Salary Negotiation

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Salary negotiation tends to be a very emotional event. There are inevitably competing forces at work: you want to maximize your compensation; your new employer wants to keep their costs in line. How do you come to a meeting of the minds?

Determining Your Market Value

It's easy to lose track of how much your skills are worth in the open market. If you've been with the same employer for a number of years, there's a good chance that you are underpaid. Even if you've been promoted, internal equity issues and salary guidelines developed by your HR compensation group are going to artificially cap the amount you're being paid.

People who have changed companies a few times are usually more in line with the market. Keep in mind that there's a fine line here. Moving every 5-6 years is acceptable. Moving every 2 years, even for better opportunities, will be frowned upon by hiring managers.

Salary Benchmarking

Spending some quality time on the internet can give you some insight into where the market is, relative to your discipline. You can check with recruiters who work your discipline, at your level. They will have a very good idea of what's happening in the market. Take a look at advertised positions that seem to fit your skill set. Make inquiries to find out about the salary range.

Several things influence compensation, most notably geography (e.g. California vs. Ohio) and the size of the company that's recruiting. Availability of talent in the market is also a factor. The economy influences what companies are willing to pay. In the recruiting world, we talk about whether it's an employer's market - where candidates are plentiful; or a candidate's market - where skill sets are in demand and candidates can drive a harder bargain.

Salary.com is a good source for compensation data on a wide variety of disciplines. You can get a quick read of market conditions here at no cost. They offer a more personalized premium service, with an in depth look at the market, for a fairly reasonable rate.

In short, you'll need to do some homework to figure out your value in the market.

The Salary Negotiation

First, let's put a few things in perspective:

• Your current compensation is typically going to be used as a starting point in these discussions. Do not try to inflate your current salary. What will you do if your new employer requests your W-2 as part of a background check??
• When negotiating salary, employers are referring to base salary, plus bonus opportunity. The bonus will either be in the form of cash or stock. Don't include your 401K and pension calculations as part of your starting salary for purposes of this negotiation. We'll get to the benefits evaluation - but not here.
• Be realistic. An employer is not going to take you from $100K to $200K overnight. A 20% increase in compensation, give or take, is a reasonable target in most cases.
• If you are in transition, you do not have as much leverage in salary negotiation as someone who is working elsewhere. Your goal should be to replace your previous income. To the extent you can do better, that's great. But, your first priority is to start where you left off.

As the discussion turns to your expectations around compensation, don't be the first one to put a number on the table. Instead, use your current compensation package as a starting point. You can safely assume that your prospective employer will try to make it worth your while to come on board.

If you're asked what you're looking for in terms of compensation, you can be vague. A good way to start your salary negotiation is to indicate your current compensation, and follow up with a statement that you're confident that you'll be compensated fairly in this new position.

Here's the Catch-22...if you're the first to suggest a number, you can either undershoot or overshoot the company's target. This means that you can sell yourself short and leave money on the table, or you can unknowingly take yourself out of the running. If you're working with a recruiter, this is a little easier to figure out. Your recruiter should know the target range for the position. However, in general, it's best to have the employer speak up first.

Understanding the Perks

As part of the salary negotiation, you will get information on the company's benefits package. You should try to do an apples to apples comparison on a number of benefit components. You can review a comprehensive checklist of what to consider in our Negotiating Employment Compensation section.

Bonus Considerations

People tend to play games when it comes to bonus calculations. As a recruiter, I always want to know not only what the target bonus is, but how it's calculated - and what the track record has been in terms of pay out. Many companies set lofty goals, and while they may say they offer a 40% bonus, you might find that they haven't paid more than 12.5% in the past 5 years!

By the way...this applies to both sides of the table in salary negotiation! Your current compensation package might include a target bonus. You should be honest about what the pay out track record has been. Your prospective employer can easily find out by requesting your W-2.

Another important consideration is the timing of payout. It's not unusual for companies to ask a new employee to essentially wait over a year to see that first bonus check. In your salary negotiation, find out when the first payment is, if it can be pro-rated, and perhaps more importantly, if any of the payout can be guaranteed. You want to make sure that you don't take a hit in the first year by leaving an employer before your current bonus is paid, and then having to wait for your bonus to kick in with your new employer.

Time Off Policy

It's amazing how short sighted companies are with their time off policies. It's not uncommon for the HR group to quote the employee handbook. There seems to be no recognition that as a seasoned employee, you're used to getting 4 weeks vacation time, plus personal days. This is an element that can usually be negotiated - but you may need to talk to the hiring manager rather than to the HR staff.

One word of caution...if you handle this portion of your salary negotiation with the hiring manager, you still need something in writing. Suppose the hiring manager leaves the company? You need some documentation of what was agreed to for your file.

Salary Negotiation Tips

Our top ten lists always receive good feedback. For a quick overview of our most important advice on salary negotiation, check out our Salary Negotiation Tips. Have our list handy the next time you need to respond to an offer!

So, You've Decided to Leave...

Once you've successfully negotiated a new financial package, and have the details in writing, you'll need to think about how to resign from your current employer. Resignation always brings up the issue of counter offers. DerrJones covers these dicey topics in the following sections: