The intercept is negotiable, the slope is fixed

A new hire only gets one chance to negotiate: a brief window between the time that an offer is made and the time when that offer is accepted. Those initial terms and conditions determine the employee's salary for years to come - possibly the entire the duration of his or her time at the institution. 

Think of a graph with job tenure (years of service) on the horizontal axis, salary on the vertical, and a curve showing the evolution of a person's salary over time. Roughly speaking, the intercept of that curve is negotiable, and the slope is, if not entirely fixed, at least largely independent of a person's initial starting salary (for references, see here). 

An extra $100 in starting salary means an extra $100 in salary each and every year - until one jumps to a different pay scale, gets a salary-boosting outside offer, or hits a salary ceiling - none of which may ever happen. Hence, If one is offered a job, it is critically important to negotiate. 

This is how I visualize negotiations:

Each party to the negotiations is trying to pull the bargaining outcome in their direction, to appropriate a greater share of the surplus. The question is: how?

The best way to get a good offer is to have a good fall-back position. But what if there are no other offers on the table, and the fall-back position is working at Starbucks?

A poor outside offer shifts the "employee's fall-back position" line to the left, and typically results in a lower salary. But regardless of ones fall-back position, sometimes just asking for more money actually works. A friend tells the story of her negotiations with her Dean "I had hoped my starting salary would be a little higher than this." "I can only go up by $500." "O.k., I'll take the $500." 

[Update: in the comments, some people have suggested that negotiation is futile. The scope for negotiation is a function of the uniqueness of the employee. For a job such as flipping hamburgers, which can be done perfectly adequately by a significant segment of the Canadian population, any one individual is easily replaced, the employer's fall-back position is high. For a job such as NHL goalie, where only a few dozen people in the entire world have the requisite skill set, and the job is vital to the team's success, the employer's fall-back position is low, and the individual has more scope for negotiation. This post is mostly applicable to jobs somewhere between these two extremes.]

It helps, when requesting more money, to justify that request, emphasizing the positive. "Given that I have X years of experience..." or "Given that I am in a high demand field.." There are books with titles like "Getting to Yes", "Radical Collaboration," or "Negotiation Speak" that one can read which are full of helpful suggestions.

It also pays to do background research. The collective agreements for most universities are available on-line. One graduate was very pleased with the offer he had received - until he looked at the university's collective agreement on-line, and discovered that the offer was right at the bottom of the pay scale. He argued that he was better than that, and the university agreed.

There is also a wealth of information on-line about professorial salaries - all Ontario salaries over $100,000 are published here, all BC salaries over $75,000 are published here, and the Canadian Association of University Teachers provides a very useful almanac with average salaries for each rank by university and by field. According to the CAUT almanac, the average salary of an Assistant Professor in Economics is $101,000. Suddenly that offer of $70,000 doesn't sound so good, does it?

This publicly available salary information has to be used with caution, however. Many current professors negotiated their salaries armed with outside offers from US schools when the Canadian dollar was trading at 65 or 70 cents US. Now that the Canadian dollar is at par, and US schools are facing financial issues, those kinds of outside offers are rare. Many Canadian universities are facing financial challenges, too. When the Dean says "I'm sorry, there is no more money available" he may be speaking the truth.

In a tight fiscal climate, it may be more fruitful to look for other areas for negotiation. When I first started teaching at Carleton, I was asked to teach the third year public finance course. I'm still teaching it. In all probability, I will be teaching it until I retire. It is critical to get at least one good course during ones first year of teaching, and to avoid getting any truly dire courses. That initial course allocation may be with you for life, so it's worth talking about it with the chair. Other things people negotiate over are start-up research grants and the first year course release. 

People who are hired during tough job markets earn lower salaries than people who are hired in good job markets. It may rankle that the useless person next door is paid $10,000 a year more, but generally speaking the only way of addressing that inequity is to get an outside offer. Or just let it go, and enjoy life.

Comments

[Vladimir]

What constitutes a "dire" course?

[Frances Woolley]

Vladimir - that's a matter of personal preference, but typically the best courses to teach are courses that students take voluntarily, that is, they take because they like the subject matter/prof going into the course. The worst courses to teach are required courses, especially courses that are required for non-econ students.

In other words, the courses that students think as dire are usually the ones that profs think are dire too.

