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Career Article 148:
The Components of a Salary Offer
By Peter Dowling, JD, CPRW, ARM, CPCU
You have successfully completed the interview process. Your prospective new employer likes you, and you are interested as well. It is at this time, if not earlier, that you need to come up with a game plan for salary negotiations.
Step One: Evaluating Your Personal Economic Situation
First, consider your current salary and benefits. You may be fully vested in your present employer's contribution into your 401(k) plan. If you switch jobs, you may not be eligible to participate in a 401(k) plan for a year, and you may not be fully vested in the employer's contribution for another 3-4 years. Accordingly, a change of employer can have adverse implications from both a tax standpoint (remember contributions made to a 401k plan reduce taxable income) and retirement savings standpoint. Though you may receive an offer which increases your the salary at the new employer, it does not necessarily follow that your total compensation package is being increased.
If you have worked for a certain employer for a number of years, it is likely you are entitled to increased vacation time. If you change employers, it is possible that your vacation time will be decreased. Think about what additional vacation time is worth to you, prior to entering negotiations. Also, consider the value of other benefits or perks provided by your current employer or potential future employer, such as insurance plans, tuition reimbursement, stock options, bonuses, on-site child care, cafeteria plans and employee fitness centers.
Consider future prospects both at your current employer and the prospective employer. Ask yourself what is the upside potential at each, is the organization growing and expanding? Which company can better provide you with skills that will increase your market value 5 years down the road?
After you have considered the above, you can come up with a bottom line figure you will need in order to financially justify a change of employment.
Step Two: Market Assessment
Determining your market value is not as difficult as it sounds. Especially now, there are so many resources on the Internet to facilitate the process.
Salary is based on four factors: geographic location, job responsibilities, industry condition and number of qualified candidates in the market.
Check out the following resources to determine the market value for your position.
- Review job listings from job search sites such as www.hotjobs.com.
- Contact professional associations in your industry. Many conduct salary surveys annually.
- Contact employment agencies or executive search firms.
- Research business and trade journals such as National Business Employment Weekly.
- Read salary study sites such as: www.salary.com, www.datamasters.com, www.salaryreview.com, www.wageweb.com, and try this relocation salary estimator: http://www.homefair.com/homefair/calc/salcalc.html.
- Review the U.S. Bureau of Labor Statistics at www.bls.gov.
- The National Association of College and Employers also produces an annual salary study.
Step Three: Your Value
Prepare your value proposition. List your skills and accomplishments and how they directly benefit this potential employer. Rehearse the conversation with a friend.
Step Four: The Negotiation Discussion
Recognize that salary is something to mutually agree upon with your employer, rather than a give and take. Be confident in the value you can deliver.
Salaries for entry-level positions are less negotiable, however there is generally a range of at least 5% above the initial offer. The higher the level, the greater the flexibility you have in negotiation. For this reason, Senior Management and Executive positions are highly negotiable, and negotiation is expected.
When asked "What salary do you require?" answer "I am more interested in ABC position with your company than I am in your initial offer. I am sure we can agree upon a salary."
If asked again, answer "I will consider any reasonable offer."
If asked a third time, answer "What do you feel is a fair offer for a person with my skills and experience?"
When the employer offers a salary, assume there is another 10-15% in their range (except for government or entry-level positions in which the salaries are more firm). You may say something like, "I am very interested and because of XYZ, I can bring a lot of value. Do you feel this offer is appropriate, considering my experience?"
Avoid being confrontational or defensive. Emotions can cloud your thinking. Reiterate your interest and say, "My research from EFG source indicates a similar position for someone with my experience is in the range of $xxx to xxx."
Do not share your minimum requirement, even though you have a number in mind.
Avoid using your current salary as a baseline. Focus the prospective employer on your current market value and benefits you can deliver. However, if there is a reason your current salary is far below market and you feel the prospect has uncovered this, it is acceptable to give truthful reasons for your low salary.
Remember to get an understanding of the complete compensation package. If you skillfully gain an additional $5,000 in salary, think how disappointed you'll be after you accept the offer to learn medical insurance is not covered, which will eat more than half of the $5,000 that you negotiated.
The following are compensation elements with which you should become familiar. Some of these are negotiable.
Health Insurance • Dental Insurance • Disability Income Protection • Life Insurance • Prepaid Legal Plans • Bonuses • Tax Deferred Programs • Flexible Spending Accounts • 401K, with or without matching funds • Paid Vacation • Paid Sick Leave • Paid Holidays • Child Care Services or Reimbursement • Company Car • Commuting Subsidies • Paid Tuition Programs • Training Programs • Flexible Work Schedules • Maternity/Paternity Leave • Adoption Programs • Professional Membership Dues • Sponsorship for Industry Licenses • Relocation Packages • Retirement Plans • Profit Sharing Plans • Special Equipment • Home Office Set Up • Loans for Computer Purchases or Mortgage • Stock Options • Paid Parking Expenses
After reviewing the total package, if is less than your minimum, simply pause. The silence gives the employer a chance to increase their offer. Remember, the company is obliged to try to keep expenses down, just as you are trying to maximize your financial position. However, your initial salary is quite important, as it creates a baseline for future increases in pay. Many companies will simply give 3-4% raises annually as a matter of course, so the higher your starting salary the larger your pay increases will be.
There are times when you will receive an offer from a company which is characterized as a bottom-line offer. At that time, after you have explained why you are worth more to the employer to no avail, explore other options such as a sign-on bonus, a stepped-up period in which your performance can be evaluated for a raise, increased vacation time, or reimbursement for classes you wish to take that will increase your market value.
Keep your composure and be patient. This process may occur over a period of days, or longer. You will sense when you reach a point where the employer has gone as high as they are willing, and you know your minimum. At that point, you can walk away or re-examine the salary you can comfortably accept.
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