Benefit from Salary Negotiations

The most significant impact a person can have on their long term career earnings is to engage in negotiating salary early in their career. This will have a direct impact on the amount of earning potential they have in their future.

This might be considered whether it is your first job out of university or if it’s a mid-life job change. Further, there are financial impacts when you are in your career working for an employer that you are very happy with, of not negotiating your salary with the best timing.

Throughout your career, you may earn pay increases or promotions within the company that you work for, but take as an example, when the company offers scheduled raises, as most companies do, the impact of your intitial salary with that company is measurable.

This is not only applicable to your first salary negotiation and subsequent incremental pay raises but also to salary differentials you may get when you changes roles within a company. You may switch into a job requiring significantly increased duties, effort, or responsibilities, and the salary you had earned beforehand can genuinely influence the starting salary at the new job.

As an example, imagine a person starting a new job as a QA analyst in a high tech company somewhere in America. Suppose that person begins with a starting salary of $45,000. Most likely that person will have to put in 6 months to a full year before they are offered their first pay raise. Suppose it is a 10% raise which would be HUGE at many employers. The employee would gain an additional $4500 per annum based on that increase.

Now imagine that same employee started at $55,000 or even higher. That same pay raise of 10% would provide the same person $5500 additional salary per year. With the first salary, the employee would still be under the $50,000 level after one full year of work and after a 10% pay raise, while in the second scenario the employee would be at over $60,000 per year after a 10% raise.

Imagine the compound impact of these two starting salaries on the person’s earning potential. First let’s examine a four year timeline, all other things being equal (that is, assuming no pay raises and no promotions). The employee earning $45,000 will have earned $180K in gross salary in four years. The person earning $55K will have earned $220,000 in 4 years. That is a $40,000 difference just because of where the person started in terms of salary.

Now imagine a 10% raise after the first year and consider the impact as the person advances through their career. The person with a higher salary in the beginning will always be ahead of the person with the lower starting salary, all things being equal (e.g. same title, same job performance). The person with the better salary negotiating will be moving ahead faster than the person starting with the lower salary. This impact amplifies with each subsequent year considering the same percent annual pay raise for each.

When requesting a pay increase, if a person earning $50,000 earns a 5% raise without negotiating anything additional, that’s okay. But consider the impact if the person negotiates a 15% increase because they have really performed well in the job and they have all the supporting research and a track record to command it. That employee will have negotiated $7,500 in a raise versus just accepting $2500. Multiply that by 10 years, and there is a clear $50,000 difference in the person’s salary potential.

Many experts suggest that it is better to try negotiating a raise or an improvement to the compensation package than to simply receive the package that is offered. The first offer is often the lowest offer and can be improved with salary negotiation. This negotiation must be done with care and must be well based with a supporting case for the difference.

It must also consider factors such as market, company guidelines, and professional performance. However when done well, it can really pay off. Remember to consider the value of all factors of compensation when asking for an increase. Some people truly value time and quality of life, while others are willing to venture out and accept stock options in lieu of extra salary.

However, when it comes to negotiating, don’t be afraid to consider asking for more.

Tagged with: business • Business Online • Career • health • Job • life • money • negotiation • relationship • salary • wealth

Filed under: Business Online

Like this post? Subscribe to my RSS feed and get loads more!