[Frances Woolley]

Vladimir - another consideration is that typical teaching evaluations vary hugely from course to course. It's generally very hard to get good evaluations on micro theory, it's much easier to get good evaluations teaching econometrics.

[Jacques René Giguère]

It it said that when Einstein was hired (if it's the right term)at the Institute for Advanced Studies, he was asked to name its price. So he said "I can't go below$ 5000 a year." The director answered :"Sorry, I can't go below $15000."
Blessed are the outliers...

[Frances Woolley]

Determinant - Your last comment contained unnecessary personal remarks, and I have deleted it. Don't assume too much - I learned the importance of negotiation the hard way.

[Determinant]

That comment was not personal. The assumption is implicit in this exercise.

When the choice is between unemployment and employment, market power resides with the employer and this sort of negotiation doesn't happen, which is a far more common scenario in such a case the above illustration is irrelevant.

I am assuming nothing, just giving you my own experience. It's a nice supply/demand argument but it is very limited in application.

[Determinant]

Further, you included yourself in the above example, Frances. It is quite clear that you OP is describing your own actions and experience and I simply described the very, very large assumption your description rests on. Else, see above.

[Determinant]

At bottom, every action contingent on market power/elasticity is a "maybe". Such is the conclusion I have reached from every thread discussing market power on this blog.

[Frances Woolley]

Determinant - "When the choice is between unemployment and employment"

When the fallback position is unemployment, the green dashed line representing the employee's fall-back position shifts a long long way to the left. The employee can try to pull the pay-off in his/her direction, but it's not easy.

"It is quite clear that you OP is describing your own actions and experience"

Yup, it's describing exactly and precisely what I didn't do when I was first hired by Carleton.

"every action contingent on market power/elasticity is a "maybe""

Here's one thing that's not a maybe: a person who doesn't ask for more than the employer's initial offer, won't get more than the employer's initial offer.

[Patrick]

Out of curiosity, how many of the profs who get hit by being hired in hard times ever simply ask for more money later on? And how many who get lousy courses ever go to their boss (Dean?) and say they'd prefer to teach something else?

I'm surprised to hear that universities have similar people, with similar qualifications, doing similar jobs being paid significantly different amounts of money. Any large firm HR person I have ever meet would wet themselves and be putting in an emergency call to the lawyers if this arose.

I think many large firms standardize pay rates and managers typically have little leeway. FWIW, in the jobs I had (basically programming), the base wages were standardized by HR and there wasn't much room for deviation. Heck, even performance bonuses - where a manager had some say - were limited to a standard and quite small. If you asked for more at hire time, the answer was "no", and if you asked for a raise the answer was "no". Positions occupied by grasping people (e.g. sales), were paid on commission, so raises and bonuses were never an issue - "Want more money? Then sell more!".

The C-suite, of course, didn't follow any of this and money seemed to just rain on them every spring, regardless of performance. If things went well they got a bonus for doing a great job. If things went pear shaped they got a bonus to make them feel better, or some such nonsense.

[Frances Woolley]

Patrick - "how many of the profs who get hit by being hired in hard times ever simply ask for more money later on?"

Lots of them. There's a salary rationalization committee. Everyone I know who has received a significant salary adjustment has either had an outside offer, or has been in a position to make a human rights complaint.

"putting in an emergency call to the lawyers"

Paying people different salaries on purely arbitrary grounds - e.g. paying less to people who aren't able to leave the city because of family commitments - won't cause the employer legal problems. It's only paying lower salaries to women/members of visible minorities/etc that will cause the employer problems.

"I think many large firms standardize pay rates"

Yup, in which case the crucial thing to negotiate is what level one is appointed at, rather than what pay grade.

I was actually in a negotiation recently in a similar situation. The administrative job had a fixed stipend and fixed course release - none of this was negotiable. So I had to really think to come up with some other thing to ask for (I was in a very strong negotiating position).

[Patrick]

I wonder how many people in the private sector can really negotiate 'appointment level'? Most firms aren't going to make an offer for position X and then allow themselves to be negotiated into hiring for position Y, where Y is more senior than X. Do Universities really do this? In the private sector a manager would get approval to hire someone for a given position with a given salary range, and they aren't allowed to deviate from those parameters. Benefits are not negotiable. Sometimes vacation time is, but usually not. The only game is for the prospective employee to try to get to the top of the salary range, and most people are so glad to be leaving the ranks of the unemployed, and so fearful that the offer will be withdrawn, that they don't bother negotiating. They just accept whatever is offered.

