Personal Finance

The High Cost of Being Frugal

I previously wrote about my experiences paying a lot of extra money because I wanted to save money. I’ve been recently reminded, as potential employers try to figure out how to grind me down to the lowest possible salary, how salary negotiations VERY OFTEN play out in the same way.

When I was a fresh-faced undergrad, about to get my undergrad degree in computer science, I got talking to the CEO of a startup down in San Francisco (this was at the tail end of the dot-com boom). While I was talking on the phone to the CEO, he asked me my salary requirements. I told him what my classmates were getting in their offers, and said I’d like to get something at least around that level. I wasn’t sure what to make of it when he started sputtering and said “Well, we can definitely pay that, if someone offers you more though, talk to us first, don’t just accept their offer… we’re able to negotiate…”. I got the offer from him shortly after our call and it was for double what I’d mentioned. Shocked, I happily accepted and headed to SF.

After I’d been down there, I got to know quite a few of my co-workers quite well. One of them, named Simon, was actually involved in the hiring decision and I mentioned how I was shocked to get an offer so much higher then my expectation. He told me that after the interview, the CEO was gloating about how they were going to pick me up dirt cheap from Canada and that he was getting a half-price developer. Simon told me he’d said to the CEO “yes, we can get him cheap, but once he comes down to the Bay area and realizes how much more everyone else is earning, a competitor is going to steal him away and we’ll have relocated him for nothing”. Simon then made me buy him a beer :-), however in my opinion his perspective was absolutely in the best interest of the company (and I worked very hard and loyally while I was there).

Employee retention and negotiating hard on salary are inherently at odds with each other. You can get a good deal on staff expenses, and deal with higher turn-over, or you can pay a competitive salary that will keep staff around as long as you want them. Even if someone makes a commitment for a certain length of time to a company, if a red hot job market hits us and they see friends getting huge raises by moving to a new company, the reality is commitment or no, things might get sour in a hurry (slavery and indentured servitude aren’t legal in Canada, so if they want to leave a company there isn’t much the law can do to keep them there). Heck, at the end of a rough day having a friend say “I can get you a job at my company for $5K more then you’re making” will tempt some people.

I think a lot of business owners are used to negotiating, and it only seems natural to get the best deal possible on labour costs. The thing that’s different with employees, as opposed to other expenses, is that you have to work with and rely on them to actually operate the business. If you hire someone and pat yourself on the back for getting a good deal, they’re probably starting their employment thinking they got a bad deal, which isn’t really the best attitude for them to have. The only exception to this is if someone isn’t bright enough to realize they’re being underpaid, but unfortunately I haven’t ever met a good developer who was stupid.

My plan has been, if I’m ever in a position to hire technical staff, to get the best people and pay them fairly. If I deviated away from fair, I’d move in the generous direction and expect that they’d know they’re being paid well and would put that much more into their job.

Does anyone have experience negotiating the salaries of the people you then manage? What has your experience been like?

2 replies on “The High Cost of Being Frugal”

When I worked in the hospitality industry you would get a lot of pats on the back from senior administration if you could hire someone below the projected budget for that position. At the time I didn’t think anything was wrong with that, but the industry is predominantly low paying and people didn’t complain too much.

It is called negotiation for a reason, and employees need to understand that the employer has singled them out from every other applicant for the job, so the employee has the upper-hand in negotiating. Never just take the first offer and be happy you were selected, because the first offer is rarely the best offer.

When negotiating my own salary for my first ever 9-5 job I was so happy just to get the phone call that I jumped at the first offer. It was way below market, and it took me a few years to catch up. When I recently changed careers I didn’t make that mistake again and asked for 10% more than the initial offer. After 1 day they called back and accepted.

You raise a very good point. I am a software developer like you and I work for a very large American software company that has offices in Canada. I have seen a countless number of my coworkers leave for big salary raises and greener pastures at other companies. Now, we’ve also undergone two acquisitions and some demoralization at the company, which is probably an even bigger factor than salary.

Leave a Reply

Your email address will not be published. Required fields are marked *