Money Basics

Raises, Negotiations, and $67,000

$67,000. I negotiated a raise at work 30 months ago. And because of that raise, my net worth is now $67,000 higher than it otherwise would have been.

I shared this fact with my Twitter followers. Lots of questions ensued.

“How’d you get the raise?”

“Any tips?”

“Can you share the negotiation tactics you used?”

This article will answer all those questions and more.

I divided this article into “The Story” and “The Tips.” The story is entertaining. The tips are the important takeaways. Use the Table of Contents above to skip to The Tips if you wish.

The Story

In the Spring of 2017, my company published data on “salary ranges.” For the first time, I realized that I was at the bottom of my salary range. Very underpaid. Yet I had glowing reviews from my managers.

What gives? Great work, but low pay? I wanted to change that.

I brought it up with my manager, and she was open and helpful. We went to Human Resources (HR) together, and HR said, “Sorry – we can’t just give away raises to every person who asks for one.”

Hmmm. Stonewalled. I kept the conversation open though. This felt too important to drop.

6 Months Later

Fast forward 6 months and our company had a big hiring spree! Lots of new college grads were coming on board, and word quickly spread about their salaries.

Wait…they’re making $10K, $15K, even $20K more than me?

I’d been working there three years with a Masters’ degree.

They had no experience and less education. It’s not the new hires’ fault…

But what is going on?!?

I went back to my Manager and we went back to HR, and I got the same answer: “Sorry – we can’t give raises just because you ask.”

Time to Rethink – Back to First Principles

To me, the situation defied common sense. So I asked myself, “Well how does someone get a raise around here?”

  • Being underpaid isn’t sufficient
  • Getting good reviews isn’t sufficient
  • Having support from leadership and management doesn’t work either.

These Human Resources people were confusing me. On a whim, I went to Google. “What’s the purpose of human resources?”, I asked.

The answers were eye-opening. Maybe you’re already aware, but:

  • Human Resources’ primary role is to protect the corporation from the employees.
  • They protect the corporation from getting sued by employees. Makes sense.
  • They ensure employees are following Federal and Local employment laws. Makes sense.
  • They hire employees to keep the company progressing, but do so at lowest reasonable salaries. Makes s…WAIT!!  Really???

I should have realized this earlier. Human Resources aren’t your buddy. Nor mine.  

Their job is to work on behalf of the corporation. Not on behalf of individual employees. It doesn’t make them bad or evil. It’s just a fact. They aren’t there to help individual employees, especially when it comes to salary negotiations.

With this new fact in hand, I rethought all my prior interactions with HR. That’s when I realized that HR was playing a different game.

Their Game vs. My Game

What game had I been naively playing? I expected my coworkers—the people with whom I was busting my butt—to be fair-minded. I expected them to say, “Ahh yes. You’re underpaid. You’re overachieving. It’s obvious to everyone that you deserve a raise. And that’s exactly what we’ll do.”

But since HR is part of the corporate vampire squid, they rammed their blood funnel into my salary, eking out what profit they could  (thanks, Matt Taibbi, for the metaphor). They were getting a great discount on my labor. A steal, really. I was a profit machine (for them).

I was the victim of my own naïve assumptions. I was patiently waiting for the cream to rise—i.e. for them to realize I needed a raise. And while I waited, they profited.

When I presented my arguments to HR, they even said, “Well Jesse…you’re being paid in the 15th percentile. That means that 15% of your peers get paid even less than you, and are more deserving of a raise. And we can’t even give them raises.”

Crazy, right?

  1. I never thought “You’re in the 15th percentile” would be used as an argument to not give someone a raise.
  2. I’d happily represent the salary interests of my co-workers. But “union” is the worst five-letter word you can utter in corporate America.
  3. Where are those 15 percent-ers? Are they advocating for raises too? If not, then why is HR bringing it up to me? It was just a deflection tactic.

It was ridiculous. Unfair. Made no sense.

How did this otherwise competent HR professional not realize this lunacy?