" It's only paying lower salaries to women/members of visible minorities/etc that will cause the employer problems."

Yeah, but I think it's more complicated than that. These days, no large firm would have a policy of paying someone less on the basis of religion/race/etc. They seemed to be worried about stepping blindly into practices that amounted to discrimination. I suppose they figured that the lowest risk policy was to say that everyone doing the same job got the same pay (within a small range), no exceptions. Anyway, IANAL. What do I know.

[Bob Smith]

Frances,

Does the salary rationalization committee ever suggest cutting pay? Because otherwise, the only result is to level up salaries at the level of the person who has received the most outrageous outside offer. That's not a recipe for long-termnsustainability.

[Frances Woolley]

Bob "Does the salary rationalization committee ever suggest cutting pay?"

That is the stuff of university administrators' wildest and most outrageous fantasies. But, yes, avoiding this kind of levelling up may be one reason why salary rationalization committees are so reluctant to raise salaries.

[Jim Sentance]

Along with a number of other disadvantages related to location, you can imagine that hiring new APs is difficult for us in the Maritimes as our pay scales are not quite competitive with Ontario's. One offset I've been able to use is the promise to give new recruits a good deal of preference in choosing the courses they teach.

[Frances Woolley]

Jim - this raises the question as to how accurately people compare real salary offers. The cost of housing is so much lower in the Maritimes than in Ontario that a given $ of salary goes much further. But it's not easy as a new hire to do those purchasing power parity calculations.

[Determinant]

Here's one thing that's not a maybe: a person who doesn't ask for more than the employer's initial offer, won't get more than the employer's initial offer.

The above is contingent on the employer not taking the request as a bad impression, and then not hiring you. Or in other terms, do you want to run the risk of annoying the employer just before the deal is settled, the deal that you likely worked so long to get and really want (and need)?

Is it truly realistic to ask for $100 more a year when the opportunity cost of that request is not getting the job at all and landing in the dire straits of unemployment? My point is that this is not a realistic behaviour.

[Jack P.]

I think the cost-of-living argument may be overplayed, but on average the provincial ''premiums'' seem to correspond roughly to the higher cost of renting or mortgage debt service.

A simple calculation might suggest e.g. an extra $1000 a month in rent or mortgage interest, or $12,000 a month, between a low-cost and a high-cost area. Seems in the right ballpark.

This, however, omits the value people attach to quality of life, cultural and other amenities associated with big cities. (E.g. http://www-personal.umich.edu/~albouy/Canada/canada_qolprod.pdf )

My guess is that university professors don't have (or don't take) the time to enjoy urban amenities, so it is not priced into salaries as much as it would be for other jobs. (E.g. Ed Glaeser`s finding that big city jobs do not pay enough of a premium to make up for the higher cost of living, which is explained by the value people place on amenities not available in, say, Edmundston NB.)

[Dan]

Determinant's question is important for people on the job-seeking side. Do I really want to fight over the range in a bracket and make a bad impression that might be important later? If a range is, say, 70 - 92K, and I am offered 73K, then I fight for 85K and get it, who is now less impressed because of my haggling? I guess the answer is "Negotiate for what you're worth" or "Just be awesome, then when you come up for tenure it isn't an issue", but for the marginal hire low-ball pay + eventual long-term position might be better than good pay + skeptical tenure committee... Obviously, I have no idea how this works in practice. It could be that I'm haggling with HR, not the head of a department who is on a tenure committee. Interesting post, as always.

[Frances Woolley]

Dan "for the marginal hire low-ball pay + eventual long-term position might be better than good pay + skeptical tenure committee"

Actually, it works the other way around - high pay is taken as a signal of quality.

In my experience, which is admittedly limited, offers are much less likely to be withdrawn than one might think. Making a hiring decision is costly, and withdrawing an offer and going back to the hiring committee is a real pain.

Also, think about what a potential employer is looking for. E.g. an employer who is looking for someone who is tough minded and assertive isn't going to be at all taken aback by a request for more money - that kind of forthrightness may be precisely what he or she is looking for in a candidate.

