jump on virtually every engagement which comes your way and if someone counterproposes $50 an hour you virtually have to hear them out.  If you charge more professional rates, you have the wherewithal to decline work below your prevailing rates and simply take an unpaid vacation or concentrate on building higher-quality pipeline for new full-rate engagements.  That is a high-quality BATNA to have, and existence of it helps close negotiations successfully all by itself.

My impression is that my consulting rates are both high and not nearly the top of the market for professional work done in our field. I could substantiate that with data from other people, but that would require divulging confidences.

Folks occasionally think I’m a member of a shadowy cabal for being able to charge the above rates, but believe me, I was nearly exactly the same level of capabilities at $30k a year as I was at $30k a week, I just got better at organizing the business to expose me to opportunities to capture the better rate. I’m good at what I do, but the premium built into the rates versus many other people who can knock together a Rails app is not, not, not due to superior skill with Rails, the elite fraternity of the Ogaki tech industry, etc.

Business Results vs. Wages

I ran a succession of small software businesses between 2006 and 2015, which both earned money and gave me the skills/platform which allowed me to do the consulting thing described above. They’re not directly relevant to discussions about “pay”, as running a business has many types of tradeoffs not directly comparable to those experienced by employees/consultants.  In particular, running a business exposes you to substantially higher risk.  Business owners have a huge variance in outcomes due to factors both inside and outside of their control.

That said, I originally got on the transparency train back when I had $25 a month in revenue and just never stopped publishing numbers. There exists a fairly comprehensive breakdown of my business’ numbers every year since starting (c.f. 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, and 2014).

Equity

As a small-business owner, my net worth is dominated by equity I own in my company. This is important to discuss in any conversation about wages in the tech industry, because for historical/cultural/tax reasons we put a large percentage of the industry’s total compensation in equity grants. This is particularly true as you get increasingly advanced in your career.

It’s extraordinarily difficult to value equity in a small company prior to selling it. At one point, I wanted to invest a small amount of money into startups which were owned by other people. This requires one to be an “accredited investor” in the US, with either $250k salary for two years (a bar which I did not hit) or $1 million in assets aside from the value of one’s primary residence. After speaking it over with my accountant, we mutually decided that we could attest to me being an accredited investor in good faith.  (Somewhat surprisingly to me, a two-sentence letter from a CPA suffices to establish accredited investor status.  I had a vague notion that it would probably require a balance sheet or complicated well-researched valuation of assets, but no, it’s basically “I’m professionally responsible for looking after this client’s finances.  His assets exceed liabilities by more than a million dollars.”)

I recently sold my first SaaS business, Bingo Card Creator. I want to disclose how much it went for, but am prohibited from doing so by the terms of my agreement with the purchaser. Speaking generally, small SaaS businesses are presently valued at between 2X and 3X “seller discretionary cash flow” (SDC), which is essentially “how much money could the owner extract from this, totaling profits and their salary, if they only paid absolutely necessary expenses.” BCC’s SDC can be reasonably estimated from previously published numbers. That’s all the bars I can hum.

I have another SaaS business, Appointment Reminder, which I am a 100% owner of. The business is modestly successful. I have a particular number in mind for it, which I’d be crazy to quote publicly prior to selling it, for the same reason that you’d be crazy to quote your desired salary in a salary negotiation.

If a buyer pitches me on 2X my desired number I will, naturally, say “That’s an interesting number. If you were offer insert 2.2X here I think we’d have a deal.” No buyer will pitch 2X if they know what X is, though.  A younger, less savvy me would interject here “Why ask for more money given that they’ve already offered you enough?” and my answer to that is “Because everyone in the negotiation is a businessman and any number we are mutually happy with is a morally acceptable number.  Given this, and keeping all else equal, I prefer ‘more’ to ‘less’ and always, always, always ask for ‘more.’  You should try that — it’s a trivial tactical suggestion which helps address you systematically low-balling yourself, which you’re prone to.  You think that asking for ‘more’ will result in ‘less’ being yanked from the table, but you believe this because you’re young, inexperienced, and working from a narrative about desert which is quite disconnected from how rational businessmen actually operate.  No counterparty who you actually want to work with will hold good-faith negotiating against you.”)

I expect, regardless of the outcome of negotiations over the business, that the sale will pay for my daughter’s college education, repay the out-of-pocket investments I made in growing the company, and establish a healthy buffer for my family.  That said, I’ll still need to draw a salary for the near future.

I did not accept equity in any of my consulting clients.  I own a very modest amount in two companies which I am an angel investor in (Binpress and Riskpulse) and one company which I am a formal advisor in (MakeLeaps).  Like most angel investors in tech, most career returns will likely come down to equity awarded as wages rather than equity purchased primarily for cash consideration.

