Salary Negotiation
Consider the following discussion of salary negotiation strategies from the Harvard Law School:
There are a couple of takeaways from this article. One is that those that negotiate salaries in general receive greater compensation than those that do not negotiate, or are excessively accommodating or competitive in the negotiation process.
We can treat the salary negotiation process as an auction. Consider the scenario where you have received three job offers (lucky you!) and each company is participating in an auction for your employment. In this model, you are a greedy sell-out and all you care about is the total compensation. The companies are disincentived from revealing their true value for your employment because they could still manage to employ you by giving you a low-ball offer. The article recommends asking for additional compensation (“Those who chose to negotiate salary… increased their starting pay by an average of $5,000”). This result makes total sense upon consideration of the game theoretical analysis – your true value to each company is a bit higher than what they propose in the offer letter. But what if you wanted to know how much each company truly valued you? You could instead set up a second-price auction in which the company that provided the best offer would only compensate you the value of the second-highest offer. This is similar to how offer-matching works; if a company really wanted you enough, then they would equal or better an offer by any other company.