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Why employers should make higher job offers

In the February 7, 2017 Ask The Headhunter Newsletter, a reader marvels at employers who discount job offers to save money.

Question

job offersI worked as an intern while in college, and after graduation they offered me a job. It was my first experience negotiating higher job offers. I discussed my proven performance and gave examples that demonstrated my value. The employer granted me the higher salary.

My advice to others is to capitalize on your value and have the courage to negotiate for what you think you’re worth. Of course, your value may not be viewed as high as you think. That’s okay. Just weigh the pros and cons of the position along with your needs and make a decision. Either way, keep in mind, it’s up to you.

But here’s what’s interesting. After I accepted the position, I went back to the hiring manager and asked why he offered a lower salary to begin with. He responded, “If you had accepted the lower salary, I would have saved $3,000 a year.” What do you think of that?

Nick’s Reply

It’s astonishing is how casually the hiring manager responded that he’d save money if you had accepted a lower job offer. On its face, that might seem like simple market economics. But there’s a profound fallacy underpinning the manager’s behavior.

Salary is not an expense to a company, though that’s how accountants portray it, and everyone accepts that. What a company pays you is an investment. And that’s not semantics. A company buys a piece of equipment as an investment against an expected return — and capitalizes it. An employee is capital, too — the employer expects an ROI (return on investment). The fallacy is that an employer can save its way to higher returns by making lower job offers.

Of course, with machines or people we want to pay less to maximize our ROI. But neither is simply an expense.

The value of higher job offers

All my life as a headhunter I’ve encouraged my clients to offer a desirable job candidate more than the candidate asks for or expects. The reason is simple.

Unlike machines, people perform better when motivated. So, when a candidate expects $75,000, offering the candidate a totally unexpected $78,000 triggers an incredibly valuable response: enthusiasm and motivation. Even gratitude. For an extra 4% investment, the employer will likely get far more than a 4% higher return.

However, when they offer less, I think employers suffer with a far lower ROI than the salary savings might suggest. (Maybe you’ll argue with me; that’s what the comments section below is for.)

Managers like your new boss may think they’re being rational by offering less to save money. They’re missing an opportunity to get a higher return. Salary isn’t an expense. It’s an investment. Done right, investing more returns more.

(See Goodbye to low-ball salary offers.)

Why employers hire

Remember: We’re saying the employer really wants to get that very desirable candidate on board. (What other kind of candidate would the employer hire?) So why not maximize both the chances the candidate will accept the job and the potential return by making a higher job offer to prove it?

Nobody ever worked harder or more enthusiastically because a company low-balled them.

But I don’t want to skip over the reality. I parenthetically asked what other kind of candidate an employer would hire, if not a very desirable one. I think much of the time employers hire like they’re checking off boxes and plugging holes in leaky companies. They aren’t thinking about boosting the bottom line by making a really good hire.

And that’s why they see no value in higher job offers, but are proud of saving money when candidates accept lower offers.

In my book, Keep Your Salary Under Wraps: How to say NO when employers demand your salary history, to make them say YES to higher job offers, I quote an HR manager who sent me an astonishing complaint about my advice that job seekers should never disclose their salary history. She said:

“Employers want your salary information because they believe that if you apply for a job that starts at $50,000, but you made $30,000 in the same sort of job at your last company, they’d be overpaying. They’d want the opportunity to buy you for $35,000 to start, saving them $15,000. The HR person who does that gets many kudos for their shopping moxie from their boss, and gets to keep their job and go on many more shopping trips.”

Many managers don’t hire to make more money for their companies. They hire to save money for their companies by using less of the hiring budget. As if the purpose of the hiring budget was to save it!

I believe treating salary as an expense makes it far easier to hire and fill jobs. If the outcome of hiring and filling jobs were measured on ROI, most HR managers and hiring managers would be fired.

I wonder how many CEOs and boards of directors realize their accountants and HR departments are saving their way to higher profits!

Nice work!

I realize your main point is that you succeeded in getting a higher offer not by just asking for it, but by demonstrating your higher value. Nice work! (See The ONLY way to ask for a higher job offer.) Your story delivers a valuable lesson to others.