Present Salary / Equity Situation

I’m presently an equal co-owner in Starfighter with Thomas and Erin Ptacek. As the CEO of a pre-revenue company, I don’t presently take a salary. After Starfighter has revenue, I expect all the co-founders to draw substantially identical salaries (pegged at market rates for senior technologists). We will also receive distributions.

Wrap-up

Anyhow, that’s the boring-but-hopefully-instrumentally-useful discussion of ten years in a rather quirky tech career. I am impossible to bore or embarrass on this topic, so if you ever want private advice, drop me a line.

Final words of advice: Technologists are in a wonderful position presently to create a heck of a lot of value in the world. Don’t be hesitant to be compensated equitably for the value you are creating.

[Editor’s note: At nearly 7,000 words, you probably don’t want to try reading this on an iDevice.  Bookmark it and come back later.]

Imagine something a wee bit outside your comfort zone.  Nothing scandalous: just something you don’t do often, don’t particularly enjoy, and slightly more challenging than “totally trivial.”  Maybe reciting poetry while simultaneously standing on one foot.

If I told you I would pay you a hundred thousand dollars if you did five minutes of poetry recital while standing on one foot, would you do it?  It’s an absurd image, but play it straight.  There is no hidden gotcha here.  You won’t be videotaped.  Your friends will never see you make a fool of yourself.  The revolution will not be YouTubed.  The offer is exactly as simple as you think it is: poetry, foot, $100,000.

Would you read poetry for me?

Of course you would.  You’d be screamingly stupid not to.  In fact, not only would you read poetry, you’d probably take a poetry class to make sure you did it right, or go to the gym to verify “Yep, sure enough, I can stand on one foot.  Phew.  Pass me the Shakespeare.”  If you couldn’t stand on one foot, you’d fix that, because you know that is much easier than other things you routinely accomplish and you suddenly have a hundred thousand wonderful reasons to learn it, too.

What if you were talking about this at dinner with your friends, and one of them said “Oh, no, I’d never do that.  I just don’t do poetry.  I’m an engineer.  And besides, my father told me that people who stand on one foot look silly.  And what do I need $100,000 for anyhow?”  You would not clap them on the back and say “Damn straight!  Man, poets, always trying to tempt virtuous engineers into their weird poetry-spouting flamingo-standing ways.”  You’d say “Dude, it’s five minutes.  Heck, I’ll help you practice.”

This is pretty much how I feel every time I talk to my engineering friends about salary negotiation.  We overwhelmingly suck at it.  We have turned sucking at it into a perverse badge of virtue.  We make no affirmative efforts to un-suck ourselves and, to the extent we read about it at all, we read bad advice and repeat it, pretending that this makes us wise.

Dude, it’s five minutes.  Let’s un-suck your negotiation.

(New to the blog?  Hiya.  I generally write as an engineer for engineers.  Non-engineers can benefit from many of the same techniques, though the hiring market isn’t nearly as in your favor at the moment as it is for engineers in most major US metro areas.)

Why Negotiation Matters

Your salary negotiation — which routinely takes less than 5 minutes to conclude — has an outsized influence on what your compensation is.  Compensation can include money or things which are more-or-less fungible replacements for money, but it can also include interesting things which you value from “more time with your family” to “opportunities to do tasks which you find fulfilling” to “perks which make a meaningful difference in your day-to-day quality of life.”  That makes your negotiation five very important minutes.  You generally can’t do a totally bang up job on any five minutes of work this year and have your boss give you an extra $5,000.  You can trivially pick up $5,000 in salary negotiations just by sucking less.

Since salaries are shockingly durable over time, particularly if one is not good at negotiating, you can expect a $5,000 increase in salary to compound with your standard annual read-the-HR-chart-percent raise, cause a similar increase in your 401k contribution (which also compounds), and establish a higher peg for any further jobs you take (if you’re unsavvy and allow these other jobs access to your prior salary history, at any rate).  Accordingly, over the next ten years, the value of $5,000 a year extra salary is close to $100k gross, and the value of $15,000 a year extra (very achievable if you’re e.g. a young engineer who doesn’t realize that the hiring market is on fire right now, even outside of tech epicenters like Silicon Valley) is over $100k even net of taxes.

Shifting Your Mindset To Embrace Negotiation

We’ll discuss tactical advice in a moment, but let’s talk about the psychology of negotiation first.  I think that middle class Americans are socialized from a very young age to view negotiation as something that is vaguely disreputable and engaged in only by poor people.  Think of the associations you have with the word “haggling”: do you think of a successful young professional talking about thousands of dollars in a brightly lit office?  No, you probably think of an old woman arguing over a trivial sum of money in a dirty flea market.

