Why Leave Money On The Table? Negotiate On Total Compensation.
You have received an offer of employment. Great! The hard part of the job search has been completed. Don’t let down your guard, though. You have now moved into a very tricky part of the job search which can have an impact for years to come–the compensation negotiation. Not negotiating starting salary, especially early in your career, could cost you an estimated one million dollars over your working life. That is significant money! Raises on top of a higher base and bonuses based on a percentage of a higher base salary can significantly increase your earnings.
You also do not want to forget about negotiating on other aspects of compensation. Many people solely fixate on the hourly rate or base salary. Do not discount all aspects of your compensation. A lower base salary can be more than made up for by a superior total compensation package. In this day and age, a medical plan that has good coverage and low employee premiums could be worth more than an extra $500 in base salary.
Here are typical components of compensation.
Base Salary
Base salary considerations should always come first. Before starting on a job search, you should see what the job responsibilities and experience required would pay in a particular metropolitan area. Here are a few companies that provide pay data:
Comparbly: This site provides both compensation and equity data to users as well as workplace culture ratings and reviews on companies.
Dice: This site collects tech and engineering salary data.
Glassdoor: Glassdoor collects compensation data for job titles at specific companies. The “Know Your Worth” tool that collects information about job title, experience, company, and location to provide predicted pay ranges and market worth.
Paysa: Paysa focuses solely on tech wages.
PayScale: PayScale is the world’s largest crowdsourced dataset with 54+ million profiles and 250+ compensable factors. Job seekers can get specific about job title, skills, experience, and location.
Salary.com: It uses data from multiple sources for its compensation data.
Wagespot: An app that pairs compensation data with an interactive map. Initially, they used public figures like sports stars but now include some crowdsourced data.
To use these sites successfully, don’t just use the job title. Many will have specific levels of a particular title. Use the one that is best associated with your experience and the position you desire. The job duties of a Business Analyst can vary widely, with salary ranges from the mid-$50s to over $100k. Make sure to specify the years of experience required, the type of duties, supervision of others, technical requirements, etc. to get a better match.
Performance Bonuses
Some of these sites can also give you information about any performance bonuses offered for certain positions and an average dollar amount. This is valuable information because your negotiation should be looking at total compensation, not just base salary. If you can, it is important to learn not just the bonus target but also what is actually paid out. Networking with people that work at or previously worked with the company can give you valuable information in this area, including not just what the target bonus might be (which is what the company will quote you) but what people actually earned.
Commissions
Commissions are generally associated with sales positions. Commissions are paid upon the sale of a good or service. Commissions can be paid as a straight percentage of the sale price, a tiered percentage of sales that is dependent on differing quantities sold or a flat amount based on a unit of sale. Sales commissions can be in lieu of a base salary or in addition to a base salary. New employees will sometimes have a draw, where an employer pays the sales employee an amount of money up front. The draw amount is subtracted from future commissions. It is good to know the type of sales commission and any quotas normal for the position and industry.
Sign On or Signing Bonuses
You may have heard the term with regard to compensation for professional sports players, but it is also used by regular businesses as well. It can be used when there is a tight labor market and a company does not have the ability to add additional money to a base salary. These are one-time payments given to a new employee, generally as a lump sum, at a certain point in one’s tenure (usually at the start). Remember these may have a claw-back feature (recovery of money already paid) if you were to leave within a certain period of time.
Other Bonuses
Companies may offer other types of bonuses. Profit-sharing bonuses are additional compensation when a company provides a bonus on top of base salary depending on company profits. Gainsharing bonuses, as its name implies, are provided when there are specified gains/ This is often used in a production environment. This could be for gains in productivity or quality. Task bonuses can be offered to teams of employees when a milestone on a project is achieved. Other types of bonuses to be aware of are spot bonuses, one time bonuses given by a manager for performance, or even non-cash bonuses.
Equity
At its simplest, equity is non-cash compensation in the form of ownership in a company. A common type of equity plan would be stock options. This type of equity plan would allow an employee to buy stock at a predetermined price and amount at some time in the future. This can be advantageous because if the price of the stock increases over time, the employee can buy stock at a lower than market price. Usually there will be an associated vesting period. Other types of plans are Restricted Stock Units (RSUs) and Performance Shares.
Benefits
More than likely you will not be able to negotiate on the standard offered benefits, as there are legal requirements around many of them. In the United States, this would include access to a 401 (k), 403 (b) or 457 plan and any company match, life and disability insurance, health insurance, etc.
