11 Negotiating Your Salary
You can’t negotiate your salary without knowing your options.
Chapter Overview
Most of the advice you’ll hear at seminars and workshops, and read about in books on negotiating your salary focus on the best scenarios under ideal circumstances. Being out of work or making a job change on your own are not ideal circumstances. Your ability to effectively negotiate your salary hinges on many things, not least of which is your current employment situation.
In this chapter, I’ll describe the options that are available to you based on my experience in various scenarios I observed in my search practice and in working with executives. You’ll learn:
How to find your ideal salary and your bottom line.
What factors outside of your control you need to consider when negotiating.
Negotiating techniques in various situations you’ll likely encounter.
How to recognize the signs when an offer is getting close.
What to say when the salary issue comes up in conversation.
The main sections in this chapter include:
General rules and guidelines.
Finding your preferred salary.
What benefits are most important to you?
Strategies for talking about salary.
Timing of the offer.
Milestones.
General Rules and Guidelines
Your ability to negotiate your salary will depend on several factors—some positive and some negative—that may not totally be in your control, such as:
The vibrancy of the industry.
The profitability of the company or profit margins in the industry.
The type and size of the company.
Whether and how long you’ve been unemployed.
The uniqueness of your skills and experience.
Your track record, achievements, and experience.
Whether you currently have a job and a headhunter contacted you about a new opportunity, you initiated a job search because you want to leave your current employer, or you’ve been unemployed for several months.
Whether you worked in a declining industry and now want to move to a more robust one.
If the position you seek already exists, most companies will have an established salary and benefits for it. Unless you can bring something to the table the predecessor didn’t have or wasn’t able to do, there may be few options to justify an increase. Some high-profile companies or industries have reputations for paying low salaries, particularly when there’s an abundance of qualified candidates who want to work for them.
If the economy is in a downturn or recession, an abundance of candidates combined with a stagnating business environment will increase competition for jobs and depress salaries.
Companies are often willing to offer higher salaries to people from companies with reputations for high-quality management, such as McKinsey & Co., GE, P&G, Microsoft, and so forth. You may have to take a salary cut if others consider your prior industry experience “old-line.”
Competitors or smaller companies are often willing to attach a premium to employees of a company where there is a high regard for some aspect of its business process.
Graduating from a prestigious university, such as Harvard, Stanford, MIT, and so on, usually enhances pay.
Considering these factors, you should assume your salary will be negotiable and prepare yourself. If it turns out it isn’t, you’ll know soon enough. If you’re considering an opportunity because a recruiter contacted you during their search, you have many more options than someone who is looking for a new job. The suggestions in this chapter, therefore, are directed more at those who are in transition or who are initiating the job search on their own.
The general rule is not to disclose to employers your most recent salary or how much you want until you’ve been offered the job. Sometimes you won’t have an option. Salaries for management positions, especially in large companies, may be structured across the board and effectively non-negotiable. Salaries for executive (C-level) positions usually can be negotiated.
If a recruiter asks you about your salary early in the interview process, be up front with her, because she needs to assess whether you’re in a range her client will consider and accept. The recruiter will know what salary range the client is willing to pay, depending on the skills and experience of the candidate.
Recruiters sometimes go to bat for outstanding candidates if they think their client’s salary range is too low. Similarly, recruiters will be up front with you if they think your salary expectations are too high for the industry or what they think their client is willing to pay.
Companies often criticize recruiters for trying to boost the salary of candidates because their fee is based on the final salary offered and accepted. My experience as a recruiter and in conversations with others in the field is that recruiters often find themselves in the middle as a neutral arbitrator trying to find an acceptable balance between what the candidate says he wants and what the marketplace says the company should be paying.
If the employer asks you for your salary during the early stages of an interview, you need to have done your homework in the following sections so you can respond appropriately.
Finding Your Preferred Salary
Worksheet 11.1 Calculating Your Salary Requirements
To begin, you need to know what salary you need and what salary you want. You can compute these two amounts by preparing a schedule similar to the worksheet on page 236.
Note: You can determine an approximate effective tax rate by looking at your last year’s federal and state tax returns. Add the total tax you paid to both and divide it by your adjusted gross income as shown on your federal tax return.
When you’ve completed the worksheet, you will know the salary you need to cover basic living costs, as well as the salary you want to support your lifestyle. Any salary less than your Break-Even Salary won’t cover necessities. You’ll have to make it up from other income sources. Any salary less than your Preferred Salary won’t cover all your lifestyle choices. If you list your Lifestyle Expenses in priority, you can quickly estimate which ones you’ll have to give up or cut back on.