If I were a little more paranoid and a little more Marxist, I’d honestly think that you’re so misinformed about reality that that is almost prima facie evidence of a conspiracy to keep you in the dark about this, to the advantage of people who a) you won’t negotiate with and b) who will feel absolutely no compunctions about negotiating with you.  Principally, this will be your employers.  People say that your house is the biggest purchase you’ll ever make, but it won’t be the most consequential negotiation.  If you’re sane only about 25% or so of your gross income is subject to the results of real estate negotiations.  Close to 100% is subject to the results of salary negotiations.  Thus, your salary negotiations are probably going to be the most important financial decisions you will ever make.  We socialize middle class Americans to go into them unprepared, demotivated, and fearful of success.

The reality is that rich, successful people negotiate.  (This is one important way in which they get — and stay — rich.)  It is an all-day-every-day thing in much of the business world, which is where most rich people get their money.

Your Counterparty Does Not Share Your Mental Model of Negotiation

Salary negotiations are very asymmetrical.   Companies know this and routinely exploit it.  Job seekers don’t, perhaps because they think doing so would be unfair and the word “exploit” makes them acutely uncomfortable.  So we often default by pretending that the employer is evaluating the negotiation like we would.  This is not true, and acting like it is true will harm both your interests and the interests of your future employer.

For example, many people’s mental model of employment is that an employee with a $60,000 a year salary costs about $60,000 a year to hire.  If they negotiate $65,000 instead, that’s $5,000 extra which has to come from… somewhere.  If the negotiation breaks down, then that is $60,000 saved.  This mental model is broken.

First, get into the habit of seeing employees like employers see them: in terms of fully-loaded costs.  To hire someone you need to pay for their salary, true, but you also have taxes, a benefits package, employer contributions to retirement, healthcare, that free soda your HR department loves mentioning in the job ads, and what have you.  (Trivia: for a US employer of professionals, the largest component after salary is usually healthcare, followed by payroll taxes.)  The fully-loaded costs of employees are much higher than their salary: exactly how much higher depends on your locality’s laws, your benefits package, and a bunch of other HR administrivia, but a reasonable guesstimate is between 150% and 200% of their salary.

The fully loaded cost of an engineer receiving market salaries these days in California or New York is close to $20,000 a month.  It is “only” $10,000 a month if they’re receiving a heavily below-market salary, such as if they’re working for a startup.  If you have a kid brother who majored in Flemish Dance and got a modest full-time job at a non-profit, his fully-loaded cost is still probably $4,000 a month or more.

This is a roundabout way of telling you that companies are not sensitive to small differences in employee wages because employees are so darned expensive anyhow.  You see $5,000 and think “Holy cow, even after taxes that’s a whole new vacation.  Five thousand dollars.  Five thousand dollars.  It would be so very, very greedy of me to ask for five thousand whole dollars.”  The HR department sees $5,000 and thinks “Meh, even after we kick in the extra taxes, that is only about 3% of their fully-loaded cost for this year anyhow, or seven hundredths of one percent of that team’s hiring budget.  I wonder if the cafeteria has carrot cake today?”

Virtually any amount of money available to you personally is mouse droppings to your prospective employer.  They will not feel offended if you ask for it.  (I received a comment that this is untrue for startups by someone today.  For a funded startup which has enough engineers to warrant a foosball table, the company payroll is well north of $100,000 a month.  Making a new hire is a big commitment, but they still have a lot of flexibility on the  details because the details do not shave months off of their runway.)

We’ve been talking about your employer as an abstraction, but in the instant case you’re talking to an actual person.  Let’s call him Bob.  It is Bob’s job to get you signed with the company as cheaply as possible, but Bob is not super motivated to do so, because Bob is not spending Bob’s money to hire you.  Bob is spending Bob’s budget.  Bob generally does not get large performance incentives for shaving money off of his hiring budget: you get a new Macbook if you convince Bob to give you $5k extra, but Bob gets (if he is anomalously lucky) a dinner at TGIFridays if he convinces you to take $5k less.  In fact, there are many organizations (and Bobs) for whom power, status, and money come from asking for more budget every year.  If you turn out to be on the expensive side, that is great for Bob, because a) he manages a high-powered peon so he must be a high-powered manager and b) this will help Bob get more budget next quarter.  So if you’re worried about what Bob will think of your moral character, or you want to compensate Bob because you feel you owe him for this job opportunity, do Bob a solid and negotiate in a spirited fashion with him.

You don’t owe Bob for giving you this job opportunity, by the way.  Internalize this: everyone in this discussion is a businessman.  (Some might call themselves “regular employees,” which just means they’re businessmen with self-confidence issues and poor business skills.)  If the deal makes economic sense, it will happen.  If it doesn’t, firm handshakes will be exchanged, non-specific promises will be uttered, and everyone will forget about this discussion in a matter of hours.  You will not be blackballed for negotiating.  Bob couldn’t care less and, even if he did care, he has better things to do with his time than worry about a candidate he didn’t hire.  Bob is working through a list of a dozen people right now, and his manager Dave is being such a hard case about that project’s schedule, and he’s not sure he can make his daughter’s piano recital, and the cafeteria’s carrot cake was a little dry.  Bob is far, far less invested in this negotiation than you are.