But I was tickled by your new boss’s suggestion that if he’d paid you less he’d have saved money. My guess is you’ll work harder than the extra three grand cost him — and he’ll make more money.

Am I nuts?

Why should anyone pay a job candidate more than they ask or expect? Is a candidate really more likely to accept a slightly higher offer? Will a bit more money motivate better work? I can’t prove it objectively, but I think yes.

What do you think? Does that little boost in an expected job offer pay off? Is salary an expense or an investment? Has an employer made you a bigger offer than you requested or expected? Did that make you more productive?

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46 Comments
  1. “What other kind of candidate would the employer hire?”

    Unfortunately, many managers hire mainly for empire building (the more people under you, more power you have), resume padding (“I managed a team of X staff in
    my last job!”), or saving their own jobs (managers with less than X direct reports will be target for “restructuring”).

    In places where stack-ranking is used, hiring someone to be the bottom-ranked (and subsequently “managed-out”) helps to keep the rest of the team safe and stable.

    IOW, in response to dysfunctional organisational incentives.

    • Oliver: You nailed another reason for hiring other than the only good reason for hiring. Makes you wonder who’s running these companies, doesn’t it?

  2. I have actually twice offered a candidate more than he asked for. In both cases, the candidates asked for less than we were paying others who did the same work. I felt that they would be as good as the more experienced employees in a short time and I didn’t want to have to go through the difficulty of having to ask for more than a typical raise when performance reviews came around. I’m sure the offer was a pleasant surprise for them and I feel it did pay off in terms of loyalty.

    • Thanks, Krista. It does not always work, but I’m glad to see you’ve had good results!

  3. If the writer worked as an intern, he or she was probably highly skilled and much less of a risk than a candidate coming in the door sight unseen. Besides just saving money, maybe the hiring manager thought that the intern would take the job at a lower salary because he or she was comfortable with it – while the lower risk should have led to a higher salary.

    The writer didn’t mention if he or she interviewed other places. That could lead to competing offers and a better salary. Salary offers go up if there is competition.

    One thing I’ve noted that people who never hire don’t understand is that when you want a candidate, after perhaps a long search, you start selling the candidate on the job. (This could be five minutes into the interview for some people.) If you can sense you are being sold the job by the hiring manager, that is a trigger for negotiation. Remember – it is the company’s money, not the manager’s, so don’t be shy. I wouldn’t have wanted to lose a top candidate for $5,000 of someone elses money.

    • “Remember – it is the company’s money, not the manager’s, so don’t be shy.”

      I’ve heard of stories where some companies give bonuses to execs for not spending to their budget – in the cases I’ve heard, it was mostly IT type stuff. They wouldn’t buy new computers/servers or invest in any type of software development and were always looking to outsource where possible. In other words, the execs had a personal stake in not spending company money.

      • Dave: What insanity! I have a good friend in IT management who refers to this as “junk profitability.”

      • I did have a boss who refused to offer what HR calculated, but that was because he resented people with more education than him making lots of money. He was crazy in lots of other ways too. (We didn’t get that candidate, of course.) A case where HR was smarter than the hiring manager.
        OTOH I had a friend who was CTO of an electronics hardware company which sold really cost effective product – cheap for the market – who said one of their big sales problems was that managers buying their stuff did not have to go to the board to get it approved, and so lost visibility. Their equipment was also small, so managers buying it would lose space. So you never know.

    • Scott: It seems employers nowadays don’t work very hard to “sell” a candidate on a job. They seem to feel there are plenty of purple squirrels out there, so why bother?

      Good suggestion, though, about pressing harder if the employer is selling the job.

      • We often had candidates interviewing multiple groups. I tried to schedule so that I’d go last so I was the last person he or she remembered. Worked pretty well – we had a very high accept/offer rates though our group was not the sexiest area.

  4. My boss decided to save money, pay me at two levels emergency rate of $X and everything else $X/4. And he applies pressure to save money by reducing the non-emergency hours. I tell him this: Hey, motivation to cause emergencies is profitable, appreciated and rewarded! Nothing changes.

  5. “If you had accepted the lower salary, I would have saved $3,000 a year.

    >> And you would have spent 50% of the salary searching for a lousier candidate when the good employee figures it out and leaves..after which, you sit in meetings and complain that you can’t retain good people.

