Practical Salary Negotiation.

A Guide to Planning for Your Next Salary Negotiation.

If you are reading this article, chances are that you will be participating in some kind of salary negotiation in the near future. Congratulations, that means that you now have a golden opportunity to make more money, and this guide will tell you how. Whether that negotiation is for a new job or simply part of your company’s normal review process this guide is for you!

We’ll start with the four basic tenets of salary negotiation: everything is negotiable; the first offer you hear is rarely the best offer; even “take it or leave it” offers can be improved; and finally, even the best scientific and statistical analysis of your salary level still has wiggle room.

Next we’ll cover the five basic rules of salary negotiation and the salary-equation gold mine. Finally, we will take a broad look at the often overlooked aspects of salary, benefits and perks that help to make up a promising total compensation package.

With a little investment of time, you will soon learn what you need to know to successfully increase your salary.

Part 1 - Everything is Negotiable

The single most important rule about salary is that everything is negotiable. The process of setting an individual’s salary is not a science, it is an art. It is up to the parties involved in the negotiation to determine where on the company’s salary scale an individual should land. When a company wants to buy your time and effort, remember it’s a human being who makes the decision. It isn’t a cut and dried assessment; it’s a rational-emotive process that takes into account many factors which aren’t always fair or logical. Your awareness of these factors can greatly improve your chances for improving your salary.

The sophistication of an employer’s salary practices varies widely. In some cases, an employer will have researched competitive rates in their area. In other cases they will simply estimate based on what they have paid in the past.

As an employee, your ability to push an employer to the high point of their mental salary range, or even increase that range, determines the outcome you will have in the negotiation. Further, the better you understand the factors that influence your employer’s decision process the greater your negotiating position. There are many “behind the scenes” factors that influence an employer’s hiring decision, which may not be readily obvious, such as:

Urgency — An employer’s business is losing money because the line’s down, the customers are waiting, or their competitor’s salesperson is closing deals daily, they may be willing to pay to get someone NOW.

Weariness — An employer is just plain tired of interviewing and wants to get back to work, they may loosen up the salary budget.

Internal Politics — Could this be a pet project of the top brass, and more important due to its visibility rather than its profitability? In that case an employer might overpay this position to ensure success.

Employer’s Reputation — Maybe the hiring decision maker has been accused of not being able to “hold on” to good people and wants to correct that perception by providing extra incentive for someone to stay.

Ramp - Up Speed — An employer may be willing to pay someone who learns very rapidly.Personal Rapport — They call it “chemistry”; sometimes an employer “clicks” more with one person than an equally qualified alternate.

Supply/Demand — Employers might pay above average to hire and retain candidates in high demand.

Special Skills — What if, in addition to the required skills for today, the candidate has skills the employer will need tomorrow?

These are only some of the factors that prospective employers consider when determining salary and illustrate why the human element in salary negotiation is so important to the final outcome. Your awareness of these factors, and your ability to offer informed arguments that address an employer’s real concerns, can add thousands of dollars to your final offer.

No matter what the first offer is, it’s only common sense that an employer is not going to start at the top! They need to leave some wiggle room somewhere — that’s how the game is played and they know it.

Part 2 – Salary Making Rules:

Now that you understand there’s always room to negotiate, let’s learn the BASICS. Here are five simple salary rules that should guide your negotiation.

Rule #1) Postpone salary-talk until there’s an offer on the table.
Rule #2) Let the other person name a figure first.
Rule #3) Repeat their offer and be quiet
Rule #4) Share your researched range and establish your individual value
Rule #5) Clinch the deal and deal some more

Salary Making Rule #1 — When to Discuss Salary

There’s not much point in discussing salary unless you’re sure you’re going to get an offer, make sense? But more than that, it’s not to your advantage. When an employer asks “what are your salary requirements?” or “what are you currently earning?” they are gathering information on your likely expectations. There are maybe two or three right answers to this question and more than 20 wrong ones. Too high and you’re screened out, too low and you’ll lose money in the initial offer, or you’ll be eliminated as underqualified based on your low salary.

The proper time to discuss salary is after the job position has been defined and you are sure the employer understands what you are bringing to the table. At that point, you are ready to discuss fair compensation for you to perform the task.