Your Negotiation Started Before You Applied To This Job

Your negotiation doesn’t happen in a vacuum.  Generic career advice is a little outside the scope of this post (though I’ve previously written a bit with engineers in mind that folks from many walks of life tell me was useful), but to make a long story short, many people think job searches go something like this:

1. See ad for job on Monster.com
2. Send in a resume.
3. Get an interview.
4. Get asked for salary requirements.
5. Get offered your salary requirement plus 5%.
6. Try to negotiate that offer, if you can bring yourself to.

This is an effective strategy for job searching if you enjoy alternating bouts of being unemployed, being poorly compensated, and then treated like a disposable peon.  (I served three years as a disposable peon in a Japanese megacorp and might be projecting a tad bit here.  Regardless, my loss is your gain.)

You will have much, much better results if your job search looks something more like:

1. (Optional but recommended) Establish a reputation in your field as someone who delivers measurable results vis-a-vis improving revenue or reducing costs.
2. Have a hiring manager talk with you, specifically, about an opening that they want you, specifically, to fill.
3. Talk informally (and then possibly formally) and come to the conclusion that this would be a great thing if both sides could come to a mutually fulfilling offer.
4. Let them take a stab at what that mutually fulfilling offer would look like.
5. Suggest ways that they could improve it such that the path is cleared for you doing that voodoo that you do so well to improve their revenue and/or reduce their costs.
6. (Optional) Give the guy hiring you a resume to send to HR, for their records.  Nobody will read it, because resumes are an institution created to mean that no one has to read resumes.  Since no one will read it, we put it in the process where it literally doesn’t matter whether it happens or not, because if you had your job offer contingent on a document that everyone knows no one reads, that would be pretty effing stupid now wouldn’t it.

You might think that desirable jobs at well-managed companies (Google, Microsoft, hot startup FooWithTheWhat.ly, etc) have layers and layers of bureaucratic scar tissue (a great image from 37Signals) to ensure that their hiring will conform to established processes and that offers will not be given to candidates sourced by using informal networks and interpersonal connections.  If you believe this, you have a dangerously incomplete mental model of how the world operates.  I have a specific recommendation for you to make that model more complete: start talking to people who actually work for those companies and who have hiring authority.  Virtually no company has a hiring process which is accurately explained by blog posts about the company.  No company anywhere has a hiring process which is accurately explained by their own documents about how the hiring process works.

I won’t give names, but all of the following are companies you’ve heard of:

• Ironclad non-compete with an IP assignment provision of major multinational… struck from the contract with four sentences of discussion.
• Major popular tech employer offered desirable employee $X as a salary because “it was the max the HR department allows for that position.”  He got hired that week at $2X.  All parties — hiring organization, HR, and employee — think they pulled one over on the other participants.
• Funny story goes here. I now can’t tell you the funny story, because literally two hours before publication someone emailed me for advice about a situation that he believes is incredibly unjust at his company, and it is exactly the funny story to the letter.  Now if I tell you the funny story he might think “Dang, I write Patrick in confidence and it ends up on the blog.”  So, no funny story today.  Suffice it to say that in my old age I treat Dilbert less as farce and more as documentary.
• “We can’t hire engineers fast enough through our standard processes so, meh, I guess we’ll circumvent them by just tossing $1 million per employee at whomever they currently work for.  Who cares, it isn’t my million.”

When Does A Salary Negotiation Happen?

Only negotiate salary after you have agreement in principle from someone with hiring authority that, if a mutually acceptable compensation can be agreed upon, you will be hired.

This is really, really important because it has direct implications for your negotiating strategy.  First, the company is going to spend a lot of time and effort on getting you to the point of agreement-in-principle.  Pretend you’ve gone through six rounds of interviews.  (You probably won’t if you get hired on informal networks, because all barriers vanish when important people want a deal to get done, but let me give some advice to someone a little less well-situated.)  Do some quick mental math on what that actually cost the company, with reference to “one man-month of an engineer’s time costs $20k” like we discussed earlier.  You’ll quickly reach the conclusion that the company has spent thousands of dollars just talking to you, and that doesn’t even count the thousands they spent deciding to talk to you instead of whoever isn’t in the room right now.  Walking away from the negotiation means that they lose all that investment.  (Yeah, sunk cost fallacy and all, but since people predictably act in this fashion you should, well, predict that they will act in this fashion.)  They really want to reach an agreement with you.