    • The difference is less than $300/mo. & The mgr considered that an amount worth fussing over? Really? Are they having financial issues or just irrationally cheap?

    • VP Sales: HR never explains the hidden costs of a job vacancy to managers.

      Work left undone
      Ramp-up time on a new hire
      Cost of recruiting, interviewing, hiring, onboarding
      Cost of higher salary to attract a replacement
      Etc

      Sheesh.

      • People overstressed, health effects, resentment at having to be away from family, and one foot out the door (mentally) as they look for somewhere else.

      • I am pretty convinced that work is never left un-done. Rather it is sluffed off on to some poor schlep at 5:05 PM who is on their way to the kid’s ball game with the words “This needs to be done by 6:00 AM TOMORROW!!” I think David Hunt PE infers this.

        This is why so many companies don’t hire project managers: The crappy managers would be forced to plan.

        • My last FT employer told me I needed to be there BOTH DAYS of the weekend… the weekend after my son was born. My reply was a very polite version of “Do the letters F and Y have any significance to you?”

          1. I am a Conservative Jew. I DO NOT work on Saturdays.
          2. A week after my son was born? REALLY? (And Sunday was his circumcision; you think I’m coming in after THAT happens to the poor tyke?)

          On top of this, the crisis that was needing attention – the group engineering manager HAD a solution – which was the one gone with… IMHO this was a power play to see who would come in. Which I believe is the sign of a really poor manager – – – what kind of PUTZ makes his people come in when he already has a solution?

          In retrospect I should have insisted on getting the directive in writing.

  6. Nick,

    The founder of the company where I spent most of my career believed in paying 120% and the place was full of “overachievers” that returned him 200%. He also provided these folks the latitude to do their jobs without feeling the need to micro manage every decision. These two tenets of his personal operating system created an incredible culture that made him a very rich man.

  7. The other side of the equation is professionals keep telling job seekers to always come back and ask for more money as the offer is never going to be the highest they will go. This is like buying a new car where neither side is going in with good faith to make a first round of pricing mean anything but a starting point. I fully agree people should be paid what they are worth but we all created the current situation so it is myopic to suggest this is a hiring manager caused problem

  8. I’ve known people who complain when the sales people they employ make too much money because they’re performing so well. Yep, you read that right. A sales person who makes too much money because he or she is knocking it out of the park is a bad thing.

    I used to wonder why an employer would think this way. After all, if the sales person is making 200% of what was made last year, the employer has twice as much profit from that person (assuming the incentive plan rewards profit and not just revenue). Turns out it’s human behavior. We don’t like outliers. That’s why employers want to use to pay bands and salary ranges and all that other stuff. Rewarding the highly effective employee or candidate with a non-standard salary or offer makes that person an outlier. That requires treating the person as an individual and considering the value that he or she brings to the table. It’s much easier to just chuck someone into a salary range so they fall into a nice box on the org chart or line item department budget.

    Jeff’s example is what happens when you embrace the outliers.

    • As someone who’s spent most of his working life in sales, I couldn’t agree more.

      https://1markgib13.blogspot.com/2013/07/basic-math.html

    • @Chris: For several years long ago I managed a sales team and I was paid 100% commission. No draw. No salary. Just benefits. The company offered me a very good commission deal, guessing I’d never meet the highest targets. They offered this as a kind of personal challenge to me: Was I good enough to accept such a rich deal? I thought about it and judged that I’d do very well.

      I blew the targets away and was making loads of money — much more than if I’d been partly salaried. They were of course enjoying huge, very profitable sales. (My commission was based not on sales volume, but on profit margins. The higher the profits, the higher my commissions.)

      Then they called me in to tell me I was making too much money. Just the scenario you described. We negotiated. They played games. They tried to deduct the cost of unrelated operations of the company from my “basis” as a way to decrease my commissions.

      I quit. The sales team I ran went down the tube, and so did the business.

      Share the wealth is a solid capitalist idea that few business people have the stomach to really practice.

      • Love this!

        I knew a meatcutter who outworked every other person in the place and made very good money. No one else even came close to earning what he did. He had taught himself to be very efficient. It caused problems for the company, but to their credit, they did not cut his pay.

