In the high-stakes game of salary negotiation, the first number spoken is often the most important. This is the principle of anchoring, a psychological phenomenon that can dramatically influence the outcome of your compensation discussion. And for those looking to maximize their earning potential, there’s a simple, powerful strategy to leverage this principle: The 20% Rule.
What is Anchoring?
Anchoring is a cognitive bias where we rely too heavily on the first piece of information offered (the “anchor”) when making decisions. In a salary negotiation, the initial figure proposed becomes the reference point for all subsequent discussion.
If a company offers you a salary of $100,000, that number becomes the anchor. Your counter-offer will be framed in relation to that anchor. But what if you could set the anchor yourself, and set it high?
The 20% Rule: A Practical Guide to Setting the Anchor
The 20% Rule is a simple heuristic for setting an ambitious but credible anchor. Here’s how it works:
- Determine Your Target Salary: Based on your research, skills, and experience, determine the salary you believe you are worth. Let’s say your target is $150,000.
- Identify the Top of the Market Range: Research the highest possible salary for your role, industry, and location. This is the top of the realistic range for your position. Let’s say this is $180,000.
- Apply the 20% Rule: Add 20% to the top of the market range. In this case, $180,000 + ($180,000 * 0.20) = $216,000. This is your anchor.
When the recruiter or hiring manager asks for your salary expectations, you confidently state your anchor: “$216,000”.
Why It Works: The Psychology of the High Anchor
This strategy might seem audacious, but it’s grounded in sound psychological principles.
- It Shifts the Conversation: By starting at $216,000, you have immediately shifted the negotiation range upwards. A final salary of $160,000 or $170,000 now seems like a reasonable compromise, whereas it might have seemed like a stretch if the negotiation had started at $120,000.
- It Signals Your Value: A high anchor, when presented confidently and backed by research, communicates that you are a high-value candidate. It projects confidence and a clear understanding of your worth.
- It Protects You from Being Lowballed: By setting the anchor high, you prevent the company from starting the negotiation with a lowball offer that would put you on the defensive.
How to Do It: The Art of the Strategic Anchor
Successfully using the 20% Rule requires more than just picking a high number.
- Do Your Homework: Your anchor must be grounded in reality. Use resources like Glassdoor, Levels.fyi, and industry-specific salary reports to understand the market rate for your role.
- Be Prepared to Justify: You must be able to articulate why you are worth your anchor. This isn’t about being demanding; it’s about presenting a clear, data-driven case for your value. Highlight your unique skills, accomplishments, and the impact you can make.
- Use a Precise Number: Instead of saying “$215,000”, consider a more specific number like “$216,500”. Research shows that precise numbers are more persuasive and suggest that you have done your research carefully.
- Stay Silent: Once you have stated your anchor, stop talking. Let the other person react. This can be uncomfortable, but it’s a crucial part of the negotiation process.
Take Control of the Conversation
Salary negotiation is not a conversation to be feared; it’s an opportunity to be seized. By understanding the power of anchoring and applying the 20% Rule, you can take control of the compensation discussion and ensure you are paid what you are worth.
Don’t wait for the company to set the anchor. Do your research, set your anchor high, and negotiate from a position of strength.