The second implication is that the inner serf worrying “If I even attempt to negotiate this, the deal will fall through” is worrying for nothing.  They’ve got thousands invested in this discussion by this point.  They want you.  The absolute worst outcome of negotiating an offer in good faith is that you will get exactly the contents of that offer.  Let me say that again for emphasis: negotiating never makes (worthwhile) offers worse.  This means you need what political scientists call a commitment strategy: you always, as a matter of policy, negotiate all offers.  (In this wide world I’m sure you can find a company who still makes exploding offers, where you get one yay-or-nay and then the offer is gone.  You have a simple recourse to them: refuse them and deal with people who are willing to be professionals.  You’re not a peasant.  Don’t act like one.)

This also means you do not start negotiating until you already have a Yes-If.  (Yes-If we agree on terms.)  Do not start negotiating from No-But.  (No-But we might hire you anyway if you’re really, really effing cheap.)  You don’t want to work for a No-But for the same reasons that smart employers hate hiring candidates who are a No-But (No-But maybe if not on my team, etc).  If they’re leaning to not hiring you, you will compromise excessively on negotiation to get them to hire you.  Compromising excessively is not the point of the exercise.  It is a seller’s market for talent right now: sell to someone who is happy to buy.

This means that any discussion of compensation prior to hearing Yes-If is premature.  If you’re still at the job interview and you’re talking price you are doing something wrong.  (Read the room: it is entirely possible that you came for a job interview, finished it, and proceeded directly to a salary negotiation.  That’s probably suboptimal, but it is OK.  Just don’t give the employer the option of having the schedule be job interview, salary negotiation, and back to job interview if they discover that you have a spine.)  The ideal resolution to the job interview is for both sides to be optimistic about the arrangement, and then you close with a warm handshake and “I look forward to receiving your offer by, oh, would tomorrow be enough time for you to run the numbers?”

You then have a high likelihood of doing your salary negotiation over email, which is likely to your advantage versus doing it in real time.  Email gives you arbitrary time to prepare your responses.  Especially for engineers, you are likely less disadvantaged by email than you are by having an experienced negotiator talking to you.

The First Rule Is What Everyone Tells You It Is: Never Give A Number First

Every handbook on negotiation and every blog post will tell you not to give a number first.  This advice is almost always right.  It is so right, you have to construct crazy hypotheticals to find edge cases where it would not be right.

For example, if your previous salary was set during the dot-com bubble and you are negotiating after the bubble popped, you might mention it to anchor your price higher such that the step down will be less severe than it would be if you engaged in free negotiations unencumbered by the bubbilicious history.  Does this sound vaguely disreputable to you?  Good.  This vaguely disreputable abuse of history is what every employer asking for salary history, salary range, or desired salary is doing.  They are all using your previous anomalously low salary — a salary which did not reflect your true market worth, because you were young or inexperienced or unskilled at negotiation or working at a different firm or in another line of work entirely — to justify paying you an anomalously low salary in the future.

Never give a number.

“But Patrick,” you cry.  “I don’t want to be difficult.”  You’re not being difficult.  You’re not doing anything immoral.  You’re not being unprofessional.  They’re businessmen, sometimes they don’t have all the information they would love to have prior to making a decision.  They’ll deal.

They already deal with every employee that they’ve ever had who was not a doormat at negotiations, which includes essentially all of the employees they really value.  Ramit Sethi (more on him later) introduced me to a concept that he calls Competence Triggers: basically, if you have to judge someone’s skill based on a series of brief interactions, you’re going to pattern match their behavior against other people who you like.  When people with hiring authority think of winners, they think of people like them who live and breathe this business thing.  They negotiate things as a matter of course: that is a major portion of the value they bring to the company.  Volunteering a number when asked says the same thing to people with hiring authority that flunking FizzBuzz says to an engineer: this person may be a wonderful snowflake in other regards, but on the thing I care about, they’re catastrophically incompetent.  It will also cause them to retroactively question competencies they’d previously credited you with.

I have literally heard that feedback, in so many words, from folks with whom I’ve had successful business dealings.  (A funny in hindsight story: I cost myself five figures with a single email.  The particulars are boring, but suffice it to say I fairly recently made a wet-behind-the-ears-engineer error in quoting a client.  He noticed.  So did my bank statement.  My bank statement kept quiet, but the client opined that it made him think less of me until we actually got to work together.)

So anyhow, you may well hear reasons why you should give a number.

Objection: “I really need a number to move the process forward.”

What you should think: “You’re lying to me to attempt to get me to compromise my negotiating position.”

What you should say: “I’m more concerned at the moment with talking to you about discovering whether we’re a mutual fit.  If we’re a great fit, then I can be flexible on the numbers with you and you can be flexible on the numbers with me.  If we’re not a great fit, then the numbers are ultimately irrelevant, because your company only hires A players and I only work at roles I would be an A player at.”

