Recently I came across a LinkedIn post that argued to “never take the first offer” when receiving an offer for a job role in an application process.
The argument for this recommendation was that the recruiter and hiring manager have an upfront discussion on:
- The initial offer for the base salary; and
- How much they are willing to ‘budge’
In addition, it was stated that a company will not rescind your (counter) offer just because you ask for more (I agree!), even though you probably do not want to work for them anyway.
Still unclear recommendation
I disagree with that last statement and so did quite a few others, while in addition there were also quite a few hiring managers and recruiters who argued that they do in fact make a best (and final) offer with their first offer. This led to the original author of the post adjusting the post to state that the conclusion is that it is okay and sometimes even good to accept the first offer.
This, however, is a very unsatisfactory outcome and an unclear recommendation for me, which does not really help people, and which begs the question: “When is it then okay to accept a first offer?”
A problem for the candidates is that they do not know at the time of the offer whether the offer is made by a recruiter/company that:
- A: has room for adjustment; or
- B: directly makes a best offer
Which type of company are they dealing with?
In order to find out which type of company they are dealing with, the candidates will have to challenge the initial offer, in order to:
- find out whether they are dealing with company type A or company type B; and
- keep companies of type B ‘truthful’, because if their offers are never challenged, they might be incentivised to become a type A company
Given this process is a strategic interaction between two players, this qualifies as a game theoretic setting, which means that game theory can help us understand what the best course of action is, when presented with a first offer from a hiring company.
In the overview below, I have depicted the interaction in this game in the following manner:
- PLAYERS: There are 2 players, namely the Candidate and the Hiring Company
- ACTIONS: Both players have two actions:
⦁ The Hiring Company can either make an opening offer or directly present their best offer
⦁ The Candidate can either accept the received offer or make a counteroffer to the Hiring Company
- PAYOFFS: The payoffs are depicted in terms of money bags which aim to illustrate either a bigger or smaller monetary payoff. When the Hiring Company receives a counteroffer, they will make a concession if they did not make their best offer initially, giving the Candidate more value. Note that the payoffs here analyse a monetary optimisation, while this will not always be the goal in practice, and I will elaborate on this further below.
- RULES: The Candidate’s action is always in response to the Hiring Company first making their offer
The game theoretic analysis shows that the Hiring Company has a weakly-dominant strategy to provide an opening offer with some room for manoeuvre, whilst the Candidate has a weakly-dominant strategy to always make a counteroffer. This prevents missing out on value in the event they are dealing with a company type A.
Always make a counteroffer!
As I already alluded to when discussing the payoffs, many companies do not intend to optimise their job offers from a monetary perspective. There can be a negative exposure effect for companies when presenting an offer and then making concessions when faced with a counteroffer. This is especially the case if there is a large discrepancy between the opening offer and the final offer (worst acceptable outcome), which can lead candidates to have a very unpleasant feeling (not a great start to a new job) and potentially lead to them withdrawing. The awareness of this negative exposure effect leads many companies to directly make their best offer. This makes a lot of sense. If candidates always end up challenging the opening offer, hiring companies would much rather get to the same payoff without the negative exposure effect.
In summary, when presented with a job offer: always make a counteroffer!