Strategies for Negotiating Salary and Compensation
Once an employer has decided that you are the right person for the job and has made you an offer, it’s time to make sure that you have what you need to feel good about saying “yes.”
1. Review your own ﬁnances.
Objective criteria are the best tools to use when negotiating. The more you know about what is fair and reasonable compensation for your skills in the type of job, sector, and geographic area you’re considering, the better position you will be in to negotiate effectively. The clearer your understanding of your own ﬁnancial needs and goals, the better you can evaluate the viability of an offer. Ideally, you will start doing your homework early in the job-search process.
Prepare a simple budget based upon known and estimated ﬁnancial obligations you will face, adjusted by cost-of-living data from the geographic regions you are considering. This will help you determine a “bottom line” compensation level below which you cannot or should not go. Take into account rent or mortgage payments, utilities, transportation expenses, insurance, food, clothing, etc. Do you have signiﬁcant student loan payments? Do you have dependents to support? Certainly you will seek to negotiate compensation well above your “bottom line,” but start the process with a clear idea of your basic needs.
2. Researching the market
Make use of the many research tools at your disposal to establish your best options and to determine fair compensation for a particular position.
- U.S. public-sector salaries — federal, state, and local — are a matter of public record. A base salary range is included in job announcements. Negotiation on salary is usually limited to the bounds of the posted range.
- Many professional associations conduct annual compensation surveys within their professional ﬁelds; AFF is currently conducting such a survey. Stay tuned as AFF rolls out its findings on the state of salary offerings in the Washington area and beyond over the next few months.
- GuideStar.org publishes the annual tax returns of U.S. non-proﬁts. You may be able to view overall revenue, expenses, and compensation of top employees. With this information you can estimate a reasonable range for salaries in the organization.
- Salary.com and Payscale.com are sites that provide salary information on a broad array of employment.
- Bankrate.com offers helpful tools for calculating cost-of-living by U.S. city.
3. Timing your compensation discussion
The best time to negotiate compensation is when the employer has selected you and there is mutual interest in working out a satisfactory offer. However, an employer may try to engage you in a discussion of compensation earlier in the process; your diplomatic skills will be tested in responding to this pressure.
From the employer’s perspective, s/he needs to screen out candidates whose salary expectations are unrealistic. Your answers should reassure them of your genuine interest while postponing discussion of speciﬁcs.
Here are some typical questions that may come up in a preliminary telephone conversation or after a ﬁrst-round interview, with some suggested answers.
- What are your salary expectations? If you were to receive an offer from us, would you accept it?
Reiterate your strong and genuine interest in the employer, but say that there are many details about the job and the employer you need to evaluate. If you have other offers, you may want to say that you will need time to analyze and compare a prospective offer from another organization.
- You have seen our advertised salary range. Are you willing to accept a salary within that range?
Again, reiterate that you applied for this job because of your strong interest in the work the organization does. You may say that you want to be paid relative to the job market for this kind of work in this geographic area and that you are sure you could reach agreement on that basis.
- How much did you earn at your last position?
First off, consider the question’s context. For instance, if you are coming from a high-income profession and now hope to work in a public institution, it might be wise not to reveal your earning history. But your potential employer may need conﬁrmation that you are ready to work within the salary range advertised.
- May I see your salary history?
You may want to write in response, “With regard to salary, I would like to be paid fairly in relation to the job market for this type of work in your area.”
4. Handling an offer
Most employers will extend an offer to you rather than asking you to propose a package to them.
When an offer is made, whether in person or in writing, always thank the employer and ask for time to consider. What constitutes a reasonable time for consideration may vary depending on the organization and the mode of recruitment. You may ask to have a verbal offer conﬁrmed in writing, plus the details of the beneﬁt package the offer includes. Make clear that you are grateful for the offer and remain strongly interested in the position.
If an employer pressures you for an immediate response, you might answer, “You know that I have a strong interest in the job and your organization. I just feel that such an important decision should be made after careful consideration. I promise I won’t hold you up beyond the agreed time, but I really would like to have some time to decide.”
If the employer asks you to propose the compensation package that would be acceptable to you, make sure you have full information on the beneﬁt package the employer offers. Then suggest a salary, along with any desired beneﬁt adjustments, that falls near the high end of your range.
5. Evaluating an offer
When you do have an offer, evaluate the offer in its entirety. Make certain that the job offered is a good ﬁt with your skills, your work and lifestyle preferences, and your career goals. You will have gathered much of the information needed for this analysis during the job search and interview process. Now is the time to take whatever time is available to reﬂect and to ask yourself and others some additional questions.
- Does the job offered meet my job search goals? Does it ﬁt with my career plans?
- Do I have a clear picture of the speciﬁc job duties, the probable work hours and the amount of travel?
- Do I like the people and have a good feeling about the organizational culture?
- Does my boss have a management style I will respond to?
- Does the organization have a good reputation? Will I be proud to be a part of it?
- Do I know enough about the current issues facing the organization? How about its ﬁnancial condition?