(Don’t talk like that normally?  Fine then, talk like yourself, but say substantially the same things.  Engineers overestimate how different we really are from business people: we say “10x engineer,” they say “A player,” but at the end of the day we believe that there are vast differences in productivity between workers.  OK, gut check: is this something we actually believe to be true or just something we wish for?  If it is actually your best guess about the state of reality, that has immediate news-you-can-use implications about how you should conduct your life.)

Objection: “This form needs a number.”

What you should think: “You’re lying to me to attempt to get me to compromise my negotiating position.”

What you should say: “Give me git access and I’ll fix it in a jiffy!  both people laugh No, seriously, speaking, I’m more concerned at the moment with discovering whether we’re a mutual fit…  Oh, it’s physically impossible?  Put in $1 then to get the ball rolling, and we’ll circle back to this later.”

Objection: “We want to figure out whether you’re an appropriate candidate for the position.”

What you should think: “You’re lying to me to attempt to get me to compromise my negotiating position.”

What you should say: “It’s so important to me that this is a good mutual fit for us.  Let’s talk about why I’m a great fit for this position: I know you’re concerned about $FILL_IN_THE_BLANK.  In addition to my previous successes doing it, I have some great ideas for what I’d do about that if I was working at your company.  Would you like to drill into those or is there another job area you’re more concerned about to start with?”

Objection: “I’m sorry, great try at a dodge there, but I just can’t go forward without a number.”

What you should think: “You’re lying to me to attempt to get me to compromise my negotiating position.”

What you should say (if you’re an engineer): “Well, you know, I would hate to have to walk away from the negotiation over this.  Working with your company looked it would have been such a wonderful opportunity.  I hear the hiring market is super-tight right now, would you like me to introduce you to other candidates?  Maybe we can shave a couple of months off of you filling this position.”

What you should say (if you’re not an engineer): “Damn, I guess I should have studied engineering.”

What you should say (if you’re a little put out by that comment): “Well, you know, salary is only one component of the total compensation package.  In terms of total compensation, we’re probably looking at something like $FILL_IN_NUMBER_HERE.”  (Suggested calculation: take the package value from your last company and add 5~10%.  If you don’t know how to calculate the value of your compensation package, learn that, but as a rough guesstimate salary + 30 ~ 50% for full-time employees in professional roles and the multiplier tends to scale up as your base salary scales up.)

P.S. I double majored in making things and making things up.  The joking comes from a place of love.  OK, love and schadenfreude, in solution with each other.

Listen To What People Tell You.  Repeat It Back To Them.

Properly run negotiations are not jockeying contests, they’re persuasive exercises.  (We’ll give the company a pass on the “what’s your number?” question because it is an established social ritual that they get one free pass at screwing you.  You still don’t have to cooperate with it, though.)  You know what people find persuasive?  Their own words.  People love their own words.  When you talk to them, you should use their own words.  Seriously, watch the eyes light up.

Did the solicitation for the job say “We are seeking someone with strong skills at scaling traffic in a fast-moving environment”?  Pick out the key words.  Scaling traffic.  Fast-moving environment.  “Scaling traffic” doesn’t sound like how I’d phrase it if I were writing or speaking for myself, but if you’ve just described your need to me as scaling traffic, by golly I will tell you how great I am at scaling traffic.  Reinterpret or rephrase the (true!) bits of your own story such that it fits the narrative framework which they have conveniently told you that they are going to respond to.  Did you previously work at a small business which was unencumbered by lots of process?  Sounds like a fast-moving environment, right?  Call it exactly that, then.

Micro-tip: Take notes during job interviews and salary negotiations.  It’s easy: go to the convenience store before the job interview, buy a writing instrument and a $1 notebook, jot down occasional notes when appropriate.

Can I do that?!  Of course you can.  Do you know anyone who you’ve ever thought “Man, I thought they were competent, but then it turned out they had a notebook so I had to write them off?”  No.  Taking notes says “I’m attentive and detail-oriented and I care about what you say.”  (Make sure you can take notes without playing with your pen or otherwise appearing to fidget.)  In terms of specific things that should get your pen moving, among others, I would focus on specific words they use and concerns they have so that you can come back to them later in the conversation.  Numbers are another good thing to hit the notebook, because numbers should only ever trend in a direction of “Better to you,” so you don’t want to do something stupid like saying “So how many days of vacation was that again?” and let a 24 suddenly become a 20.  (You might think “I’m going to write down the offer so I have proof of it for later.”  Get offers written, that goes hopefully without saying, but get it written by them and/or follow-up the discussion with an email recapping the important points and asking if you understood them correctly.  Your notes will not convince their HR apparatus to honor the agreement in event of a retroactive miscommunication, but an email from their decisionmaker likely will.)