And Suddenly I Realized…

And then it hit me. I suddenly knew what was happening. I felt even more naïve – but I felt angry, too.

“She does realize it’s not fair—but she just doesn’t care.”

HR was tacitly telling me, “It’s not about what’s fair, Jesse. It’s about what you’ll accept.”

Up until that precise moment—hearing those foolish arguments in that HR office—I unwittingly played by those rules. To this day, many of my coworkers continue to play along.

As long you accept less than you deserve, we’ll give you less than you deserve. And every day you come through those front doors, you’re accepting it.

That their rule, plain and simple.

assumed they would be fair-minded.

assumed they’d give me a fair wage.

assumed they’d look me in the eye and be forced to change their ways.

Nope. As Upton Sinclair noted: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” A giant corporation isn’t going to think like a fair-minded individual. Their quarterly profits depend on them thinking far differently than little old Jesse.

They Volley, I Respond

So that’s the first volley of their game theory.

As long you accept less than you deserve, we’ll give you less than you deserve.

In response, I asked myself: if this is a game, what move do they not want me to make?

Do you know the answer, reader? Do you know the one chip I held? The one resource of mine that HR really cared about?

It’s me. Me. My presence. My brain. My labor. My attendance.

So, what’s my move?

I had to stop accepting less than I deserved.

In fact, I had to firmly reject less than I deserved.

I needed to find a different job.

So I did. I went and impressed the pants off another company and they offered me a 30% raise. Then I went back to my boss and said, “Thanks for being my advocate, it sucks that HR didn’t want to cooperate, and now I’m leaving.” That’s that.

What Happened Next…

But you wouldn’t believe what happened next. I certainly didn’t.

Heaven and Earth were moved to keep me around. Big wigs called me at my desk. Managers pulling me aside to ask me what I needed to stay. Strings were pulled and same-day approvals were granted. Corporate matched the salary offer that the other company gave me.

That’s great! I got want I wanted. …Right?!

If I’m being honest, HR’s instantaneous reaction made me angry. So many of HR’s previous actions suddenly came into focus. And all at once, I realized how sly their game theory tactics are. It made me realize:

  1. HR knows many employees will not have the gumption to interview for another job. Some people don’t advocate for themselves. Those people will be underpaid the rest of their careers.
  2. I felt pressured to where my options were either 1) be an underpaid sucker or 2) waste another company’s time and resources via interviews, flights, hotels, etc. I didn’t want to be a sucker. So I wasted another company’s time and resources. It felt bad. That sucks. It makes employees like me less likely to speak up (not to mention the other company’s resources).   
  3. Rather than choose one of the reasonable off-ramps I offered in my early negotiations, HR opted for a game of chicken. They opted to hold their trajectory until they almost went over the cliff i.e. I was about to quit. Then they slammed the brakes and swerved, praying—as their tires lifted off the ground—that they weren’t too late. And I thought, “Jesus—this is how a cutting-edge tech company thinks? This is the practice of an industry leader?”

I don’t blame the individual humans in HR. But I hold accountable the system they’ve created.

Should I Stay or Should I Go Now?

Was I going to stay at my job with a raise, or go take the other offer?

This was a personal decision for me. There were so many variables. Job duties. Locations. Travel. The devil you know versus the one you don’t. Family and friends. Etc.

I can’t offer much advice here other than, “Do what feels right.”  

I decided to stay.

But the biggest lesson I learned has been so important to me. And I hope you’ve learned it now too.

The lesson is: don’t accept less than you’re worth.

Over the 30 months since obtaining that raise, I’ve accumulated $67,000 that I otherwise wouldn’t have had. Not too bad.

The Tips

Ok—let’s talk brass tacks. What can you implement in your own career?

First, what did I do to get the bigger offer from the other company?

Securing a Bigger Offer

Everyone always says, “When negotiating, don’t say the first number.”

And that’s mostly true. If you’re looking for a line to give HR, one that I enjoy is, “I want to be paid a fair industry rate.” And then ask what the HR rep believes that fair industry rate is. Put the onus on them.