[Determinant]

Academia is unusual in that it puts an incredible amount of weight on being an individual: individual achievements (research), scholarly articles, original thinking that is under no circumstances supposed to be identical to another that of another candidate. Also, you are paid by a a quasi-government institution with little pressure of bankruptcy or complete institutional collapse over a short period of time.

That is an extreme and most of the private sector is not like that. The private sector, even in professions, wants employees to be able to substitute for one another. Even lawyers are close substitutes until they distinguish themselves with their clientele and perhaps become a "rainmaker".

How many Patricks work in Patrick's office, for instance? Whereas you can't be replaced with Nick, Frances. Your model is much more applicable to professional sports players, who are not close substitutes, than the great bulk of jobs.

On the other extreme, I hope to hear about a government post for myself in the next two weeks. The salary is fixed for a job classification and non-negotiable. That's how the Government of Canada works.

[jb]

I kinda like Rubinstein bargaining model.

[Bob Smith]

Determinant,

I wouldn't go that far. While there are, no doubt, jobs where one candidate is pretty much the same as the other, that isn't a universal experience (it certainly isn't true of lawyers).

Mind you, the private sector gets around the "fixed intercept" problem, by paying a portion of employee's compensation as performance contingent bonuses. In other words, rather than haggling over what you're worth up front (when neither party has any real basis for assessing the value of your labour), the parties adopt a compensation structure that is linked to actual performance. It removes a fair bit of the incentive for the employee to haggle (since, if they are as good as they say they are, they'll get a bonus anyhow), without exposing the employer to risk if the employee turns out to be a dud (mind you, that's less of a concern in the private sector because it's a lot easier to fire people. Still, that's a costly process and best avoided).

Maybe rather than increasing the salary of professors who receive generous "outside" offers, universities should be thinking about paying such people annual "retention" bonuses.

[Jack P.]

@Bob Smith: Pay-for-performance in academia has been applied to a fair extent in the US: in addition to salary renegotiation (only for those who are very productive and willing to get outside offers), the annual pay raises are performance-based and not at all automatic. Where I taught in the US, someone who was not terribly productive should expect never to see a pay raise (with the exception of tenure and promotion to full professor), while the most productive faculty might get a 4-5% pay increase in good years (budget-dependent). When I left my position to return to Canada, I was offered (and declined) a substantial pay raise by the US university.

One last point: It can be very difficult to establish "performance" in academics, as there is not a clear ranking of journals and there is disagreement on seemingly minor issues such as how to count an article with several co-authors, vs. sole-authored. Making it a large part of salary determination can lead to acrimony, gaming the system, and shirking valuable but "non-productive" duties (such as office hours and advising students at different levels)

[Frances Woolley]

Determinant: "The salary is fixed for a job classification and non-negotiable. That's how the Government of Canada works."

Let's take some random job ad from the jobs.gc.ca website, which I've posted below. Look at it. There's a salary range listed - $65 to $80K. That means there is room for negotiation. No matter how badly she negotiates, the successful candidate won't get less than $65K. No matter how well she negotiates, she won't get more than $80K. Between these two extremes, there is room for negotiation. For example, which previous jobs count as relevant work experience? In cases like this, the critical thing is to *read the collective agreement*, find out what the algorithm for salary determination is, and make the case for the most favourable possible interpretation of said algorithm.

Analyst/Programmer

Organization Name: Canada Border Services Agency - Solutions Directorate - Enforcement Systems Division
Location: Ottawa (Ontario)
Classification: CS - 02 for more information
Salary: $65,059 to $79,629
Closing Date: March 12, 2013 - 23:59, Pacific Time Useful Information
Reference Number: BSF13J-009083-000016
Selection Process Number: 13-BSF-EA-IND-HQ-IST-CS-2649
Vacancies: 2

[Frances Woolley]

Jack P, Bob - merit pay and bonuses don't change the "intercept negotiable, slope fixed" issue. The person who negotiates a great starting salary gets merit pay and bonuses on top of that great starting salary. the person who negotiates a low starting salary gets merit pay on bonuses on top of that low starting salary. The only way that merit pay and bonuses change the story is if there are salary ceilings, so the people who start out at a higher level max out more quickly.