People say the damnedest things.  For example, someone might spontaneously volunteer during a job interview that they’ve been interviewing for the position for six months.  (None of my clients would ever say that, of course, but then again one would hope none of their consultants would chop five figures off their own invoice with an email.)  If they say the position has been open for six months, take a note of that.  During the salary negotiation, if they have a pricing objection, one of your first responses should be “I appreciate that this is a little more money than you might have been thinking about, but this is an opportunity to get this position filled without delaying your business by another six months.  What is the value of that six months of execution to you?”  (Conversely, don’t say stupid things during job interviews such as “I need this job because…”  You never need a job.  Being needy means that the party who is not needy has automatic leverage over you: your BATNA to the negotiation is very poor.  Instead of being needy, aim for “I’m enthusiastic about the opportunity with working with you, assuming we can come to mutually satisfactory terms.”)

Micro-tip: Notice how often I say “We” and variations on “mutual win.”  Those work pretty well.  The only thing better than “We” is “You” (and variants), because people care a heck of a lot more about their problems than about your problems.  (This advice is stolen shamelessly from Dale Carnegie.)  This means that a) you should talk about their problems, concerns, and wishes and b) you should guard against your own natural tendency to bring up irrelevant things like your own problems, which typically will not help you sell the decisionmaker on adopting the mutual win you’re proposing.  Similarly, I generally try to phrase things positively rather than score debating points.  (“You just said X, but that was contradicted by your earlier statement Y, which means…” wins debating points but does not win friends and influence people.  You might try something like “Good good, but taking into account your earlier concerns about Y…”)

Research, Research, Research

Many people will tell you that you should familiarize yourself with the approximate salary range for the position in your region.  This advice is easy to act on (go to a salary aggregation site, guess what “the position” is, pray that this gives you a better number than rand(40000,120000)), but it leaves a lot to be desired.  It is 2012.  Facebook and LinkedIn exist.  You should, before any job interview, have intimate knowledge of the target company.  Prospective peers within the company are one obvious way to get it.  So are ex-employees, folks who’ve had dealings with them professionally, etc.  Key things you want to learn:

• What do they value?
• Who do they value within the company?  (Roles?  Titles?  Groups?)
• What does the career path look like for successful people within the company?
• Roughly speaking, how generous are they with regard to axes that you care about?
• Do they have any compensation levers which are anomalously easy to operate?  (For example, if you asked around, you might hear a few people say that a particular firm pushes back modestly on out-of-band increases in salary but they’ll give in-the-money option grants like candy.)
• All the fuzzy stuff: what’s the corporate culture like?  Yadda yadda.

You can even bring a lot of these questions to the job interview, which is (again) prior to the negotiation.  (Maybe not “So are you guys tightwads?” but culture-esque questions like “What are the projects this company thinks are really key to its future and how would a motivated person go about getting on them?” are both a) totally fair game and b) will win you brownie points just for asking.  Similarly, a lot of employees will, out of company loyalty, attempt to sell you on taking the job with the company by trading you very useful information.)

The more you know, the more options you have when doing negotiation, because you’ll have more things and more motivational things which you can offer in exchange for things you want.  It will also help you avoid making mistakes like e.g. getting into a rigid classification system where the classification you’re aiming at will make forward advancement towards your goals very difficult.  (Example: there are some companies where Product and QA are run like separate fiefdoms which haven’t forgotten the most recent war, and in those companies getting hired as an engineer may not be a career enhancing move if you like making things for a living.  There are other companies where people cross-function in those responsibilities all the time and applying for a job advertising as “Support Engineer” makes lateral moves onto customer-facing projects trivial.  You can find which one you’re applying to by taking any engineer out for coffee.)

New Information Is Valuable And Can Be Traded For Things You Want

There was a post recently on Hacker News about someone’s experience with a job offer from Google.  They wanted more money.  The recruiters offered to think it over, and came back with the reply that Google’s food benefit was worth a significant amount of money, with a calculation to back it up.  That is a pretty brilliant reply.  Google’s food benefit is about as old as the company.  Approximately all people wanting to work at Google are aware of its existence.  However, the explicit calculation of what it is worth is new, so if you bring up that calculation, by implication you’re offering newly found value to the negotiation.  This successfully convinces people that they didn’t really need that extra money.  It is so successful at this that Google recruiters apparently have this entire interaction scripted, since multiple people report having the exact same experience.

You should steal this tactic.  You are an expert in your own skill set, life story, and (ideally) value you can create for the company.  However, the person you are talking to is not.  If they ever resist about something which you want, consider reaching into the treasure chest that they are buying mostly blind and revealing one of the many glittering jewels inside.  They are going to get them all anyhow if they buy the chest, but each one you bring out decreases the perceived risk of buying it and therefor increases its perceived value.