        My first job was wrapping Christmas presents for $2/hr and another young woman worked beside me. When I received my first paycheck, I immediately noticed that my check was for more than $2/hr and told the store manager that it was wrong. She said it was not wrong, but could I please not mention it to the other person? She said that I was clearly working harder than she was. Not only did I wrap packages faster and neater than she did, but when we were between wrapping jobs, she just stood there doing nothing, while I cleaned up the work area, staged materials, and prepared for the next customers. If I really had nothing to do, I would smile and talk with customers. It was a great early lesson.

    • While not working in sales, at one company I was an IT guy and had a really good relationship with the sales managers (and above).

      They would talk about the constantly changing commission structures. This was the pattern:

      Compensation Plan
      Sharp Sales Executives and Managers figure out how to maximize
      Everybody makes too much money
      New Compensation Plan

      My running joke was calling them “Jimmy.” (Reference to Jerry Jones firing Jimmy Johnson for winning back-to-back SuperBowels).

  9. A low ball offer that is accepted by a job candidate should raise a red flag with the hiring manager. If the prospective candidate does not know what he is worth, then maybe he doesn’t know his job either.
    Sometimes presenting a low offer will give you some extra insight into a job seeker’s personality.

    • I’m not sure what you achieve with your logic.

      A) By the time you’re making an offer, you’re very close to making what you hope could be a fairly long-term commitment to someone. If they accept what you consider to be a low-ball offer, are you now going to rescind that offer because they accepted it?

      B) Compensation is not a science and information about compensation remains fairly complicated to obtain. Plus, every job is different and what exactly should my time and contributions be worth? If someone is newer to the workforce and doesn’t know his/her value, that could be inexperience. If someone has been with an organization for a long time and is promoted from within, exploring the job market is once again a newer experience. Plus you have self-esteem (am I really worth it?), need for the job (maybe I’ve been unemployed for a time and know I’m worth more, but have to pay the mortgage so I’ll take what I can get)…

      When I make a job offer, I try to understand the market itself as much as possible (some roles are challenging because they aren’t as common) and the individual and I make a fair offer. It is often higher than expected because I 100% agree with Nick – I want people to be excited about working hard for our organization. Playing games doesn’t seem to be a great way to start a healthy relationship. And I generally expect that I will know more about compensation than my new hire, just because I do it more.

      • Annette: My former editor at Penguin likened what I teach with Ask The Headhunter to dating. So I’ll extend her analogy. Imagine taking a date to dinner and you’re buying. Let’s assume you have a healthy bank account. You want to make a good impression and foster a long relationship. You tell your date to order from burger menu, but not from the entrees or complete dinners.

        Nuff said.

        My compliments for taking the long view.

      • Annette – Can I come work for you?

        You, and Nick, are correct that people WANT to be excited about where they are going to work. And that looking for employment is like dating. In my professional life I have only had the opportunity to kiss two Princes and – for reasons outside of my control – the date came to an end sooner than I wanted or expected.

        I have tried many of Nick’s suggestions to get my credentials before hiring managers and circumvent dealing with clueless HR people, which, in my field, 30 years ago would have been considered a great characteristic to have. Now it feels like a nuisance. I don’ t know why people can’t be direct. As in dating, I don’t have time to play games. Just give it to me straight. I’m a grown up I can take it.

  10. A previous company needed a particular task accomplished, and I hired a former coworker from a previous job to do some work for us on the side even though he was 2000 miles away. When I first mentioned a pay rate, his voice sounded tentative, so I raised the offer without waiting for a response. He was, of course, very pleased. We were very pleased with his work. This all goes to my philosophy that a company exists to serve its customers with excellent products and services – and you keep employees and vendors happy to create the products and services. Unfortunately, I’m only an engineer and not a manager – I will certainly never be in a position to make these kinds of thing happen – people have told me I am too nice, and so they say I will never realize true success. (For example, if I were a better negotiator I would be making more money, and be paying people less money as if that’s the way to happiness. Funny thing – I am a happy person already.)

  11. All of these comments make sense, but in today’s business world we are not investments – we are human widgets that can be bought and disposed of at will. Even high performers can be let go “if they cost too much” in my salary budget. I think business is so focused on the bottom line and return to shareholders that nothing else matters anymore.

