Salary Negotiation Strategies

I recently received a request from a young friend for help negotiating a new salary and thought I would share my advice. Here's the situation: he's very happily employed in a small company. His work is very visible to the company's clients and has earned industry-wide respect. He likes the people he works with (and works for), and finds it easy to communicate with them on professional and personal levels. His question: How do I know if I'm being fairly compensated, and if I'm not, what should I do?

My advice: In a situation like this, data is your friend. The more you know about competitive salaries for people doing similar jobs, the better off you are. This can be really difficult in a small, privately-held firm, but if you can find out what people with similar talents are making in similar jobs at other companies, you can determine whether your company is in line with the industry. Check out glassdoor.com or vault.com. If your own company is too small to be listed, then look for competitors in your field, or divisions of larger companies that are in similar businesses. The comparisons can be tricky though, and you have to add or subtract based on the size of the comparable company, the working environment, etc. But it's worth spending an hour or two online to try to find out what's going on elsewhere. If your job title isn't a common one, try searching for jobs with similar skills requirements and impact.

BTW, the information you get from these websites isn't for arguing that you are 1-3% underpaid; the comparables just aren't that accurate. It's for a gut check that people in your position aren't being paid 10-20% more than you. If you find believeable data that shows you deserve a higher salary, use that to start a discussion with your boss. Don't show them the data and say "You are underpaying me compared to XXX Co." Explain how you got the data, what comparisons you made and how you reached your conclusion. Your lower base salary might be compensated by benefits, bonuses, or flexible work environment. Work with them to resolve any difference between their offer and what others are paying.

If you can't get good competitive salary info, put it back on them. When they make their offer, say "I think that sounds like a good offer - maybe a little low [always say this!]. How did you arrive at that figure?" What was their reasoning? Do they have access to salary data for your position? Will they share it? Ask them justify the offer, in a non-threatening way. Most larger companies will have a well-defined process for establishing salaries (to avoid discrimination lawsuits). At smaller companies, it's more seat of the pants calculations, so you might be able to use the strategies below to argue for a raise.

Comparable salary data is a very strong argument. Other info to bring to the table is your accomplishments and their impacts on the business, customer satisfaction feedback, awards, etc. Do you know what the value was of the work you did (ie, what did the clients pay for the work)? At a consulting company, this is easy if your work is billed to clients on an hourly basis. Multiply your billable hours worked times your billing rate. That is what you are worth to the company. If your company negotiates a fixed fee for the work and you know what has been charged, you can still say "I worked on $2 million worth of client business". Of course, you aren't entitled to all that money, but if your value to the company has been increasing, that's justification for a raise.

If you aren't paid for overtime then you should keep track of the hours you work. Then you can compare your nominal salary rate (for a 40 hr week) against your actual time worked. To get your nominal salary, divide your total salary by 2000 (40 hrs per week x 50 weeks per year). To find your actual rate, divide your salary by the actual total hours (if you work a lot of unpaid overtime). So if you are being paid $80,000 per year, that's at a nominal rate of $40/hour. But if you routinely work 50 hours per week, you're really making only $32/hr. You could reasonably ask for a 10-12% raise, and who knows, they might split the difference.

Many companies would rather pay a bonus than increase salary, because it's less permanent and not guaranteed for the future. Are there profit-sharing bonuses? Will they commit to paying you a bonus if the company does well? Can you get a performance bonus? Think like Alex Rodriguez. Are there objective achievements (delivering a paper at a conference, industry awards or recognition, serving on a professional standards working group) that are valuable to the company on which they can pay a bonus?

These days benefits are worth a lot. An extra week or two of paid vacation is great - if you actually use it. What about stock options? I'm a big believer in employee options, but they are hard to value. This is a tricky area, and as a junior employee you'll probably not have a lot of negotiating power, anyway. As a rule of thumb though, at low levels in the organization, you should not take options in place of salary.

If you are signing a multiyear contract, you want to consider automatic or milestone-based raises after the first year. If your salary is going up a lot following a multiyear contract, it's not unreasonable to ask for a signing bonus, too. (It's an acknowledgement that you have been underpaid for the previous year or two). You might not get it. Or ask for a payout at the end of the contract as a longevity award.

If you like the people and the job, that's worth a lot of salary in my mind. I guess the most important thing is to be honest and open in the negotiation. Since you are a valued and productive employee it is worth a lot to keep you happy. Remember that these kinds of negotiations are not about beating the other person into agreeing to something they ultimately regret. If you aren't satisfied with the offer, you should tell them, and tell them why. Keep your arguments factual and unemotional though. The more objective data you can bring to the table (comparable salaries, dollar value of client work, your actual per hour salary) the better off you are.

Lastly, if you're not immediately happy with the offer, or it is complicated enough that you want to mull it over, ask for a couple of days to think about it. You don't have to sign anything immediately.

There's additional info at Negotiating Your First Salary and Negotiating Salaries and Promotions.

Good luck!