Company: We can’t see our way to $88,000.

Applicant: Well, I know you do a significant amount of business with your online store.  At my last company, I increased sales by 3% by $YADDA_YADDA.  What would a 1% increase in sales be worth to you?

Company: Well, I don’t have that figure in front of me, but…

Applicant: Would it be safe to say “millions of dollars”?

Company: That sounds about right, yeah.

Applicant: Great, I can’t wait to get started.  Getting me that extra $4,000 would make this a much easier decision.  Considering that this is conceivably worth millions to you, we’d be silly not to do business with each other.

Company: I’ll see what I can do.

Applicant: Let me help give you some options!  [See below.]

(This hypothetical applicant is doing well on the negotiation but apparently needs to do more research on what conversion optimization specialists can get away with charging these days.  Here, let me help: six figure salary with all the usual perks as an employee, “senior engineer project rates” through “you might not believe me if I told you” as a consultant.)

Anyhow, simply by bringing attention to something which was hopefully already in bold print on their resume, they just increased their perceived value to the company, thus justifying the company moving a lever which (again) the company isn’t really sensitive to at the end of the day.

You Have A Multi-Dimensional Preference Set.  Use It.

Don’t overly focus on your salary number.  It is important (of course), but there are many parts of your compensation package, and many more things that you value.  Should you and the other party reach an impasse on any part of it, offer to table that part of the discussion (to be returned to later) and bring up a different topic.  You can then trade improvements for concessions (or apparent concessions) on the earlier topic.

Employer: “We were thinking $80,000.”

Applicant: “$80,000 is interesting (*) but not quite where we need to be to get this done.  Do you have any flexibility on that number?”

Employer: “I think I can convince HR to approve $84,000 but that is the best I can do.”

Applicant: “I appreciate that.  $84,000, huh.  Well, it isn’t quite what I had in mind, but the right package offer could make that attractive.  How much vacation comes with the package?”

Employer: “20 days a year.”

Applicant: “If you could do 24 days a year, I could compromise on $84,000.”

Employer: “I think I can do that.”

For those keeping score at home: the applicant never gives up anything but the employer will walk away feeling he got a good deal.

* Micro-tip: “Interesting” is a wonderful word: it is positive and non-commital at the same time.  If they tell you a number, tell them it is an “interesting” number, not a “wonderful” number.

Hoping around the offer also helps you defuse common negotiating tactics like “I have to go to $EXTERNAL_AUTHORITY to get approval of that.”  (This is in the negotiation playbook, because it works well: it injects an automatic delay in the process, and gives you a scapegoat for refusing a request while not being guilty of the refusal yourself.  You should strongly consider having an $EXTERNAL_AUTHORITY of your own.  Significant others work well.  Note that in the US your would-be employer is legally prohibited from breathing about the subject of your marital status, so something like “We’ll have to talk that over” or “That sounds reasonable, but I’ll have to run it by the family” has the dual virtues of being a socially acceptable reason to delay any major decision while also being equally available to unattached young’uns.  I talk shop with my family all the time.  I’ll certainly continue discussing employment with my family after it includes my fiancee, too.)

Anyhow, say your decisionmaker says that approving deviations from the company’s salary structure is outside of his discretion and those evil ogres in HR will likely deny his request.  That’s fine.  Express sympathy with him, because he just said he wants to give you more but can’t, then refocus the discussion on things which are within his personal authority.  (Vacation days, work hours, project assignments, travel opportunities, professional development opportunities, and the like are good areas to probe at.)  You can then use the unspent “You wanted to do something nice for me” obligation which he just acknowledged on one of the things which he has authority to grant you.

For Your Further Perusal

I’m deeply indebted to a few buddies of mine, principally Thomas at Matasano and Ramit Sethi, for teaching me to be less of a doormat in terms of negotiation.  Thomas has forgotten more than I’ll ever know about doing negotiations with clients.  Check out HNSearch.com with [tptacek negotiation] for some good advice, or (if you’re in Chicago) take him out to coffee.  By the way, if you’re an engineer and want to practice salary negotiation, Matasano is hiring and a great place to work for.

Ramit is extraordinarily persuasive about how psychology influences how people act in negotiations, and how a deeper understanding of this gives you better preparation than trying to focus on particular tactics.  When I told him that I was finally going to blog about one of our dinner conversations (you’re reading it), he said he’d give my readers a free video on negotiation tactics and the psychology underlying them in return for your email address.  The video is good and elaborates on some subjects that I haven’t covered, plus I know some people find them easier to learn from than lots of text, so that strikes me as a very fair offer. You’ll also get Ramit’s emails, which have never wasted my time.