When you know your salary options, you can then look at which benefits are most important to you so you can assess whether the company’s total package is in your range of expectations.
What Benefits Are Most Important to You?
Exercise 11.1: Prioritizing Benefits
Review the following list and rate items from 1 (most important) to least important. When finished, circle your top five.
___ 401(k) |
___ Expense account |
___ Bonus or profit-sharing |
___ Health plan for family |
___ Cafeteria on-site |
___ Life insurance |
___ Childcare facilities |
___ Pension plan |
___ Company car or car/mileage allowance |
___ Savings plan ___ Stock option plan |
___ Country club or health club membership |
___ Training/Education reimbursement |
______________________________________________________________________
______________________________________________________________________
You now have a foundation of knowledge about salary and benefits that you can use to evaluate offers. Add to this the work you’ve already completed in Worksheet 1.1: Identifying Your Values, Exercise 1.1: Known Likes and Dislikes, Exercise 1.2: Goals Summary, Worksheet 4.1: Personal Living Preferences, Worksheet 4.2: Workplace Preferences, and Worksheet 4.3: People Preferences. You are now armed with considerable knowledge about what is important to you and are better prepared to evaluate potential opportunities.
Strategies for Talking About Salary
Be cautious with disclosing too much, too soon, about your most recent salary. If you see yourself as a job beggar, you’ll be too eager to get the job and reluctant to negotiate. If you see yourself as a valuable resource, you’ll keep your options open until you know whether you really want the job, and how badly they want you.
Avoid revealing your previous salary because it can stereotype you and the amount can be misleading. Salary doesn’t include bonuses, commissions, allowances, other cash considerations, and fringe benefits. Besides, your salary in your last job may not have any relevance to the job for which you’re interviewing.
If an employer or recruiter asks directly, you can’t ignore the question. You can often deal with this by talking about your salary in terms of compensation or remuneration ranges over time, not absolute amounts at a point in time.
Here are suggestions about how to address salary in different situations.
An Advertised Job States Responses Will Not Be Considered Without a Salary History
Advertisements in newspapers are expensive. Anyone who spends a large amount of money to place an ad for a real job wants to find someone with the skills and experience they need in their organization.
In ads for management positions, the statement “responses without a salary history will not be considered” generally means that either no job exists and the company or recruiter is doing a salary survey to find current market rates, or a job does exist, but they don’t know what to pay or they want to pay a rock-bottom salary.
If you possess the skills and experience the company wants, they’ll want to talk to you whether you include salary or not.
Your approach should be different depending on whether your cover letter and resume will be going to a recruiter or an employer.
Responses to Recruiters
If your cover letter is to a recruiter, include a statement about your total compensation expectations within a range, because a recruiter needs to know how close of a fit you will be to his client’s compensation structure.
Recruiters want to facilitate a match so they can collect their full fee. Consequently, they often find themselves in the role of running interference for candidates if there’s a significant mismatch between a candidate’s salary expectation and their client’s salary structure. They often talk to candidates before interviewing them to discuss these types of mismatches.
Responses to Employers (Or You Don’t Know if They’re Employers or Recruiters)
If your cover letter and resume will be going to an employer, or you don’t know whether they are a recruiter or employer, don’t include any information about salary in your response.
If the position is at an executive, director, or manager level, “Responses without salary history will not be considered” may be a correct statement by those companies that want to know what you made in your last job so they can use that information to their advantage, not yours. Companies with this attitude are usually more interested in finding the least-costly candidate, rather than the most-qualified candidate.
Review your values and determine whether you really want to work for a company with that attitude. If you choose to respond to the salary issue, use a prospective statement such as: “My compensation (or remuneration) expectations are in the range of $150,000 to $175,000.” By using a prospective approach, the employer or recruiter knows the range of your expectations and can decide if it’s reasonable. If it’s in their range and they still want to know your salary history, they’ll call you for that information; if they invite you in for an interview, they’ll ask that question early on.
In your cover letter don’t hamper your ability to negotiate your compensation by including some “flexibility” statements like mentioning you’re more interested in a new opportunity and are flexible, because they’ll conclude you’ll accept an amount well below the salary range you noted in your cover letter.
You’re Asked for Your Last Salary During a Telephone Interview
During the conversation, they ask something along the lines of:
“What’s your current salary, Mr. Smith?”
“What was your salary at XYZ Co., Mr. Smith?”