[Bob Smith]

Frances,

I'm not sure that's right, or at least not universally so. While bonuses are often calculated as a function of your base salary, they're typically discretionary. So the person with the great base salary who turns out to be a so-so employee is likely to have that performance reflected in their total compensation. Same with merit pay, the employer might (likely, will) think that the high performing employee with a lower base salary is more meritorious (or, but it amounts to the same thing, more inclined to leave) than the so-so employee with a high base salary.

Now, I think you're right if three conditions are satisfied (i) bonuses/merit pay are capped and linked to base salary,(ii) the cap binds on both the high base pay and low base pay employees (i.e., Wmax
Of course, the real discipline in the private sector is that the person who negotiates a high base salary and doesn't live up to expectations is likely to be replaced. The slope doesn't matter at all if you lose the job.

[Bob Smith]

I suppose the more general point is that the intercept doesn't matter unless the slope is fixed. I'd suggest that outside of goverment or unionized environments, the slope is often not fixed.

[Determinant]

There's a salary range listed - $65 to $80K. That means there is room for negotiation.

It does not mean that. Sorry Frances, but you got caught in government terminology. I've been at this a while and have a book which explains this point and I am writing my own book about how to go about getting a Federal government job.

CS-02 is the Classification. So we go look up "CS Group" on the Treasury Board's website. That pay rate includes all the "steps" in the salary grid for 2013.

On initial appointment from outside the Public Service, you are at Step 1, preemptively. However, look above at the CS-01 grid. Some of the later steps (7 and 8) are higher than Step . Under the Public Service Employment Act, a Promotion from CS-01 to CS-01 moves you into the next higher step that it at least 4% greater than your old pay rate. So someone in CS-01 Step 8 in 2013 is moved into CS-02 Step 3.

The Initial Appointment Policy allows Deputy Heads (Deputy Ministers) to move a candidate up a step in one of three circumstances:

1) There is a regional shortage of skilled candidates for the position, ad evidenced by regional labour market surveys from recognized institutions; or

2) There are unusual circumstances which lead to difficulties filling the position, i.e. Step 1 is below prevailing rates in a particular location; or

3) Operational conditions require a highly experiences employee who will assume full duties immediately without training, which means that the need is so pressing training is out of the question.

In practice, Points 1 and 2 are handled through Terminable Allowances, a year-by-year top-up to Rates of Pay to make them competitive for a given region or occupation if need be. Once the need disappears, so do the terminable allowances.

Notice the emphasis on Public Service needs and not a candidates qualifications. All of that requires financial authorization which Selection Boards do not possess. The decision to hire has already been taken and you are simply the body who wants to fill the position. It is all about the system, not you personally. This is the most important point I can make about understanding how the Public Service of Canada works. There is no consideration for you personally and no manner to consider you personally. If you try to argue for individual consideration, you'll get nowhere.

Under no circumstances will you be able to "dicker" with an Public Service HR representative over your rate of pay based on your personal qualifications.

Salary negotiations happen through collective bargaining, not individually.

[Determinant]

*Gagh* Typos.

On initial appointment from outside the Public Service, you are at Step 1, presumptively. However, look above at the CS-01 grid. Some of the later steps (7 and 8) are higher than Step 1. Under the Public Service Employment Act, a Promotion from CS-01 to CS-02 moves you into the next higher step that it at least 4% greater than your old pay rate. So someone in CS-01 Step 8 in 2013 is moved into CS-02 Step 3.

[Jacques René Giguère]

A few years ago, I sat on a compensation comitee foe a particular branch of the QC gov't. Up to then I had been confused or shocked at how some high-level mangers got a bonus given their mediocre, sometimes abyssal, performance and how some managed to get a bonus right before being dismissed.
The system worked thus: the guy got first, let's say 100 (an index). Then there would be a compulsory bonus of 4%. Our job was to determine if he would get up to another 4%. So,in fact, the base pay was 104 and their real bonus was between 0 and 3.84 (4/104). So declaring a 4% bonus was in fact denying one. His colleagues knew how it worked so were aware of the insult ( explaining getting a bonus and getting fired) and so it could not protect his reputation among his peers but the underlings could not understand why their inefficient boss was recompensed , thus feeding low morale and cynicism.
Nobody remembered who had designed such a system and why. When I expalined it to some colleagues, one of them told me I was lying because something like that could not rationnally exist...

