Don't Make Assumptions When Negotiating Salary!

By Andrew LaCivita

BusinessFinance
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Key Concepts:

  • Market Pay: Perceived salary based on gathered data about similar roles.
  • Dynamic Pricing: The fluctuating value of a project manager's role based on immediate need.
  • Value Perception: The employer's assessment of an employee's worth, influenced by urgent requirements.
  • Opportunity Cost: The potential financial loss incurred by not filling a critical role.

Market Pay Misconceptions

The core argument is that relying solely on "market pay" data to determine your worth is flawed. "Market pay is what you think they're willing to pay you because you think you've gathered data about what other people like you earn." The speaker emphasizes that this approach has two primary weaknesses:

  1. Data Staleness: Market data is inherently outdated. "Whatever data you're gathering is old data because every single day the price of a project manager changes." The demand and urgency for specific skills fluctuate constantly, rendering static salary benchmarks unreliable.

  2. Employer's Need Ignorance: Individuals are unaware of the employer's specific needs and the potential cost of not filling the role. "You have no idea how badly I need you." The value an employer places on a candidate is directly proportional to the urgency and impact of the role.

The Dynamic Nature of Value

The speaker illustrates the dynamic nature of value with a consulting firm example. Firms losing $300 per hour due to a vacant position face a significant opportunity cost. "I tell these stories about consulting firms that I've worked with that are losing $300 an hour for not having somebody. That's 600 grand a year." This translates to a $600,000 annual loss.

Willingness to Pay

The example highlights the willingness of employers to exceed perceived market rates to mitigate losses. "Do you think they wouldn't be willing to pay 300,000 a year for somebody who thinks they're worth 180 to get the other 300?" An employer might readily pay $300,000 for a candidate who believes they are worth $180,000 if that candidate can prevent the $600,000 loss.

Conclusion

The speaker concludes that an individual's perceived market value is often disconnected from the employer's actual willingness to pay. The employer's need, the cost of inaction, and the potential value the candidate brings to the table are critical factors that outweigh generic market data. The key takeaway is that understanding the employer's specific situation and quantifying your potential impact are crucial for negotiating a salary that reflects your true worth.

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