Salary Making Rule #2 — Who Goes First

When they’re ready to make an offer, here’s a second piece of timing advice: Don’t haul out your research too soon! Let the employer go first. That way you have a firm starting point that you can be assured of, when it is your turn. Generally, you’ll want to bump that starting point up 5-10% or more. But, in the worst case scenario, if they go first, you certainly won’t get less than their initial offer. Additionally, there is always the chance that they will exceed the figure you were planning to mention. NOW do you show your salary research? NO…. Not yet.

Salary Making Rule #3 – Repeat The Offer And Be Quiet

Once they go first, you respond by repeating their offer and remaining silent. If they have given you a low-ball offer, and they know it, now is the time for them to increase their offer.

Okay, I’ve heard the offer, I’ve greeted it with silence, now do I get to use my salary report? Maybe…

Salary Making Rule #4 -Share Your Researched Range and Establish Your Individual Value.

The best way to leverage your report for a successful negotiation is to set your own expectations about how you will use your report. Know what information your report contains, and especially know what the data represents – what is behind the numbers – before taking it to the boss or a potential employer. When you compared your salary research with the offer, you were either under market, over market, or right in the range. If your salary research indicates that the offer is below the range for your specific job and responsibilities, now is the time to share your research with the employer and discuss how the employer arrived at his/her estimates. Often you will find some points of disagreement on which to negotiate an increase.

Leverage your PayScale report for a successful negotiation by setting your own expectations about how you will use your report.

Salary Making Rule #5 - Clinch the Deal and Deal Some

More Finally, you receive a good offer that you can live with and is fair. Do you sign it then? Well, yes and no. Yes, you now have a firm base to agree to, that you know you will be happy with. But, don’t stop! It is now time to put your attention on the other factors of the salary-equation gold mine.

Part 3 – Salary-Equation Gold Mine
So, now you have an offer in hand, you know that they want you, and you are pretty sure you want them. This is the time to deal, but how do you know what to ask for? The salary-equation gold mine is a formula for calculating your total compensation and helping you keep your attention on all the aspects that make up a good compensation package. The formula has four parts and can be expressed as an equation:

ORV$ + IV$ + BP$ + RF$ = Total Compensation.

Where:

ORV$ = Objectively Researched Dollar Value The position’s objectively researched value, or the average market value that an employer would need to pay anyone to take the job.(See your PayScale Report – this is your overall range.)

IV$ = Your Individual Dollar ValueYour individual value or the value of your unique skills and experience,
over and above those that an average candidate would possess. (See your PayScale Report – look for matching skills, and experience level, and check the salary range for those skills.)

BP$ = Benefits and Perk Dollar ValueThe value of additional benefits and perks that you can negotiate into your package that could potentially sweeten a deal. Good benefits – especially in this day and age, should not be underestimated.

RF$ = Risk Factor Dollar ValueRisk factor dollars related to your personal performance (bonuses & incentives).

Bonus + Benefits & Perks + Base Salary = Total Compensation

Part 4 – Bennies & Perks (B/P)

One area of compensation that is often over looked by employees is company benefits. Depending on your lifestyle and needs, benefits and perks can add significant value to your compensation package.

Part 5 – Risk Factor Dollars

Risk factor dollars (bonuses) is compensation resulting from performance. It is called risk factor, because you only receive it if you perform well. The good news is that over the past 20 years, compensation has become more and more performance-based.

Any time you can measure the success of your job, and especially when that success is tied to money, sales, income, profits, etc., you have the makings of a bonus. Better yet, bonuses are paid out of the company’s future profits – or money that hasn’t yet been earned by the company. Because it isn’t real money, it is often much easier for a boss to give away than cash from the bank.

There are hundreds of ways to get your share of “imaginary money.”

Part 6 – Walk-away Number

Ultimately, the final leverage, and really the only leverage you have is to walk away. I recommend you decide what the lowest compensation offer is that you are willing to accept before you enter into negotiations. If you have covered all four elements of the salary-equation gold mine and haven’t reached an agreement that satisfies your low-ball number, you’ll walk away. Note, there are ways of walking away that do not end the negotiating process.