Written by Trevor Davide Grant
Tuesday, January 27th, 2009
The amount of compensation one makes throughout their lifetime career and the subsequent lifestyle and quality of life as a result of that income depends a lot on the amount of salary a person negotiates before their first day on the job.
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 job salary and subsequent scheduled pay increases but also to salary difference you may get when you changes roles within an employer. You may transfer into a career requiring significantly increased effort, more duties, or higher responsibilities, and the salary you had negotitated beforehand can genuinely influence the salary you earn in the new job.
Take a person starting a career as a system analyst in a high tech company somewhere in the United States, as an example. Say that person begins with a starting salary of $45,000. Most likely that person will have to dedicate at least 6 months to one full year before they are offered their first raise. Suppose it is a 10% raise which would be A LOT in most businesses. That person would gain an additional $4500 yearly based on that raise.
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 raise, if a person earning $50,000 earns a 5% raise without negotiating anything more, that’s not bad. But consider the impact if the person negotiates a 15% raise because they have outperformed in the job and they have all the supporting research and a track record to warrant it. That employee will have negotiated salary – $7,500 in a raise versus just accepting $2500. Multiply that by 10 years, and there is a $50,000 impact on the person’s earning potential.
Experts feel it goes without saying that it is better to try negotiating a raise or an improvement to one’s total compensation package than to simply accept what is offered. The first offer is often the lowest offer and can be negotiated higher. This salary negotiation must be done with tact and must be well founded with a supporting case for the pay increase.
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 salary negotiation, don’t be afraid to consider asking for more salary.