[Jacques René Giguère]

In the QC system, once you have been determined to be qualified, through 1) resume then 2) some kind of exam ( of various length and complexity depending on the post to be filled and 3) interview by a jury of your futures bosses (and colleagues for professionnal and managerial posts), you are awarded a salary based on the number of years of relevant experience and schooling). There is no negotiation except for some deputy ministers where you may start higher and reach the top faster.

My experience with the ON system more than 20 years ago ( to a post one rank below deputy minister) had 1 and 3). BTW, I was chosen but the Premier called an election, was defeated and the new one cleared the ranks..

[Determinant]

The Quebec system dates from the reforms of the 1960's. Until then the Quebec Government had been quite small and underdeveloped. Most social services are handled indirectly by the Roman Catholic Church (as a government agent) or Protestant church charities. There was no Ministry of Justice in fact. (I learned that while reading, that was a shocker for me, Provincial Courts were one of the main provincial government presences in most communities). The largest and most professional bureaucracy in Canada was the federal Public Service, which got that way through the Merit Principle.

1) resume then 2) some kind of exam ( of various length and complexity depending on the post to be filled and 3) interview by a jury of your futures bosses (and colleagues for professionnal and managerial posts) is in practice the Quebec adaption of the federal Merit Principle.

In the 1960'a Quebec adopted the Merit Principle and its own Public Service Commission and then heavily recruited Francophones away from Ottawa. This was the Quiet Revolution in government circles.

[Jim Sentance]

On the cost of living difference, the Maritimes does have lower cost housing, but that's about it, and even there, housing is a lousy investment, so in some cases depending on timing I'd say you'd be further ahead with higher prices.

Just about everything else is pricier. Taxes are much higher. Electricity rates are much higher. I used to have a good example in the price of genuine Russian vodka at over $100 a bottle, because I'd have to drive to Amherst NS to buy it.

And I don't agree with the notion that academics don't care about urban amenities. Try living where their supply is extremely limited and see if as a highly educated person you don't care. Try stocking a decent wine cellar when your provincial liquor authority has the selection of a typical small town in the backwards parts of Ontario and the legal limit is 2 bottles a trip you can bring in (now 12 thankfully but even then...)

Though for anyone reading this who might be on the market in the next few years forget I ever said that.

[Bob Smith]

Jack P: "My guess is that university professors don't have (or don't take) the time to enjoy urban amenities"

Try telling that the York or UofT university professors whose Canada ends at Dupont (the northern border of what reasonable people might consider downtown Toronto) and who are more likely to be found in a bar or cafe on Bloor St. than in their offices (more impressive for York Professors, given that, compared to downtown Toronto, York is located at the edge of the universe). For many years you couldn't throw a rock in the Annex without hitting some York polical science professor or sociologist.

[Neil]

@Jacques: The Einstein parable.

I'm wondering how truly rare it is for an employer to offer more than the employee asks for. My last two jobs have offered me more than I asked for as a starting wage. Neither positions had set wage scales, and the first one required very little in terms of qualifications. My understanding is that experience has taught them that even if an employee undervalues themselves at the time of the interview, they won't continue to indefinitely, and retention will become a problem. So they start off high and start the relationship off on a positive note, reducing turnover in the long run.

@Determinant: The private sector, even in professions, wants employees to be able to substitute for one another.

I think your experience is coloured by an excessive focus on finding employment in large organisations, where junior employees are just cogs, and that's all management wants them to be. In small & medium businesses, each person matters, and hiring a single high performer for 30% more than an average performer can make a big difference to the overall business. In the long term it can make succession planning harder, but in the short term you can easily be saving yourself an extra salary, maybe even two.

[Determinant]

In my experience small & medium businesses don't want junior employees at all because they don't want to pay for training. At least that this the strong conclusion I have reached about engineering.

In small & medium businesses, each person matters, and hiring a single high performer for 30% more than an average performer can make a big difference to the overall business. In the long term it can make succession planning harder, but in the short term you can easily be saving yourself an extra salary, maybe even two.

This leads to the widely observed phenomenon of stealing an experienced employee from a competitor and just cutting out the juniors. If one experienced person is worth 1.5 juniors, just go with experience.

And we wonder why so many employers want 5 years experience....