Now that I'm back, the next big thing coming down the road is my annual review. This will be my first performance review with my new employer, and I'm not entirely sure what to expect. Normally I would let my mind run wild, day-dreaming of raises and fancy promotions. But after hearing about a friend's recent experience, I am taking a different tactic and throwing an anchor on my expectations. Let me explain:
My good friend just recently started his working career after leaving grad school. And by all accounts, he did a great job for his employer during his first year. He built a new database for the team, engineered significant cost savings, and even took on some managerial duties by overseeing a remote team. During his annual review they negotiated some different compensations, and his leader put out two possible scenarios: one involved a 22% raise, and another involved a re-class and a 32% raise. These were huge jumps in salary but they seemed possible, and justified since they would bring him into line with similar employees' salaries at the organization. Nothing was set in stone, of course, but she would put in those recommendation with human resources.
And then the waiting game began. One month passed, then two, without many updates. Every once in a while he'd hear back that H.R. was still working on it. Finally, after three months, he got word that he'd only be receiving a ten percent raise due to budget constraints. Not that anyone should be too disappointed with a double digit increase in salary, but it was a bitter pill to swallow. He wasn't happy with the result.
I'm no psychologist. But my guess is that his disappointment stemmed from the fact that leadership had anchored his expectations. When we first hear a price or a number, that figure has a well-documented impact on future decisions and impressions (e.g. - how we value an object, or will negotiate a price), even if the original "anchor" has no relevance whatsoever. Jason Hull writes about the effects of anchoring seen in a behavioral economics experiment, in which the act of simply writing down the last two numbers of students' social security numbers resulted in different estimations on the price of a bottle of wine. Students whose social security numbers ended with higher numbers thought the bottle was worth more than students with lower ending social security numbers. And this impact was achieved simply by writing down random two digit numbers. (What is interesting is that that same anchoring effect was seen in a subsequent bottle of wine: those same students also overvalued a second, different bottle. The lesson: anchoring has a persistent effect.)
Because my friend had been told a specific dollar range for his raise, it set his expectations for his compensation to be somewhere in that range or, at worst, at least close to it. But the anchor didn't necessarily have anything to do with the actual raise, if any, he would receive. After all, budget constraints might be non-negotiable, regardless of how well one performs. What if his leader had recommended that same salary range to human resources, but had instead told him that only a 3% raise was likely? How would he feel about that same 10% raise then? Or what if no anchor had been presented: how would he react to a ten percent raise had his boss simply not suggested that any specific figure was possible?
Trying to pull a lesson out of this, I am going to throw an anchor on my own compensation expectations. As most employees probably do, I've been thinking about the possibility of greater compensation for months. Might I finally crack a six figure salary? Might I get a bonus large enough to cover our yearly expenses? My mind was wild with the possibilities. But now that I've completed my self-assessment at work and I can no longer influence the results, I am telling myself that I'm likely to receive no raise, and only a 1% bonus. Every time I think of my upcoming review, I tell myself those are the likely figures: 1% for a bonus, and no raise. That I pulled these numbers out of thin air, and they are artificially low, does not matter. Even when subjects are explicitly told that at anchor is irrelevant, it still has an impact. So even while I know anchoring is a logical fallacy, it's likely that my expectations will be significantly affected by just those numbers of one and zero. I've even written them down on the chalkboard in my office.
So next week when my boss sits down with me, if I get a bonus above 1% or any raise whatsoever, it'll seem great. I think with the low anchor, I'm giving myself a year of satisfaction with my new compensation, whatever that ends up being. And isn't that the end goal: feeling like you are well paid, and being satisfied with that amount?
That said, I'm certainly hurting myself from a negotiation standpoint. If I want to counter my boss' offer and negotiate a bigger raise or bonus, research indicates that I should do the exact opposite: set higher expectations, get better results.
But what do you think of the approach? Ought I try to trick myself with the anchor, or set high expectations and, as I've been trained to do, negotiate for a better outcome?
*Photo is from fiRax at Flickr Creative Commons.