Salary negotiation? It’s a myth.

It’s the final hurdle.

I’ve written several times about how important hiring is to an organization’s success and offered some thoughts about getting the right people on your team.

Today I’d like to address an area that trips up even the most experienced of leaders - salary discussions.

Early in my career as a CEO, I made so many mistakes during salary negotiations until I realized that the whole process was messed up. So I developed my own strategy for setting salaries for new potential employees.

It’s a little unconventional, to be sure, but I found it to be a great way to create a win-win situation.

Once I decided to hire someone, I asked them to come back to me with a salary number, considering the following four factors:

1. What do you need at home? What is the salary you need to keep the lights on in your house - e.g. fixed expenses. That would be the base number.
2. Next, consider how much salary - if you were to get it - would make you think “this is a good number for where I’m at.”
3. After that, think about the kind of company we are, the stage we’re at in our growth, and the role that we're asking you to do. Are you going to be paid more as a 28-year-old in investment banking versus a startup? Absolutely. So, they need to take that into consideration.
4. And finally - and this tripped up a lot of people - I let them know that when they came back with their number, I was not going to negotiate. If you come back with an amount that was too high, I’d say “thank you, nice to meet you - but we won’t be able to hire you.” If you come back with a number that’s too low, I reserve the right to give you more. BUT, if what you’re asking for is way too low, I'm also going to say goodbye because that means that you haven't carefully considered the aspects that I've asked you to.

When I’ve told this method to friends and business associates, I can see them tense up and fear enter their eyes.

Sure, this method can be a little intimidating, and I’ve never heard of anyone else doing it, but 80-90% of the people who went through this method came back with a number that was extremely close to what I wanted to pay.

The most likely outcome was people giving me a number that was a bit low. It was quite rare that I got a number too high or way too low.

Negotiating a salary is a fallacy.

Nobody wins. Meet in the middle? Absolutely not. A successful negotiation is meeting at the point where both parties are as optimal as they can be.

It’s like the principle of Pareto Optimality, the state at which resources in a given system are optimized in a way that one dimension cannot improve without a second worsening. It’s very rare - if not impossible - for the optimal salary number to be in the middle.

Have a great week!

Peter

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