Negotiate a Higher Salary To More Easily Achieve Financial Goals
Many people concentrate on saving and investing as a way to achieve their financial goals. Both of these are easier to grow with a higher income. No matter what your financial goals are, negotiating a higher salary will make them easier to achieve.
The time you spend researching your fair market value, preparing requests for raises, and making requests for adjustments might very well be the most valuable use of your time.
Considering the importance of salary you would think that people would constantly be on top of their market value ensuring they are compensated fairly. In my experience this is often not the case.
Many People are Underpaid and Don’t Even Know it
Like most people I knew, I never talked about my salary with my friends or co-workers. It’s taboo for many Americans. This lack of transparency makes it easy to be underpaid while being unaware of it. This benefits your employer, but not you!
Once I took on a senior leadership position I begun to understand the severity of differences in how people are compensated for similar positions. In some cases employees with the same job title were compensated double what others were.
I am sure that most people are aware these inequities exist and might blame them on discrimination, differences in quality of work, education or level of education. In my experience a lack of salary negotiation and keeping their salary up to date is the main driver.
Negotiating your salary can be uncomfortable, and asking for raises can be even more so. This doesn’t mean you shouldn’t do it though! Many will shy away from it and those that do not will end up making much more money over time to do the same job.
Increases in Salary Compound Over Your Career
As people get further along in their careers these differences can grow to nearly overwhelming numbers. Employees can literally make over double what others make for the same job. This is because of the compounding nature of raises on your salary over the course of your career.
Raises are generally given on a percentage basis of your current salary. What this means is every single time you get a raise you are also getting a raise on all of your previous raises. This adds up the same way compound interest adds up. Over time the numbers can get large and with a 40 year long career for many there can be a lot of time for this to happen.
Examples of Compounding Salary
Lets look at a few simple scenarios over a 20 year job with a company. The first scenario shows the affect of negotiating a higher starting salary and the second one shows the affect of negotiating occasional large raises.
Affect of Negotiating a Higher Starting Salary
Jack and Jill both were offered the same job, but Jill negotiated a very modest 10% higher salary than Jack. They both did well and received 3% raises over the course of 20 years working for the company.
|Base||Year 5||Year 10||Year 15||Year 20||Total|
The $5,000 starting difference turns into a little over $9,000 a year difference over 20 years. This resulted in Jill making an extra $140,000 over the course of her job with this company.
Affects of Negotiating Larger Raises
Here we will modify the above table to show Jill negotiating a 10% raise for herself every 5 years while Jack happily accepts the standard 3%.
|Base||Year 5||Year 10||Year 15||Year 20||Total|
After 20 years with a salary of $81,275 jack would need a whopping 45% raise just to catch up to Jill and still would be behind by $340,000 in lifetime earnings!
How do I Keep My Salary Up to Date
Know Your Fair Market Value
This always starts with knowing what your fair market value is. There are several websites that can help here. I like Glassdoor and Salary.com. Do a little research and come up with a range that you feel is reasonable.
You should be honest with yourself about your skills and experience, but I recommend starting at the high end of the range and working down from there. If someone else can make $100,000 a year doing your job, why not you?
Getting Your Salary Right to Start
In my experience the majority of people will accept the first salary offer given. This is generally a mistake. Why would a hiring manager make you his absolute top dollar offer to start? He is generally wise to leave a little room for negotiation for the candidates that do counteroffer. Some candidates will want to counteroffer no matter what you offer them first!
Once you accept a lower salary it is VERY difficult to get it corrected. You may have some success here at smaller companies but with larger companies and their bureaucracy don’t get your hopes up. In my experience the best way to fix this is to find a new job. You can avoid it by knowing your market value and negotiating a proper base to start.
Constantly Update Skills
The job market is always changing. You need to keep up with it and try to stay out in front of it to maximize your earning potential. Whatever field you are in set annual goals to achieve certifications, complete continuing education, learn a new tool or attend a conference.
While one of these things by itself may not change your career, the culmination of annual self improvement over 5 to 10 years can make a massive difference in your marketability. Senior level employees with relevant certifications and experience can be worth many times what an entry level employee is.
Take Advantage of Your Time at Work
You are going to be there for 8 hours a day so you might as well make the most of it. Always seek out new projects that allow you to learn and develop your skills. Ask about company paid training, certification or tuition. Look for ways to add value above and beyond normal for your task.
Most employers will provide you with the tools, money or time to improve your skills because it directly benefits them. If they won’t help you out here, you may want to re-consider if working there is good for your long term success.
Write Down Accomplishments as They Happen
Many companies do a once per year salary adjustment. Isn’t it basically impossible to remember what all you did when walking into this conversation?
The best way to remember it all is to write it down as it happens. Keep a running log of your accomplishments. Write them all down and come into the annual review process armed with the information you need.
Frequently Update Your Fair Market Value
Your fair market value is likely always changing. Make sure to check the websites and understand if you are compensated fairly on a regular basis. Always do this before an annual review.
If the market has shifted for your skill set, or a new skill you learned is valuable, make sure your employer knows! This is the time to ask for a larger than standard raise. That new certification you acquired could be a great reason to go after a 5 or 10% raise this year.
Asking for an Adjustment When You are Underpaid
If you want to stick it out with your company, but found that you were underpaid you will need to ask for an adjustment to market value. I find that the request should have the following basic supporting documentation:
- Report’s on salary range for your job from multiple sources. If you are underpaid, show them multiple sources that validate this. The more you can find the better.
- Detail any recent skills you have developed or certifications that you have obtained.
- List of recent accomplishments at work that show you have gone above and beyond. You have been keeping the list like I recommend above right?
I have asked for larger raises(>10%) multiple times in my career and always gotten what I wanted by using the above method. I have also been asked for raises by quite a few employees over the years. Those with accompanying documentation like above were taken much more seriously.
Leave If Your Employer Doesn’t Value You Correctly
Some employers will never pay you fair market value. This could be because they don’t value you fairly or because they don’t need the skills you have. They may also just not have the money in the budget for someone of your skill level.
Don’t let their decisions hold you back. If they won’t pay you fairly then be prepared to get up and leave. If you have been updating your skills regularly as I mentioned above you may find that moving to a better position is surprisingly easy.
I hope this has shed a little light onto the importance of salary negotiations when being hired and frequently during the course of your career. If you ignore these conversations because they can be uncomfortable you will pay dearly for it over the long term.
Ultimately, your net worth can be dramatically reduced and result in you having to work for many extra years in order to meet your financial goals. You should take charge of this part of your career before you look back and wish you had.