Question about compensation discussions

Hi All,

Have any of you had a non-disclosure agreement concerning the terms of your employment, i.e. specifically stating that you shouldn’t discuss those terms (including compensation and other benefits) outside of your immediate family and spouse? If so, do you see this as a good or bad thing, and how do you handle it with potential employers?

For myself, I generally don’t like talking compensation till we’re very close to an offer. If a recruiter or prospective employer asks me for my details, I say I’m happy to discuss at a time when we both think is fit, but early on we’re trying to determine if there’s a mutual fit. Some employers will be insistent on getting employment numbers such as my past compensation history (which I’m always averse to discussing – not sure how that’s really helpful anyway since I want to be paid for what I’m doing in the future, not what I’ve done in the past). Occasionally I’ll find someone that really only wants to talk to me if I meet their employment parameters. However, I don’t believe in showing my entire hand and instead I’ll just ask them what the salary range is they’re looking for. If they are dodgy about it (in the same way that they probably think I’m being dodgy by not telling them), then the meeting typically ends shortly thereafter. It usually doesn’t get to this point though, and an experienced interviewer should know to focus on fit first and comp discussions later.

The reason for this is because if you quote too high of a salary history, you might be pricing yourself out of the market; if you quote one that’s too low, you open up the opportunity for them to lowball you or think you’re not as qualified.

That said, what do you tell an employer when you’ve signed a contract saying that you can’t disclose the exact terms of your agreement (i.e. can you actually be legally bound for something like that)? Also, assuming that I would actually want to disclose my compensation with someone else, what would I do? Or, do you think there’s really no benefit to volunteering that information anyway?

I also want to know… I have a strong suspicion that the compensation question has broken my interviews several times in the past year or two…

Hey Numi,

My role has a NDA for compensation. As a consultant, the billable rate per hour is proprietary and not something that should be free to disclose to competitors.

^ QuantJock_MBA, this makes a ton of sense. So my question is, if you end up going to meet with other employers and they’re trying to understand the terms of your consultant agreements, how do you handle those questions? What would you do if you encountered someone that was too daft to understand the NDA?

Well, I had a contract that said I wasn’t able to disclose anything about working with a particular client (including compensation, or even the fact that I was doing work), and I refused to sign it.

I said, “Gaspadim Putin, you need at least to be able to allow me to list you as a client and to describe in general terms what I have done for you - otherwise it will look like I’ve been unemployed while I’ve been working my butt off for you. If you want that kind of privacy, you’re going to have to pay substantially more.”

Vladimir said “Well, these contracts are always written this way, and it’s probably not enforceable anyway.”

I replied: “Well, if it’s not enforceable, then it protects you better to have something that actually is enforceable, or at least is unlikely to be challenged.”

He rewrote the contract, after grumbling a bit, because he knew he was getting a good deal. The entitlement mentality of some employers is a sight to behold, particularly after they’ve run the KGB.

Remember that you may not be allowed to disclose your compensation, but they may still ask for your tax records. It would be interesting to see if that kind of thing would hold up in court, because they will see what you earned, but not the terms on which you earned it.

Also found a great article dealing with how to avoid the compensation discussion question, and the reasons for doing so:

My reaction to this question is “What would Numi do?”

Numi would say that your past compensation is irrelevant. What is relevant is knowing what the market pays for the set of responsibilities you are being asked to do and your ability to do them.

Under those circumstances, what you do is say that your previous contracts prohibit disclosure of the actual compensation arrangements, but that market research shows that this set of responsibilities with this set of qualifications commands range X to Y, and that you think that you fit into the [low, med, hi] end of this range, given what you’ve discussed.

Basically, you should only try be paid as an increment to your previous compensation if you were previously overpaid in your position, otherwise it’s market rate, but you point out why you deserve the high end of the range.


What??? You don’t know what the market rate is for this set of responsibilities??? Welcome to the art of living. :-/

What if you refuse to give them your tax records? The only reason an employer would want to see those is so they can try to lowball you at below market compensation (“Well, he made X, so I’m not paying him much more than X even if market is X + 50% – I’ll give him X + 10% because that’s a nice bump”). Fail.

Employment could be verified by contacting the existing employer, so tax records would never be relevant unless they were trying to hose you.

An employer should never ask what you’re currently making. It’s their job to know what the market level is and to make a reasonable offer within that range. That’s my view anyway. I’m not doing their homework for them, though I do already know what market is and I would refuse to accept anything outside of that range.

Just say no to bullshit. Disclosing your compensation only ever reduces your NPV.

^ Thanks mate. This sounds EXACTLY like something I would say or write. What can I say, I guess after all these years on this forum together, we are getting to know each other too well :slight_smile:

(not sure about the stuff under the “===” but the rest of it is definitely what I would do. Always curious to hear other’s perspectives too and see if there is a “better way” out there.)

Anyway, to elaborate, compensation for most front office jobs should be highly correlated with performance and it should be spelled out objectively. If they try to dick you on the base salary before you even get to the performance discussion, or if they won’t spell out the terms of the performance-based comp, that is a huge red flag.

It’s far harder to find good people than most candidates think. No one, and I mean NO ONE enjoys hiring. It’s time consuming, you have to deal with recruiters (which, I’m convinced, are basically the dregs of society) and the process of elimination even on a targeted screen takes forever.

So unless you’re desperate for a job, feel free to walk away if the offer isn’t right. Don’t hesitate to give the hiring manager the gift of struggle. It’s possible they’ll come back around. This doesn’t work in entry level jobs, but it definitely works in mid level or above, particularly if you work in a particular niche of investing. Good luck trying to find reliable people with solid small cap experience – there are only about 8 legit small cap funds, and most of them only have 2-3 analysts, and the turn over is very low.

