Salary negotiation

salary negotiation

A young professional naturally has little experience in negotiating salary and experience accumulates slowly as they usually happen only once a year. But missing out on salary increases early on in your career compounds many years into the future. This post attempts to present the elements you need to prepare for a successful negotiation keeping you happy, motivated, and getting what you deserve.

You will face three different situations where you need or want to negotiate salary: A) getting a new job, B) recurring salary review, or C) you taking initiative to negotiate.

The objective remains the same no matter which of the above situations you are in – maximise the salary package you get. The below has best value when re-negotiating your current salary, but negotiating a salary for a new job should follow the same logic. However, changing jobs between companies presents the challenge of asymmetric information in which case the tactics may not be equally impactful.

This post is not intended to be an exhaustive guide. Books have been written on the subject of general negation alone. But already five years into my career I feel that I have developed some guiding principles that I thought you might benefit from knowing. So I’d like to share my thoughts and hopefully you’ll find a few things you can apply yourself.

The secret is in the preparation. Before even thinking about speaking to your manager, you need to consider four very important things:

 

1) Arguments for the increase
First you start with the facts! Think about why you have come to the conclusion that you deserve a raise. And it’s not a valid reason that you need more money for vacations or that your friend just got an increase. However, if your friend work in the same line of business with similar responsibilities and performance, then you may be on to something.

Generally, you need to think about what objective observations you can present that support your case. Here’s a few ideas for building a compelling argument:

  • Benchmarking market salary – what are other people getting paid in similar positions in other companies? Find answers in statistics from unions and other worker interest organisations. Job postings on comparable jobs can be a source of information. Maybe you have people in your network that you are close to and trust enough to share salary figures – this can be powerful cases to cite.
  • Benchmarking internally – employees are not encouraged to share what they make. However, this can be the best possible comparison. Because all external market factors are controlled for. But be cautious when entering into such a discussion, you and the other person might learn some uncomfortable truths in such a conversation. Further, it may not be wise to use this information directly because 1-1 comparisons between employees tend to be very subjective and unconstructive. However, used indirectly – knowing what’s possible to achieve – it provides you with a reference point for how your company values different types of employee contributions. There’s an ongoing debate on the effect of public vs. secret salaries, see e.g. this The Atlantic article.
  • Improvements in your skillset – what have you added to your toolbox since your last salary increase (or date of starting the position)? This can include everything from technical skills to knowledge you gained about the company that allows you to navigate the political landscape more effectively. Remember that your qualifications are a source of potential value generation for the company.
  • Increase in responsibilities or complexity of tasks – compare again to your last salary increase (or date of starting the position); have tasks become more complex? E.g. involving more stakeholders? More team members? More or larger systems? Closely related; have your tasks carried more responsibility? Like larger clients? Larger suppliers? Larger projects? Processes closer to the core of business? These are all factors that imply your job is demanding more from you.
  • Recent accomplishments – keep a high level log of your accomplishments. It’s easy to forget all the big milestones you have reached when looking back 12 months. Show off e.g. the large projects you completed, the times you exceeded expectations, the initiatives you brought to life etc. This reminds the manager of the value you contribute with and likely bring the following year.

The list is not exhaustive, and it’s not meant to be. The above argument areas are the foundation on which to build your case. Your tasks is to critically evaluate your current situation and find objective reasons for increasing your salary to a fair level. Work towards having at least 2-3 very strong reasons why you deserve a raise.

Having found your key arguments, the next thing is to put yourself in your manager’s shoes. What do you think their response to your arguments would be? To be fully prepared you also need to prepare counter-arguments to ensure your negotiation does not stretch beyond this meeting. Key questions to ask yourself include: Any tasks or projects you did not deliver according to expectations? Any areas where you did not develop as agreed at last personal development conversation?

 

2) Setting targets
With all your arguments and counter-arguments lined up you should have a firm understanding on what would constitute a fair target increase. There is a vast body of theory on this area of negotiation. A central concept is Best Alternative To Negotiated Agreement (or BATNA) which is worth a brief review.

The two key things you need to consider are:

Target increase. What could you reasonably expect to achieve given the arguments you have found? It’s important that you set a target high enough that you are comfortable with it being negotiated downward a bit. But also low enough that your manager finds it within reason of your arguments and the reality that the company is in.

Walk-away limit. What is the least increase you are willing to accept? Look inward. Run a few scenarios in your mind on potential counter-offers; what is the limit between being satisfied with the result, and being disappointed – potentially resulting in drop in motivation going forward?

Having identified your target and walk-away limit you have a range in which you are pleased with the result. Meaning you have identified what success looks like.

 

3) Consequences if your demand is not met – aka credible threat
You need to have a contingency plan if your walk-away limit is not met. Raise the stakes depending on how important you think the salary increase is. The manager needs to know what is at stake if you don’t get what you want. Because if there is no consequences of giving no increase at all, then what incentive does the manager have? Be sure you are willing to take the consequences if the negotiation is not successful. Examples are: you leave your job and drop in motivation.

 

4) Backup plan if all else fails
Sometimes the budget just doesn’t allow for salary increases. You can go one of two ways. Either you need to agree on a plan with your manager that can close your perceived salary gap. What do you need to do in order to be eligible for the raise you want? Discuss it. Document it. Do it.

Or…

…you flip the situation 180 degrees and see the lack of additional money on your bank account as a golden opportunity to negotiate some of your other employment terms. Below I have listed everything I could think of that you could potentially negotiate to improve your situation.

salary_table

Depending on what you value the most categories 2-4 present alternative targets. Go for:

  • Fringe benefits if you want to make life a little sweeter on your employers account.
  • Work/life balance if you want to spend more time with friends, family and/or your activities. Say you have 4 weeks of paid vacation now, if you can negotiate an additional week of vacation per year you have effectively gotten a raise of around 2% (1 of 52 weeks) because you can work 2% less a year for the same salary.
  • Organisational adjustment if you can see additional future job opportunities open up if you adjust your title for example. Getting a “senior” prefix just might get you a previously inaccessible job offer.

 

You’re ready!
Spend a couple of evenings thinking about the above and maybe discuss it with a friend or two to validate your thinking. Then you are more than ready to meet your manager armed to the teeth with a great case and good prospects of getting what you want.

Sharing the gist of your target, arguments, and credible threat in advance of you meeting with your manager will in many cases be a good foundation for a constructive dialogue. Because then they have the opportunity to take everything in and prepare for the meeting as well as knowing your agenda. Contrary to what you might think, this will not compromise your bargaining position – remember that you and your manager are on the same team. You both want the same thing – success for the company and yourselves as professionals. That means you need to be happy with the compensation you are getting for your hard work.

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