But listen: playing salary tag with HR gets annoying.

You might decide to pull a Bill O’Reilly: WE’RE DOING IT LIVE! A.K.A. you say the first number, breaking the unwritten rule from above.

If you pull an O’Reilly, use anchoring to your advantage. What’s anchoring? It’s this wonderful idea from behavioral economics that says we get attached, or anchored, to numbers we hear. Here’s a great example:

Let’s say you hope to get a $100,000 salary offer, and you think that’s perfectly fair based on industry research. You play some financial footsy with HR, but neither side is budging.

“Ok,” you say, squinting like Clint Eastwood at high noon, “I want $150K.”

$150K? But Jesse, we just agreed that $100K is acceptable.

We did. But I want to anchor that HR rep to a much higher number. Because one of three things is about to happen.

  1. They’ll give you $150K. You’ll feel amazing for getting $50K more than you hoped for. And then you’ll feel like a dope for not asking for even more. Or…
  2. They’ll say, “Whoa Clint…that’s a mighty high request. Might’n ya cool your spurs and bring it down a bit. We can’t offer anymore than…$125K.”
  3. Or they’ll think, “Jeez…we were hoping to pay $100K, but that might be insulting since they’re asking for $150K. So I guess we’ll meet in the middle and offer $125K.”

Boom. If you lead with $100K, they would have accepted it. You might have left $25K on the table.

And you won’t believe how much that $25K could cost you in the long run.

The Cost of Not Asking For A Raise

Do you know the long-term impacts of not asking for raise? Let’s walk through a simple math example.

Alex and Bart are coworkers. They both earn $50,000 a year, and both spend $45,000 a year. Both take their extra money each year and invest in a conservative fund that returns 5% per year.

But then Alex asks for a raise—a 30% raise, like the one I got—and gets it. He’s now making $65,000 a year, but his spending is still $45,000 a year.

How will their futures differ?

After 10 years, Alex will have $327K to Bart’s $102K.

After 20 years, Alex will have $1.05M to Bart’s $385K

After 30 years, Alex will have $2.51M to Bart’s $1.02M

Alex’s “small” $15,000 raise equates to $1.5 million in extra value after 30 years.

Don’t underestimate the value of a raise.

Final Tips from My Experience

Here are a few of the earlier tips, in summary.

  • HR employees aren’t evil. But they have incentives that are not aligned with your financial incentives.
  • Does something just not make sense regarding how others (managers, HR, etc) perceive your salary? Remember what Upton Sinclair said: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
  • How your HR might be thinking: As long you accept less than you deserve, we’ll give you less than you deserve. And every day you come through those front doors, you’re accepting it.
  • What options do you have?
    • Call their bluff.
    • Find a new job with a better offer.
  • When negotiating, you should try to make HR say the first number.
  • But if they really don’t want to and you’re sick of waiting, then you gotta aim high with your request. Anchor that HR rep to a high number. Force them to divulge what their maximum offering is.
  • But once HR sets their salary limit, believe them. A former coworker of mine pushed back after HR set it’s limit, and they called his bluff: “Sorry Chuck—we’re no longer interested in employing you.” Ouch. You don’t want that.

Alright folks – that’s the story and the associated tips. Thanks for reading and let me know what you think!

Thank you for reading! If you enjoyed this article and want to read more, check out my Archive or Subscribe to get future articles emailed to your inbox.

-Jesse

P.S. – If you enjoy podcasts, check out the Best Interest Podcast!

About Jesse Cramer

Jesse Cramer created The Best Interest to explain personal finance and investing in simple terms. His writing has been featured by CNBC, MSN, The Motley Fool, and other national publications. He resides in Rochester, NY with his girlfriend and their dog. Follow him on Twitter: @BestInterest_JC
View all posts by Jesse Cramer →

20 thoughts on “Raises, Negotiations, and $67,000

  1. Great topic! A similar tip I have for anyone job searching (and looking to change jobs) is to try to get the best offer you can from your new, prospective employer. Especially in this job market you have much more leverage at this point than almost any other point in your career. It’s way easier to get a higher job offer than to get a raise/promotion down the line. To say nothing about compounded interest on the earnings you get NOW rather than later.