I work in a different industry now but recently took a job (wasn’t looking / they came to me). Most employers want an idea of what you are at because they have a budget and when you add in benefits and recruitment costs, it gets expensive. Recruiters get ~ 1/3 of your total comp your first year I believe.

That being said, you should know the market and negotiate on what you are bringing to the role, not what you are currently being paid. If a company wants to give you a certain percentage over what you are currently making I call that “base negotiating” (my term). Base negotiating fails if you are currently below market or if you will be bringing a tremendous amount of value into the new role.

It was super easy to negotiate my deal because it is a fairly new industry that is in high demand now.

As you move up the skills chain and experience, it gets harder and harder to tell what a market rate is for your work. IB programs churn out hundreds of people every year, and buyside firms hire low and mid-level analysts all the time, so these numbers can be had for “market rates.”

As you move up the scale, the averages become highly skewed relative to the median, and the reporting biases get larger and larger. People (esp. recruiters) will confidently say “the going rate is X,” but this is very likely to be based on little more than hearsay, or one especially good or bad case. And of course the number will be manipulated by whether they want to get you dreaming of megabux or set the stage to lowball you. Bait and switch is very common in recruiterland.

The set of skills and experience and connections you bring also becomes much more unique and tailored as you move up the chain. So part of the question is understanding not just what skills you bring, but what value that produces for them. As you move up the chain, it’s the synergy between what you do and what they need that starts to become important, and that is often hard to measure and the comparables suddenly start not looking comparable.

Indeed, if you can identify a synergy that they hadn’t thought of and want, you can then start to argue for a premium package.

In consulting work (and full-time employees in an at-will contract is really not much different), if people start to balk at something like an hourly, daily, or monthly cost, you need to remind them of what the output is going to do for the bottom line. If they stand to make multiple millions off of the what you are doing for them, then the difference between 200k and 250k or 300k in compensation will be almost immaterial to the bottom line, but managers suddenly start getting antsy about what the hourly figure looks like. You have to refocus their attention on the value you create versus the cost to them, and this will often start to calm them down.

If you are clearly better than the competition, and that difference translates to bottom-line figures, your compensation is linked to your value, and your job is to ensure that that happens. There’s no perfect answer, but the key point is to start asking in the interview the kinds of numbers that your job will produce for the bottom line, and then figure out how easily someone else could do that instead of you.

Finally, one thing to be on guard against is that at some point in the interview, the compensation expectations get set, but then the job description can change before you sign. You might get excited because your career includes some neat responsibilities, but now what they’ve effectively done is underpaid you for your real job by baiting-and-switching: setting your expectations on a lower job to lock in compensation, then upping the responsibilities without upping the pay (and all the time making you feel good about it). So you always have to revisit compensation when you look at the final job responsibilities.

What are they?

Upon taking an unsolicited recruiter call, it took about to the third sentance to get to money, specifically my compensation structure. I explained that’s not something I can, nor will explain. He rephrased his question to “What’s your range?” Rethreading, I replied and said, “Tell me what the allocated range for the role is.” He gave it to me, and it was far below what I’d entertain.

It’s a song and dance. I’m sure others have more experience here.

I have interviewed with a ton of companies recently - I hate the compensation question(s). It seems like most big companies use HR to ask these questions. If you meet with some boutique firms (especially with the managers and not HR), they are more open to your potential and less concerned about only adding 10-30% to prior salary.

While I agree that ideally, there should be a “market rate” for compensation, this is not always easy to determine, even for recruiters. It’s not like they can pull this from Bloomberg or something. So, they probably call up several prospective candidates in similar jobs at other companies and try to see what the going rate is. They need to get as much data from these candidates before being able to make an accurate offer to any one of them.

This varies by job, of course. It’s easy to know the salary of someone in a popular job, like IB associate. However, many finance jobs are more rare and specialized. For instance, let’s say you are looking for a “hedge fund trader with experience in volatility arbitrage strategy”. I bet there are fewer of these guys than people who analyze small cap stocks, and each person is different from the next. I don’t even know if there is such thing as a “market rate” for this job.

^ ok so what is the salary (or range) for an IB associate at a boutique NYC firm?

Don’t ask me. I’m sure someone who recruits for this position would know. The point is there are probably 50 recent “trades” of this type that recruiters can refer to. So, to them, the market is clear. For a less common job, it’s hard to find previous up-to-date price points.

It’s just like trading financial instruments, right? Some prices are very clear because trading is very frequent - say AAPL stock or something. Other prices are not clear. If you ask me to quote a price for some rare and exotic derivative, most likely, I will need to get some indications (sort of like opinion poll) from other dealers.

I think the range for most positions is fairly standard. You don’t have too many analysts at hedge funds making five million a year, but clearly fifty thousand would be extremely low. If you survey a lot of people, as a recruiter would naturally do in the course of their job, you would see that there is a pretty good range. I know what the range is and that’s not my job to know that per se, I’ve just acquired that from talking to maybe a dozen people who were willing to trade info with me. It’s also definitely a function of the asset base of the firm, and the people making the offer should account for that.

Anyway, as a side note, I think a lot of people here might be surprised if they read through, say, 100 proxies, to get a sense of what corporate managers at various companies pay. Some people are really massively overpaid for what they bring to the table in Corporate America. I looked at one this morning where the company has $120 million in revenue and the CEO took home over $3 million last year even though the company lost money and the stock price declined by more than 50%. That’s hard to understand, particularly because this specific company is easy to run.

I’m glad to see that most agree there is no legit reason to tell anyone what you used to make. I’ve choked on that question in the past, feeling the pressure from HR or a hiring manager. I am not planning to make the same mistake again.