Learn How to Negotiate Your Salary by Anchoring

When you negotiate your salary, should you throw out the first number? If you would rather wait for them to say the number first, you could be costing yourself a lot of money. Knowing how to negotiate your salary is crucial to maximize your income.

By saying the number first, you will anchor the other party to the number you give. Whether they like it or not, the rest of your negotiation will revolve around that number.

What is Anchoring?

Anchoring is a cognitive bias where people rely too much on the initial information or bid being offered. This initial bid is known as the “anchor”.

You see anchoring if you ever try to buy a car or a bed. Before you even have a chance to say your number, the cars have the MSRP posted on the window.

The car salesperson and you will be focused on the $9,499 MSRP of this car for the rest of the negotiation.

Let’s suppose you’re able to get the price down 20% to $7,599 and save $1,900, did you get a good deal? It depends on what you were initially willing to pay.

If you initially were only willing to pay $5,000 for this car, then you just spent 50% more than you were willing to pay. Imagine if you led with that $5,000 bid, how much would you have saved buying this car?

How to Set an Anchor When Negotiating Your Salary

When people think about how to negotiate their salary, many people negotiate by saying what they currently make, list any benefits and equity they have, and then ask for a certain percent raise.

A Common Mistake People Make When they Anchor

Let’s say you make $100k in salary today, and you tell a recruiter that you’re willing to leave for a 20% raise. A $20,000 raise is a solid payday! When you consider the opportunity cost of investing that raise (around $12k after taxes), you will make a dramatic impact to your future net worth.

Now imagine you have been at your new job for a week, and realize that your coworkers are making $200k in salary. How would you feel about your negotiation then?

The Right Way to Set an Anchor

When negotiating, your goal should be to discover how much they are willing to pay you. By setting such a low bar, you’re effectively telling the recruiters how little they need to pay to hire you.

If you tell the recruiter that you’re willing to work for them for a 20% raise, what are the odds that they’ll counter with a 50% raise?

Instead, research how much the company pays people for similar work with similar experience. Glassdoor is a great starting point. Start with the company you’re interviewing for, and then expand to similar job titles at similar companies.

Once you researched online, the next step is to tap your network. Ask people you trust if they know anybody who can share numbers. Are they willing to pay equity? Or a signing bonus? What matters to the hiring company?

This will take some work. Nobody wants to blindly share numbers that could compromise them. Emphasize that this will remain anonymous, you don’t even need to know who’s sharing the information.

How to Research Salaries on Glassdoor

Let’s say I’m a Software Engineer at a smaller tech company, and Google has reached out to me for a job. I’m making $100k in salary today.

According to Glassdoor, the average Software Engineer Salary at Google in San Francisco is roughly $127k in total pay.

Should we stop there? Probably not, if I’m going to change companies, I might as well look at what Google’s competitors are willing to pay.

Facebook is also a world class tech company with great benefits, and it looks like they pay their Software Engineers roughly $121k in total compensation.

Keep researching compensation for at least 5 similar employers. Using the Google example, I suggest researching Amazon, Microsoft, and Apple as well.

Now that you have done your research on Glassdoor, the next step is to meet people who have the job.

How to Network and Find Salaries

Since you’re interviewing at Google, talk to Google employees first. Are they Software Engineers? Were they Software Engineers? If not, do they know anybody who does it? Talk to as many people as you can and collect as many data points as possible.

If you are unable to find anybody at Google, talk to people at other world-class tech companies like Facebook or Amazon. Since you aren’t even interviewing there, they may be more open to talking to you. Who knows, they may refer you for a job as well! It never hurts to have companies compete for you.

Once you talk to enough people, you’ll learn the range that Google and other companies are willing to pay a Software Engineer. Let’s say the range is between $80k – $160k.

Now that you know the maximum that Google is willing to pay, you’re ready to start negotiating.

Setting the Anchor

You know that Google is willing to pay up to $160k, what number would make sense to lead with?

$190k sounds reasonable since it is only 19% more than their maximum amount. You aren’t completely out of the ballpark.

This is where the tension starts. When you say the number, make sure you are confident, and clearly state the reasons why you deserve that number.

How To Negotiate Your Salary After the Anchor

Here’s a thought experiment for you. After you ask Google for $190k, they immediately say yes. How would you feel?

• Good, because you got the higher salary you wanted?
• Bad, because if they said yes so quickly to that number, you could’ve asked for more?

This is why it’s so important to lead with a high number. We already know that Google is not willing to pay the number you gave, but what if you asked for their average salary? Google likely would have said yes, and since you know other people make up to $40k more than that amount, you likely left money on the table.

The hiring company will likely counter from your number, giving reasons why the higher salary you gave is too high. Let’s say they counter with $160k, how should you respond?

Remember how you would’ve felt if they immediately said yes? Guess what, they will definitely feel the same way.

The Beauty of a High Anchor

Think about it this way, Google just offered you $30k less than what you said you wanted. By asking you to give up $30k per year, you may be able to ask for more in return.

Use that $30k and think about how to negotiate that salary difference for more vacation, or for the ability to work from home. The worst they will do is say no, but they will not walk away. Once the recruiter is at this point, they need to hire you. Make sure you request for as much as you can!

Signing the Deal

Once you agree on your new salary and benefits, congratulations! You just increased your compensation by 60%, you’re being paid at the maximum band of a world-class technology firm, and are now able to contribute far more money to your hierarchy of savings.

Thanks to all of your networking, you have a group of people that you already know at the company. Meet with them over coffee or lunch, and get a head start on your new career!

How to Negotiate Your Salary – The Bottom Line

Whenever you negotiate, make sure you set the anchor first. Know how to negotiate your salary will help you increase your income, and will also save you money when you’re making a purchase.

Do your research to learn what the pay bands are by looking at Glassdoor and networking with people in the industry. Once you’re armed with all of this information, set a high bar and negotiate from there. As you give up dollars in salary, ask if they are willing to exchange this for other perks such as more vacation or working from home.

There are two ways to save more money – cutting costs, and increasing income. When you interview for new companies, make sure you maximize this opportunity by knowing how to negotiate your salary. Set a high anchor, and negotiating for the highest compensation possible.