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Chapter 2:

Aiming for What You’re Worth

Good negotiations, like Ms. Worth’s, are ones in which both sides applaud the outcome. Employees like Worth feel appreciated and motivated, and their bosses feel they’ve hired someone of quality who’s worth every penny. Obviously, it pays to follow Worth’s example and go for top dollar.

But how do you know what top dollar is? How will you know what’s too little? Is it possible to reach too high? How can you tell what you are really worth?

Later I’ll show you how to zero in on your objective market-value using internet resources (in Chapter Five); that’s one measure of what you are worth. For now, though, let’s explore beyond the objective market-value measure and ask, even more fundamentally, how you can tell what you are really worth.

To find out, we need to look at the situation through employers’ eyes and bring up the three principles employers have in mind when budgeting a salary or raise.

Labor Is Intangible

Salespeople can tell you there are two kinds of products: tangibles and intangibles. Employers consider that a person’s labor is among the latter. Note the contrast: While the price of a tangible is easily determined by applying the formula:

Raw Materials + Production Costs + 10% Profit = Price,

For intangibles there are no raw materials or production costs and the first two variables in that equation equal zero.

So the employer’s first principle is Labor is intangible. An employer buys your labor. But your labor is even less like a tangible TV or car because, after the deal for it is struck, your labor can fall short of expectations, or constantly improve, since it is entirely under human control—yours. The more you can do, the more complicated are the problems you can solve for someone, and the more your labor should be worth. Measuring that worth can be a full-time job. It’s called compensation analysis.

But employers know that, even when a compensation analyst has set a figure for a particular job, it’s only an educated guess, a guideline. Some workers are worth several thousand more because they do that much more, while others accomplish less and therefore deserve smaller checks.

Since labor is an intangible, employers know there’s no fixed price, no number chiseled in granite; rather, there is a range.

Salary Relates to Level of Responsibility

The employer’s second principle is The main variable that determines compensation is the extent of the employee’s responsibilities. The more people or products an employee’s decisions affect, the more money those decisions influence as well. Salary is merely an indicator of that responsibility.

The typists in a law firm, for instance, have little effect on business. Others decide what they will type, and still others check their work. The paralegal’s research, however, actually helps win a case. And the associate attorney’s contribution is crucial to getting the case resolved. But it is the experience, courtroom savvy, and legal thinking of the partners who consult with and direct the associates that ultimately pay all their salaries. If they win the case, everyone will share the glory; if they lose, the partners will take the blame. The partners shoulder the most responsibility, so they make the most money.

A classic example from the seventies: Lee lacocca’s decisions won or lost millions of dollars for struggling Chrysler corporation in an instant, and his salary reflected that colossal responsibility. Experienced securities analysts, too, earn six figures, but only because their decisions make seven or eight figures for the portfolios they direct.

The Universal Hiring Principle Is Make Me a Buck

The employer’s third principle is very simple. The “universal hiring principle,” as careers author Tom Jackson terms it, is Make me a buck.

This principle seems to say that, if you show employers you’ll make them even a dollar more than you cost, they should hire you. In actual practice, however, when you add up telephones, desk space, support staff, equipment, hiring costs, training costs, medical benefits, FICA, standard perks, vacations, and other expenses, your decisions and labor must gross a company several times your salary to make hiring you worthwhile.

I’ve often had clients tell me, “Oh, I don’t know if I could ever take one of those commission jobs. I need a secure income.”

Hey, I’ve got news for them! We all work on commission. We all earn only a percentage of what we make for the company. Take a look at 1982 and 1991 and post 911, when recessions hit everyone’s sales. Who lost their jobs? Commissioned salespeople? No, they just worked harder. It was the middle management, support staff, and CEOs who were no longer cost effective and got their pink slips.

Either you make more for your employer than you cost, or you go. Even charitable, nonprofit agencies pay on a type of “commission.” Either their employees contribute work that other people believe in and “pay” for with charitable donations or they, too, become nonprofit.

Would you believe it’s true in government, too? Government is more nearly immune to the profit principle because it’s supposed to provide public services, not make a profit and if it runs out of money, it can just levy and collect more taxes. How does Make me a buck apply there?

