Game Theory, Salary Negotiation, and Programmers

When you get a new job, you can breathe a sigh of relief, but not for long. You have an offer letter in your hand, and it is easy to miss one of the most important opportunities of your life: the starting salary. Here's the tale of two programmers. When getting a job, Goofus didn't negotiate. Gallant asked and got an extra $2500. They both get yearly raises of 3%

After five years, Gallant has made an extra $13272, enough to get his car paid off, or keep his Macbook software up to date.

Goofus is in prison because he had to become a spam lord to pay child support for his six kids.

Everything in life is negotiable. C.E.O.s and corporate executives are simply people that learned this at an early age. The things that are most negotiable are the things written in black and white in indelible ink. They are engraved in silver, carved in stone, simply to trick you into thinking you cannot negotiate. "Just sign here. It's a formality." "It's a preprinted form, it can't be changed."

Do not be intimidated. Salary negotiation is a game, and the first to give a number loses.

When it goes wrong?

A friend once confided in me one of the biggest mistakes of his life. He got a job in technology, and they asked him his salary expectations. Just being out of school, he gave them a very low number for the type of work, in the low 40s. Then the worst thing happened: They gave him the job, and his lowball salary. He felt unmotivated and ripped off. He wasn't working there long.

He broke the golden rule of salary negotiation. If you say a number, you lose. If you are asked on a form, leave it blank. If someone is pressing you for a number, just repeat: "I expect to be paid fairly based on my skills." The chances of you mentioning a number and getting it right are low.

Let's prove it using some game theory. In this the rules of this game, there are two possible salaries: high and low. You and the company's recruiter both write your salary expectations separate cards, and then you each flip them over one at a time. Sounds simple, right? Here's the catch: The second person to go gets to change their vote after the first move. If both cards match, you get the job at the agreed upon salary. Here are all possible outcomes if the job applicant goes first:

You only get the high salary 25% of the time, and in one unfortunate case (HL) they have security escort you from the building. Let's look at what happens if the company reveals their card first:

When the company is the first to give a number, you always get the job, and you have a 50% chance of getting a high salary.

When it goes right

Another friend of mine was working in a job that didn't challenge her, so she applied around and was interviewed for a much better position. The problem was, it wasn't paying that much more than her old job. For the same money, she could keep her old job and play on the Internet much of the time.

She called the recruiter and said she would love the position and was very excited about it, and looking forward to the new challenges, except for the trifling little detail of the salary, wasn't there anything they could do about that? A few hours later she got the job -- at much higher pay.

The manager trying to hire you has chosen you over all the other candidates, and this give you the upper hand. In a larger company, the person you will be working for often has no idea what happens after the interview, since you are now dealing with an HR person. If you get away, this HR person has failed, and it will be disappointing to the manager. Use this to your advantage.

Final tips

The economy is turning around, and more jobs are popping up. The fact that you are reading this blog means that you have an interest in your craft, and this puts you in the top 10% of candidates. If you are on the hunt for a job, remember these tips:

• Know what you are worth. Do salary research on Monster.com or Monster.ca, or ask your friends if they have any information on pay scales.
• The opportunity to negotiate is after you've been interviewed, but before you've accepted. Don't even mention salary during the interview, unless they bring up the subject first. It is in your interest to postpone salary discussion as late as possible, after they are sure you are the best candidate.
• During or after the interview, do try to get a sense of whether you are the preferred candidate.
• Companies will rarely give you the opportunity to negotiate, or even bring up the topic of salary at all. You will probably have to call them about it. They will say no. Be persistent if you are confident in your skills.
• If you are first to mention a number, you are a loser.
• If the company mentions a number, then do the following: Repeat it back to them, then stare at them while counting to 30 in your head. 90% of the time they will then give you a higher number.
• Do try to negotiate, even if the salary surpasses your wildest dreams.
• Even if your asking doesn't work right away, it may be remembered and lead to more perks later on.

Further reading

• Negotiating Your Salary: How To Make $1,000 A Minute 2006 Edition: A thin and useful book on how to negotiate. I highly recommend it. There is nothing like this online so you'll have buy it from Amazon or get it from the library.
• Exploding offer season - A dirty trick that all recruiters use on new grads.
• How a programmer reads your resume (comic)
• Four Pillars - What to do if asked about your current salary.