“… and what salary are you looking for, Mr. Smith?”
How do you respond?
If a recruiter with whom you have a prior relationship calls and assures you he won’t convey the information to a potential employer, you may need to disclose your total compensation to him. If you don’t have that prior relationship or don’t yet feel comfortable with the recruiter who’s calling, be cautious about responding. Here are some ways to address salary in verbal discussions with others:
“I’m very interested in the opportunity, but you should know that (my total package in recent years was) (I’m looking for a package) in the range of $175,000 to $200,000.”
“I’m very interested in making a shift to the [blank] industry where I have an opportunity to [blank] with a growing company, and my (compensation) (remuneration) expectations range from $175,000 to $200,000.”
“My income from ABC Megabust, Inc. ranged from $200,000 to $250,000 in recent years. I’d be interested, though, in using my business development skills and the contacts I developed over the past 20 years in the [blank] industry to help a smaller growing company expand its markets.” (The significant range here could infer a discretionary bonus. If you’re making a change from a large company where salaries are often higher to a smaller company that can’t pay that much, you may need to indicate you’re flexible, even if that puts some of your salary negotiation at risk.)
“My previous salary isn’t relevant to this job because I took my last job (as a way to transfer my skills to a different industry) (to learn a new industry or job) (on a short duration because it enabled me to move to a new location, learn a different skill, finish education, etc.).”
“(I am bound by an agreement) (I have a gentleman’s agreement) with my previous employer not to disclose my compensation for competitive reasons. I’m looking at opportunities in the range of $200,000 to $250,000.” (If you use this approach, make this agreement with your previous employer beforehand, so you’ll be telling the truth. The interviewer will probably check this out.)
“My last employer, Bigdot.gon, failed to attract additional venture capital funding. We restructured the business and took significant salary reductions in an attempt to continue to operate until the economy recovered. Unfortunately, we were unsuccessful. I don’t think my salary at Bigdot.gon would be relevant. (You might at this point mention the salary range you’re expecting.)
Try to turn the questioning away from salary by stating, “My compensation at GungHo.com was based on a combination of salary, bonuses and stock options, coupled with equity participation, so it’s not comparable to this opportunity.”
See how they respond. They may continue the interview and leave salary alone for the moment (your best option). If, instead, they ask what you want, express your interest in the opportunity, and see if they’ll provide a salary range. For example, say, “I’m very interested in this job with Newco. Can you give me some indication of the salary range?”
If you’re still not successful at turning off the salary inquiry and the question is pressed, you might try this: “I am looking for something in the range of $XXX,XXX to $YYY,YYY.” (This is why you need to do your homework and know your Break-Even Salary and your Preferred Salary!)
Make sure your salary expectations and those of the company are at least in the same range. Beyond that, you don’t want to get into serious salary negotiations until they’ve expressed a desire to employ you.
If they try to negotiate salary up front, indicate that before you can do that, you really need to complete the interview process. You can say that both you and the company need to make sure you want each other first. There needs to be a clearer understanding of what they need and what benefits you can provide. When that process is completed, you’ll both be in a better position to assess your worth to them.
At times, you may be in a situation where the salary is predetermined, and that’s that! This is more common at lower levels than at executive levels. Regardless, you need to play the salary card close to the vest and not commit to a salary too early in the process. If you do, you won’t be a very happy employee if, after you’re hired, you realize you could have negotiated more.
Timing of the Offer
Signs That Indicate They’re Seriously Considering You
If the employer hasn’t raised the salary issue or if you’ve successfully put them off, the following signs will tell you that the topic is imminent:
They ask you back for a second or third interview.
They ask you out to lunch.
They give you an informal tour.
They arrange for the interviewer’s boss, department head, or the CEO to interview you.
They tell you confidential information about their plans or business strategy.
They ask you to dinner, perhaps with your spouse or partner.
They become more conversational and talk about non-business matters, such as current events, politics, and education, to elicit your views and reaction. (Here they’re trying to get a feel about whether you’ll fit in with the company culture.)
When you visit the company again, people take notice of you or you get the feeling that you are (or have been) a topic of conversation.
When You Receive an Offer
At some point during the interview and negotiation process, if you’re the desired candidate, the company will make an offer of employment. If the offer is verbal, explain that you can’t accept a verbal offer of employment. You need to see it in writing. If the company is unwilling to put the offer in writing, a valid offer probably doesn’t exist.