Severance
Generally a part of executive compensation, severance can be negotiated at the start of employment. Severance can be part of an employment contract or offer and would be detailed as to the amount of severance paid and the circumstances of its payout.
Relocation
For those that would need to move for a new job, there may be money available for relocation. Larger companies work with third-party relocation experts and have tiers of benefits based upon the level of the position and whether the new hire is a homeowner or renter. These packages may include a lump sum for expenses, movement of furniture and cars, temporary housing, house hunting expenses, etc. Many smaller companies may instead reimburse for specific expenses (up to a certain amount) or provide a lump sum to the new hire to cover moving expenses.
Job Title
This may be more important to some than to others. You may be able to negotiate a different title than the one posted. As an example, depending on your experience, a company may be willing to tack on a “senior” designation to your title.
Working Conditions
Other areas where you may be able to negotiate are the working conditions you will have at the new company. One area could be the ability to telecommute, permanently or occasionally. You may also negotiate on the amount of time off offered. Other perquisites or perks, for short, could be a standing desk, gym membership, conference attendance, etc.
The Timing of Future Salary Reviews
This is something overlooked but potentially of great value. Most companies look at salary increases on an annual basis, often in conjunction with a performance review. You potentially can have salary reviews take place in a shorter cycle, at least initially. Sometimes this can be at the three or six-month mark with an increase amount pre-determined or based on a range associated with performance.
What Should You Negotiate On First?
Always start with what will impact you most---cash compensation. Armed with your research, you should now know what the salary range is for the position and where the offer is in that range. Even if you think the offer is a good one, you still should negotiate. Why? You may be leaving money on the table. It is possible that the company may have even more flexibility than the offer you were given. You will never know unless you ask.
When you negotiate, you need to be strategic. You need to show that you know your worth in the marketplace. You want to say the following.
“You offered me X. I appreciate the offer and am excited about the opportunity. Based on my research, I know that someone with my experience typically makes Y. What can you do bridge the gap?”
You should also try to negotiate on a bonus as well. A bonus could be an option if no salary increase can be negotiated, or you can try for an enhanced bonus or sales commission if a base salary increase will not be agreed to by the company.
You shouldn’t use the following tactics when negotiating a salary. They will fall on deaf ears, as the only thing to negotiate is payment for your services.
“I need to make X because of my personal expenses” (your expenses are irrelevant to the conversation)
“I feel I am not being paid enough” (bring data to the negotiations, not emotions)
“This offer is insulting” (starts negotiations off on a negative tone)
“I previously made X” (what you made before is not relevant to this position with this company). One caveat: if you were doing the exact same job in the same industry, you can say that you were last paid X and with your research, that is the market rate)
Wait for the company. Don’t say anything more
One of the most potent weapons a negotiator has is silence. Wait for the hiring manager or HR representative to talk. Listen to what is said but also how it is said. Sometimes the person that is making the offer is not the decision maker and will have to go back to the decision maker for guidance. If the answer comes back “yes”, listen to the amount; determine if it is sufficient. If it is, congratulations! You have successfully negotiated a job offer. If it is better but not what you wanted, you have a decision to make. You can either continue to negotiate on base salary and/or bonus or ask about other parts of the compensation structure that might be important to you.
If the person talking to you tells you “no”, listen to the rationale. It might be that there are internal equity issues (they don’t want to bring you in higher than people already working for the company). There could also be budget restrictions. At this point, you may want to see if there is the option to award equity, enhance an equity package or provide other benefits or perks.
Whether to Accept the Final Offer
After doing your best negotiating, you will need to decide whether the offer is something you can accept. This decision will be made based upon a host of factors: the type of work, the manager and team, the workplace culture and work environment, commuting concerns and the monetary offer. You will need to rank each in importance. If the salary is not what you wanted but all the other factors are in alignment, it may make sense to take the offer. You may be able to use the strategy of negotiating a salary review at the six-month mark to get you closer to your ideal salary in a shorter period of time. If the salary offered is not near the market rate and the other factors of job happiness are not there, you may want to walk away from this opportunity. If you do so, say that unfortunately, you will not be able to accept the offer. Always be professional and wish the company well in filling the position.
I cannot stress this enough---do not be belligerent or greedy during your salary negotiation. Always act the professional that you are. The easiest way to turn off a future employer is to approach your negotiations in a mean or surly manner. You have not been officially hired yet, and how you negotiate is a window into how you will behave on the job. If you come across as too aggressive or uncooperative, you may get the offer pulled. Remember, even in a low unemployment environment, you are not the only one that could do this job. Employers may want to keep the position unfilled rather than deal with someone that has an oversized opinion of their self-worth.