Elected officials’ salaries depend on the support of the voters. They will continue to get paid only if they are reelected, which is their reward for delivering or promising services that the people appreciate. To deliver those goodies from the public coffers, however, government must either more or less balance the budget or raise taxes. And raising taxes can be the easiest way for politicians to fire themselves. If an official pushes for something the voters notice and don’t like, poof! He or she is gone.

So the political Make me a buck is more accurately expressed as Make me a vote to make me a buck. Unless an employee is doing work that is cost effective, within the budget, and likely to get the boss reelected, bye-bye!

When it comes to putting an actual dollar figure on a government employee’s contribution, the federal government and most other governmental units have very rigid step and grade systems for compensating their bureaucrats. Since public-service employees do not produce money but merely transfer it from one citizen to another, there’s no profitability to determine for them. So government typically looks to the profit-making sector, compares duties, chooses a salary, and locks it in. Therefore, even those in the nonprofit sector get paid by the Make me a buck profit-making principle.

Example 4 illustrates the employer’s need for employees to generate more money than they cost.

Million-Dollar Blunders

Example 4: Mr. Greedy Gets What He Deserves

Mr. Greedy has a technical and managerial decision-making background he thinks is worth $85,000 a year. His education supports that assessment, too. But he clearly has the potential to handle work worth $150,000 or more in the long run, and he was hard at work on his job search.

He approached a high-tech manufacturing firm to explore a very competitive position. After a thorough discussion, the head honcho said, “You aren’t qualified for the big-buck positions yet, but I think you have potential.” He further hinted that, if Greedy was willing to come aboard at a lower level and get some exposure and experience, perhaps he would gain a competitive edge for future openings. “Of course,” the president misguessed, “this lower-level production position would not pay you what you’re worth, because we could do only $95,000 to $100,000 on it, but you could consider it.”

Greedy, of course, was ecstatic. The position paid $10,000 over his fondest hopes, for work that seemed very doable. Instead of being cautious at being overpaid, he let it stand that the seventies was the range for him.

Greedy’s further interviews with the firm’s senior managers left them less convinced of his long-term potential than the president had been.

Why, they reasoned, should we hand over $100,000 for a $85,000 production job when we don’t know if this guy will really work out in the long term? They might have been willing to pay him $75,000 to $80,000 and judge his performance over time. However, the president had boxed the company in by committing to at least $75,000, and Greedy had boxed himself in by agreeing too soon to be overpaid. So instead they sent Greedy a TNT (Thanks, no thanks) letter saying, “We do not see a match between your career goals and our firm at this time.”

Greedy, saying that he’d consider anything to get into that field, tried, of course, to defuse the salary issue, but it was hard to do without sounding desperate. These people had no time to review the five-person decision further. So it goes.

Greedy should have defused the salary question right away instead of operating on a get-all-I-can principle. A quick comment to keep the potential job alive might have gone like this: “Well, it’s really too early to discuss salary. I just want a fair salary for whatever responsibilities I handle. Let’s first discuss how I can help you.”

The Basic Principle of Effective Salary Negotiations

Three presuppositions for this principle are:

• Labor is an intangible

• Salary relates to level of responsibility

• Employees must make more money for the company than they cost.

We’ve also noted that being greedy can boomerang. The answer to the question “How much am I really worth?” is “Only what’s fair and competitive for the quantity and quality of work you contribute.” And since your contributions can be greater or less than another person’s in that “same” job, what’s fair and competitive is not a fixed price, but a range. You should aim for the top of that range.

When you examine your present compensation or look at a new salary, hold this attitude: “When I’m paid the very best my skills can get in this company in this market, I’ve made a good bargain.”

That’s the basic principle of effective salary negotiations. It helps insure that both sides will be happy. Good negotiations, after all, are always win-win negotiations.

In Chapter 5 you’ll learn a formula and method to research your market value so you’ll know exactly what range to request for a specific position. We’ll discuss all current e-resources and others, for researching your range. Now, however, you’re about to shake hands with Mr. Employer and step into his office.