If they say they need to get your approval of the salary before they prepare an offer letter, explain that you can’t assess the reasonableness of the salary until you can evaluate the entirety of the offer in writing. If they ask if you’ll accept a certain salary, all you have to do is decide if you’d consider it. If you would consider it, tell them so, and ask them to put it in writing.
When you receive the written offer signed by an appropriate officer or person in the company, you’ll need to decide whether to accept, negotiate, or reject the offer. If you’ve done your homework, you’ll be able to evaluate where the package fits in relation to your Break-Even Salary and Preferred Salary.
Even if you think you’re likely to accept, ask for some time to think about it, and discuss it with others before deciding. Ask when they need your decision, and commit to respond by that date.
If they insist you need to give them a yes or no immediately, explain that it’s an important decision for you and them. You don’t want to make a decision that turns out wrong for you or them and, consequently, you need time to evaluate it and discuss it with others. If they won’t give you at least 24 hours, my advice would be to pass on the offer. Something is amiss if they don’t want you to think about it or talk to others.
If you want to negotiate the offer, start by assessing where you think they were coming from and what was involved in their decision to offer the position to you. For example, you might ask:
“Why did the previous person in this position leave?”
“How long have you been looking for someone to fill this position?”
“How many others have you interviewed and considered before offering the position to me?”
“Have you made this offer to anyone who declined it?” (You can follow this question with “Why did they decline?” and “When did this happen?”)
“How many candidates were on your shortlist?”
“When would my first salary review take place?”
“What did you see in me that made you decide to offer me the position?”
At this stage, you need to be confident that you’re a valuable resource and not a job beggar. If you’re currently employed and you’ve been headhunted (found by a recruiter during a search), you’re in a strong bargaining position. If you’ve been unemployed for several months, you’ll be in a weak bargaining position.
Knowing what questions to ask and how to phrase them will be a delicate maneuver on your part. If you come across as aggressive and challenging, they may withdraw the offer. You’ll only feel confident if you’re prepared. If you want to negotiate the offer at this stage, here are some suggestions on how to approach the subject:
Ask for more money. Suggest a higher amount or explain that you were thinking more in the range of $X to $Y. Wait for a reply. Let them think about how to respond.
Ask about enhancing or expanding a specific benefit.
If the offer is at the low end of a range, emphasize some special skill or experience you have which you believe makes you worth more.
Suggest a performance incentive. Ask if they would consider a bonus if you meet a specific objective in the first year.
Ask that a car or other allowance be included in your salary instead of as a separate allowance. (This will start you on a higher base salary, so when they calculate future salary increases, the percentage will be on the higher starting base.)
Because each situation is unique, you’ll need to tailor these suggestions to your situation. Most large employers have salary ranges within which hiring persons can make an offer. Typically, they’ll start at the low end of the range, assuming that, if you negotiate, they can show some flexibility. If they don’t have that flexibility, they’ll tell you.
If you want to negotiate above their salary range, the person making the offer may have to go to a higher level to get approval. If he says the offer is firm, you’ll have to decide if it’s reasonable.
Your success at negotiating depends on convincing the employer that you’re the needed resource and you’re a confident, take-charge, solutions-oriented person. The employer’s willingness to reconsider an offer depends on how badly you’re wanted and if they believe you’re clearly the outstanding candidate for the job—and they don’t want to risk losing you over a few dollars.
If you decide to reject the offer, thank them for their consideration and explain why you’re unable to accept the offer. They may be willing to go back and revise the offer, if it’s out of line with industry norms.
If a recruiter presented you to the company, contact the lead consultant as soon as you have your offer in writing. Explain your concerns and get her viewpoint. She may be willing to convince the employer that their offer needs reconsideration.
Recruiters often have to step in at the offer stage and educate employers about the status of salaries in the current market. Employers are often not up to speed on current salaries and benefits.
Milestones
The following milestones recap what you need to do to complete this chapter. Include those items you are unable to complete in your summary-level open-items list.
1. Review “General Rules and Guidelines” and become familiar with how the factors listed are likely to influence your ability to negotiate your salary.
2. Complete Worksheet 11.1: Calculating Your Salary Requirements (either the Word or the Excel Worksheet version) to determine your Break-Even Salary and Preferred Salary. Prioritize your Lifestyle Expenses so you can quickly determine what you will have to forgo if an employer offers you a salary less than your Preferred Salary.
3. Review the prioritization of your preferred benefits in Exercise 11.1: Prioritizing Benefits.
4. Review the suggested strategies and terminology for how you plan to answer the questions posed.