- Do I know enough about the community that I will be living in? How about the cost of living, safety, recreational and cultural amenities, schools, places of worship, child care, spouse employment opportunities, etc.?
The importance of “total compensation”
Yes, the salary ﬁgure is very important, but remember that the beneﬁts portion of a compensation package, which typically ranges in value from 25 to 35 percent of base salary, is signiﬁcant.
Some employers pay the full cost of beneﬁts and others share those costs with employees. There is a major difference in take-home pay between a $70,000 salary when the employer pays the full cost of beneﬁts and a $70,000 salary when insurance premiums and retirement contributions are deducted from each paycheck. Examine the details of the beneﬁts program and calculate the full value of the salary and beneﬁts together. This will give you a fair basis for comparing one job offer to another and for making sure that your take-home pay will cover your needs.
6. Negotiating your package
Based upon your compensation homework and your personal budget, you will have determined a salary range and beneﬁt package that you think would be fair and reasonable for the job you are being offered. The lower end of your range should be the minimum you would accept for the position; the higher end should be what you would prefer to receive if the employer only knew what a truly great performer you are. Both ends of your range should be justiﬁable with market data.
After reviewing the offer, including the beneﬁts package, counter with a proposal that asks for a combination of salary and beneﬁts that falls within your pre-determined range. Ask for an amount toward the upper end of your range and provide justiﬁcation based upon your research. This amount will probably be higher than the employer wants to pay, but ideally the employer will respond with an amount higher than the original offer and well within your range. Don’t be shy about asking for a 10 percent bump in starting salary. This amount is signiﬁcant because it may take several years of annual raises to reach the same level. In addition, bonuses, if offered, may be calculated as a percentage of your base salary.
One of the keys to negotiating salary is to again emphasize your strengths. Spotlight why an employer wouldn’t want to lose you over a gap in base salary. What skills do you have that make you a perfect ﬁt? Do you have more experience than others performing the same type of job in the industry? Do you have skills that are particularly well suited to the position? Is your education a distinguishing factor? Deftly bring the negotiations down to a human level. If you can refer to your assessment of your bottom line ﬁnancial needs as discussed above, it may be helpful. Can the employer come up on the offer enough to meet your need?
Negotiable aspects of compensation
Review all the aspects of compensation below before entering into a compensation negotiation. Not all of these items are relevant and important in every case, but consider each item and make a list of those that are important to your particular circumstances.
- Base salary — amount; timing of reviews; potential for increases.
- Bonuses — signing; future based on performance. (If you don’t need the money up front, negotiate your signing bonus to be added to your base salary.) Bonuses are taxed at 50 percent versus 28 or 33 percent of earned income in the U.S. Your future raises will be based on the higher salary.
- Deferred compensation — employer contribution outright or match of your contributions.
- Retirement plans — availability; employer/employee contribution ratio.
- Severance protection — notice; amount payable; terms (usually applicable only to higher management positions). Depending on your circumstances, employer coverage of certain one-time expenses can be as important to you as a particular salary level. An up-front signing bonus (see above) can help upgrade your wardrobe, cover the down payment on a car, or reduce your student loan repayment burden. Moving expenses can add up if you consider house hunting, moving household goods, moving your family, and temporary living expenses. Some employers have set policies on these items; others are more ﬂexible.
- Insurance — medical, dental, vision, life, disability; availability; dependent coverage; employer/employee contribution ratios.
- Disaster insurance — if you work for a small organization and the success of that ﬁrm is tied to one person, ask for a term-insurance policy on that individual. For $50 a month, you’re protected if that person gets hurt, disabled, or dies. Without insurance, the ﬁrm closes and you’re out on the street.
- Vacation, sick leave, family leave, maternity or paternity leave, bereavement leave — rate of accrual; waiting period before entitlement; credit on books upon starting job.
- Automobile allowance; mileage reimbursement; other travel expenses.
- Mobile phone/BlackBerry provided.
- Professional training/conference attendance; education (tuition reimbursement plan).
- Professional membership dues; subscriptions.
Details that may make the difference
Work hours and ﬂexibility. Some employers offer ﬂex-time policies, for instance, allowing employees to complete 10 days work in 9 days, or to work remotely a certain number of hours a month. Such ﬂexibility may have a cash and/or quality of life value to you.
- Starting date — want to go to your brother’s graduation in San Diego? If you need to start after a certain date or if you need time off during your ﬁrst months on the job before vacation has accrued, negotiate those needs up front. It is much easier to ask and agree on special consideration during a negotiation than after you have started the job.
- Consulting days and publishing rights — if you plan to provide consulting services, sit on a board of directors, or write about your ﬁeld of expertise, get a written statement granting agreement on the parameters.
7. Closing the deal
When you and your employer have reached verbal agreement on your overall compensation package, ask for written conﬁrmation. Review the written offer of employment, then accept in writing. Only now should announcements and ﬁnancial commitments related to taking the new job be made.
Adapted from “Career Advancement” from the Harvard Kennedy School of Government.