  2. The system is terrible. Great job going out and securing the 30% raise and then decided to stay.

    I saw this happen all the time after we sold our company (and lost some decision making capabilities). We’d have great employees who leveled up, but we could not get approval for more than the 3% raise. Big public companies in particular are terrible at this. You have to force their hand.

    Before we sold, giving someone a big raise was very easy, after it was very hard. If you are in a position where you can be flexible, IMO you should. The cost of hiring new employees, training, and making sure it’s a good fit is enormous. I am all about finding A players, paying them highly, and trying to keep them happy forever. That is how great business continued to innovate. Not by this crappy HR game.

    1. Hey AR, I appreciate your support. The corporate HR system feels pretty broken. But it’s inspiring to know that in small, private business, you can still treat your employees the way common sense (and good business sense, no?!) would dictate!

      -Jesse He

  3. Some of my experience was the same, some much different. At our company HR had zero input on what people were paid, it was one reason it was a great place to work. They also had zero input on who we hired. The managers interviewed and hired their own people and negotiated their pay with the top corporate guy, not with HR. If you let HR do that stuff you will not end up with the kind of people you want because they want to pay less. Mangers realize the difference between 15th percentile and 85th percentile pay is tiny compared to the productivity of 85 vs 15 percentile talent.

    But as far as how to get a raise it was much the same. I never asked for a raise yet my pay went up on average 9% a year for my whole career. I started at 18K ended up making several hundred thousand a year without ever asking for a raise. What I did was to cultivate a group of the best headhunters (corporate recruiters) in the nation by feeding them job prospect names. In turn they’d run offers by me for jobs with our competitors. I wouldn’t threaten, I’d just tell my boss what my latest offer was and he’d panic, because I was irreplaceable in his mind. That’s part two, they have to fear you leaving. Like they feared you leaving, Jesse. And that means you have to be very good at your job. Now your company was stupid to let HR nearly run you off. I ended up running our company and if any one of the top performers of our 700 employees was underpaid I fixed it, and never had to deal with HR, they worked for me.

    Fair doesn’t exist, nor does unfair when it comes to pay, because you aren’t a prisoner, you can leave. OK, I do think you should pay a living minimum wage, but after that its just business. It is perfectly fair to pay you at the 15% level as long as you are willing to put up with it. That’s not on them, that’s on you. For employees I had no fear over, because there were readily available replacements I could hire and not have a lot of training costs, I paid as little as possible. That freed up the money I needed to pay the stars higher pay. That is capitalism. Your threatening to leave and deciding to stay, that is capitalism. If you have talent, as you proved you have, then you have the power to bargain. Where this doesn’t work well is for people trying to do jobs they lack talent in. The system just kills them. Their best option is to switch to something they can be great at, I think there is that kind of talent in everyone, they just need to find it and plug into a job that uses it.

    1. Hey Steve, thanks for the great feedback. We definitely agree on the facts – they’ll pay you what you’re willing to put up with! Maybe my bitterness is that I didn’t realize this earlier!

      Either way, it was an important wake up call. My attendance (I’m not a prisoner, I can leave) is the chip I hold. Gotta play the game with that chip as best I can!

      Take care and talk soon.

      -Jesse

  4. Thanks for your openness in sharing your story. A few anecdotes to share:

    -I once asked for a $5000 raise when I was told I would be named the director of my division and direct-managing several employees (very in line with industry standards…this was not an unreasonable request). They said no…and that I would have to do the job anyway so if I wanted the “title” for my resume I should just accept the “promotion” without the raise I requested to go with it. I left within 6 months for a new job–and yes they asked if there was anything they could do to make me stay. I left. Guess what my replacement got offered? The exact amount I had requested (I know bc she reported to me and they tasked me with convincing her to take the job. She had <1 year of experience total while I had 5 at that company.) She also left within 1 year.