    • Agreed. Just another commodities market.

    • So what you are saying is that an engineer, for example, even an experienced but expensive high performer, can be let go – they take all their knowledge and experience to their next employer. Even with signed non-disclosure agreements (NDA’s), an employee who leaves departs with some “intellectual property” and applies it to their next job. A smart company will work to first provide excellent products and services to their customers, and will make it a place where employees truly want to do an excellent job, and vendors will want that company’s business. Happy customers, employees, and vendors will lead to ecstatic shareholders. In other words, the widget theory does not make much sense. If this is how companies are doing business, then no wonder they are in so much trouble!

  12. Just to nitpick, above you wrote, “I believe treating salary as an expense makes it far easier to hire and fill jobs.” I think you mean, “… as an investment …”

  13. Back in the day I managed fast food. We paid at least $0.15 above minimum wage and had up to four superstars that were $6/hr. (Early ’80s). What we lost in labor costs for the higher hourly was made up for in smaller staff, less food waste, better service, and more customers.

  14. All of this makes perfectly good sense to me, but when I talk to employers, they’re in a race to the bottom to hire the cheapest of the cheap help they can, and even then only when too many people have quit (no one left to do the jobs of 6 people), are so far behind that they absolutely must hire, or the person responsible for keeping things going threatens to quit/has a heart attack/gets sick because he’s overworked and has no time off.

    Then I read this article: https://www.wsj.com/articles/the-end-of-employees-1486050443.

    • Marybeth: Wave and wish them a speedy trip to the bottom. :-)

  15. Thank you for this piece. I found it both interesting & thoughtful.
    I received a job offer which I countered & the potential employer came back with more than I’d asked for; I was pleasantly surprised! From day one I was excited to be there & enthusiastically committed to the goals of the team. I saw the increased offer not only as faith that I would perform, but it also motivated me to outperform.

    • @Kim, I’m so glad to read that you and some others have had positive experiences negotiating a higher salary. That proves that not all employers are knuckleheads, but the problem is far too many are when it comes to salary negotiations, preferring to rescind the offer rather than have a mature conversation about compensation.

  16. Todd,
    when managers are “so focused on the bottom line and return to shareholders ” they’re thinking short-term return, not long-term.
    Which IS how the ‘quarterly earnings’ orientation pushes businesses, all the more reason to avoid both.
    Hey, while we’re talking about counterproductive and bad for the business, lets talk about annual reviews!

  17. I think this is a good post to ask a question I had for a long time. Hope Nick could answer this. Before I come across the asktheheadhunter.com, I read articles from Lou Adler, who wrote Performance-Based Hiring. In his articles, he emphasized potential candidates to not to ask for higher salary as that inevitably sets higher expectation from employer in which leads to scrutinizing of every mistake you make on the job. He also argued asking for higher salary would lead to “No Honeymoon Period” where candidate would be expected to perform from the day one. He instead argued job candidates to look for jobs that provides career-growth opportunities such as a form of promotion.

    To me, this blog post is seems to offer contrary view, and I agree with much of what you said on the post. But Lou Adler seems to have a valid point as well.

    What’s your take on this?

  18. Never mind whether or not one might be offered a higher salary in the job offer.

    What about all the hoops we are expected to jump to even get that far.

    I received a request to do a personality test. I’m inclined to decline.
    My feeling is that it is invasive and this just for a lowly assistant job.
    Is it really crucial to know the personality of the person typing and filing documents?

  19. @Nick, I disagree with your advice because the premise of the conversation was that the salary range was opaque. I’d advocate for published salary (with very small ranges) and then there wouldn’t be much negotiation of salary. Instead, the manager would have had to price the job correctly in the first place.

    My advice to the writer is to stay a year, get the most you can out of the job and then leave. Your boss is not looking after your interests, nor is he looking after his. Managing a person who has been put off by his behaviour is hard to do.

  20. Hi Nick,

    You touch on something here I see every day: maximizing profits is not always the reason for a hire, which in a private industry is a red flag for dysfunction IMO. I say if the bottom line isn’t the reason for a hire in a profit-driven company then something is wrong and you should run.

    Chris

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