    -I have worked for a company that does often give raises when they recognize the increased value of an employee/threat of them leaving. But if someone does leave, they often get replaced by someone with less experience who makes more. It's a sad reality you often have to change companies to get a significant raise.

    -On the flip side, asking for too much when interviewing for a job doesn't always cause employers to "meet you in the middle". We have an actual budget and can't spend unlimited $ on salaries. The last few jobs I was involved in interviewing, there were people we did not interview or were not offered the job because their "expected salary" was way too high. They were truly out of our budget..and we knew even if they accepted a smaller salary in the short term, they'd constantly be searching for a new higher paying position elsewhere. So, if you really want the job and really are open, don't list an expected salary. But if you really aren't going to jump ship for something less than X, just list X…but understand it might cause you to get no interview/offer.

  5. A coworker found out she was making less than her direct male peer. A person in management responded ‘Well you should have negotiated better.’ She was hired before the new guy, and we had many change overs in HR. Then there was the question of the age old assumption that he needs to make more because he’s the man supporting his household was a factor, which we will never know.
    I’ve since left, and asked for a new salary # and they came in a little lower, which I was ok with. A direct peer was hired within a few weeks and she did negotiate better. My manager and HR leveled my new salary to hers. Which was what I asked for. That just validated I’d made the right switch.

    1. Hey Liz! Thanks for sharing your story.

      I understand HR’s predicament – they can’t make special cases for 100% of people, and can’t renegotiate every time someone else gets a raise.

      But if you’re being the squeaky wheel – and you come to them with an obvious discrepency – they *have* to know that they’re stubborness is going to drive you to the exit.

      Very cool to hear that your new employer has been more reasonable 🙂

      Thanks for reading!
      All the best,
      Jesse

  6. This was a fun read, Jesse! Almost read like a good novel, I wanted to know how it all went down. Wouldn’t it be great to be a fly on the wall in salary negotiations and see what really goes down? As more transparency comes on compensation and people become comfortable talking about it, the more ammo employees have in (respectfully) making their case for higher salaries.

  7. I think I’ve read somewhere that if one were to change jobs every 2 years, you’d optimize your career’s income by about 2X than if you were to stay with the same company the entire career. I believe this to be true based on your story and the anecode below.

    I know a friend who definitely isn’t me that played the negotiation game. They were being paid around $145K total compensation from a company and decided they were being underpaid. They found a new job. Knowing that HRs in both the old and new company won’t be aligned with their incentives, this person bluffed when the recruiter asked them about their income.

    Instead of $145K (130k base + 15k/yr stocks), this person bluffed to say their salary was (170k base + 45k/yr in stocks) = $215K/yr. The company saw this and decided to be cheap and gave this person a $225k/yr package, with a signon bonus of $50K – just barely beating the purported bluffed number. But at the end of the day, ‘naming a number first’ actually gave this persona a sizable raise ($80k/yr for 4 years, or $320K over 4 years – and if you count the $50K signon, then it’s $370K over 4 years).

    Assuming no raises, this person would have earned roughly 145*4 = $580K over 4 years vs. 950K over 4 years (or a 63% increase). The 63% would be conservative because this person’s stocks has 1.5X’d since they’ve joined the company – but let’s call it 63% as this person had no way of knowing if the stock would increase when they joined the company.

    To be fair though, even with a very high bluffed number, the new company upon offer gave stocks that would only equate to a $160k base + $37.5k/yr in stocks, but the person countered to try to squeeze more out of the deal. A 10 minute phone call later and they basically entered the company another rank higher, saving a few years + getting more compensation as a result.

    Not that I’m advocating lying but I think ‘naming a number first’ *could* be a viable strategy only if you name a number so ridiculously high that if they were to meet it, it won’t really matter to you if they were technically underpaying you. It also is a good strategy if you can keep a very good poker face and if your local laws prevent companies from checking your income.

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