The Importance of Salary Negotiations

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salary negotiationsWell, I finally had my job interview last Friday.  For those that follow my blog, you know I have mentioned obtaining a new job as a goal of mine for a while now.  I had really hoped to get the interview process over with in 2016 before the holidays so that I could slide right into the position early 2017.  But unfortunately, the manager got sick, which delayed the interview.

 

It’s a job that is similar in nature to my background in finance and accounting, but a bit of a stretch in terms of responsibilities and duties.  In some ways, I feel slightly unqualified, but then again, that’s how I feel whenever I move into a position that is going to stretch me.

 

Preparing for My Interview

salary negotiationsI have been waiting to have this interview for over a month now.  So needless to say, I’ve been a roller coaster of emotions over this past month.  I did a ton of research on the job and made sure that I prepared with as many practice questions that I could get my hands on.  On top of that, I had a friend do mock interviews with me so that I could burnish my interview skills.

 

The morning of my 9am interview, I woke up at 3:30 am wide awake.  I was too nervous and excited to sleep any longer.  Luckily, the interview went really well.  All the preparation that I did made me confident in the answers that I provided.  I’m hoping to hear from them in a month or so and plan to accept the job if it’s offered to me.

 

Salary Negotiations

salary negotiationsThe position that I applied for unfortunately doesn’t have any wiggle room in terms of salary or benefits.  One of the things that I wish I had done before I got hired by the government was negotiating my salary.  I was so happy at the time to get the job that I naively assumed that there was no wiggle room and accepted the job.  I was so wrong and left thousands of dollars on the table.  

 

According to Salary.com survey, I’m not alone.  About 20% of people never negotiate their salaries while 37% of people always negotiate salary.  44% say they negotiate occasionally.

 

Men & Women and Negotiations

salary negotiationsIn her book, Women Don’t Ask, Linda Babcock reveals the disparity between men and women when it comes to salary negotiations.  While 57% of men attempted to negotiate their first salary, only about 7% of women tried to do so.  On average, of those who tried to negotiate their salary, they were able to increase their salary by around 7%.

 

What Does 7% Really Look Like?

This figure may seem petty, but every bit helps.  Think about it; over 35 years, you and an equivalent peer who was getting paid 7% less than you would have to work 8 more years to be as wealthy as you during retirement.  Eight years is something!

 

roller-coaster salary negotiationsBabcock asserts that by not negotiating at the beginning of your career causes one to leave anywhere between $1-$1.5 million on the table in lost earnings over the course of their life.  $1 million dollars is something too!

 

Nowadays, it seems almost expected for a candidate to negotiate their salary.  So it can’t hurt to respectfully and wisely seek a higher number.  After all, if you don’t argue your own worth, then who will?

 

Fear

salary negotiationsSo for those of us that don’t negotiate our salaries, why don’t we?  The biggest reason is fear.   32% of respondents said they were too worried about losing the job offer if they tried to negotiate.  22% said they didn’t ask for more simply because they lacked negotiation skills during the interview process.  18% said they found negotiating unpleasant at its core.  Finally, around 9% said they lacked the necessary self-confidence.

 

New York career coach, Ellis Chase, stated that while a lot of people are afraid to negotiate, in reality, 99% of the time, a hiring manager will not rescind an offer.  

 

Your Worth

salary negotiationsSo, how do you figure out how much you’re worth?  An online search on Glassdoor or even asking people in your field can give you a good idea of your value.

 

Many advocate for you to assume that you are deserving of top pay.  More than likely, the employer will negotiate down, so there really isn’t harm in over-projecting your worth.

 

Specifics are Best

Researchers at Columbia Business School have determined that one should request a very specific number—say, $69,750 rather than $70,000.  These researchers found that when specific numbers are utilized, those individuals were more likely to receive a better final offer.

 

Walk Away Number

salary negotiationsEvery candidate should also have a “walk away number”.  Whether based on financial need, market value, or just a bottom line number that you don’t want to drop below.  you should also come up with a “walk away point”—a final offer that’s so low that you have to turn it down. Of course, walking away is never easy, especially after spending some time in the interview process, but it is important and empowering to know when saying “no” is appropriate.

 

Benefits

Educate yourself on what type of benefits will come in addition to salary.  Some of the best companies provide benefits that end up valuing 50% of your salary!  So don’t neglect learning more about any and all benefits involved.

 

salary negotiationsBenefits could include vacation time, moving allowance, or a signing bonus, to name a few.  Of course, most entry-level employees will probably not be offered all of these.  But, it’s good to know which are not included so that you can use the information as leverage and negotiate these into your offer.  Additionally, moving bonuses are something worth mentioning when you are moving to a new city for a certain job.

 

So readers, what do you think?  Do you always negotiate no matter the offer?  Share your thoughts below.

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.

36 Comments

  1. After interning at a public accounting firm for over a year, they gave me an offer and it was low compared to my expectation. I was able to negotiate a little (not 7%), but ultimately I was really glad that I stayed because the work environment was so great and they were extremely flexible when I went back to work after having kids. One of the senior managers that I had talked to before accepting the job said that she wished she would have started out at a large accounting firm because her salary would have been so much higher for her entire career. Ultimately, I was happy with my decision because of my personal circumstances, but she was also completely right!
    Best of luck!
    Kathryn recently posted…RE402: Qualified Retirement AccountsMy Profile

  2. This is very true. Starting at a higher number will allow your salary to compound that much more over time. I have never actually negotiating a starting salary. My first job right out of school, I was just happy to have a job. In my current job, I probably could have negotiated a higher starting salary, but I was extremely excited to get a position that I felt under-qualified for at the time.

    One of the tough things is that during the interview process, you’ll likely be asked by either a recruiter or the actual interviewer how much you currently make. Even if your new gig is a step up in responsibility, they’ll likely tie your initial offer into what you’re currently making. Be prepared to tell them why you deserve more.
    Go Finance Yourself! recently posted…Cut the Cord For Financial FreedomMy Profile

    • You are absolutely right. It is imperative to show why you provide value above what they offered if you are not happy with the offer presented.

      I only wish I had done this earlier in my career.

  3. interesting, out posts compliment each other today. Mine is about asking for a raise within your same role or a change inside a company. I’m at a crossroad and expect one of the two will be happening again soon.

    In lieu of a pay bump I received a ten percent sign on bonus when I joined my current company thanks to negotiation. It never hurts to ask.
    Full Time Finance recently posted…Confessions of a Manager: Tips For Getting A RaiseMy Profile

  4. I’ve only worked for one company the past 15 years. I’ve negotiated my salary during every promotion. Now that I’m in a position to look behind the curtain so to speak on how HR departments and Management operate, I can tell you for a fact that taking a proactive approach to your pay and salary works. People who don’t absolutely leave money on the table. And like you point out, it doesn’t always have to be about pay, you can negotiate all sorts of fringe benefits if you get a no on the money. Good luck on getting the new gig!!

    • Thanks for peeling back the curtain and providing an insiders point of view. I have to admit that I haven’t always taken a proactive approach to my salary and it probably has cost me big time. Hopefully as I become wiser I can make up for some lost time.

  5. Since I graduated from university. I had been in four full time positions. The first one, I didn’t negotiate because it took me quite a while to fine the job and it’s an entry level job. Also, I was desperate to have a job. On my next job, I got a sizeable increase, that’s only less that a year into my job. The third job, I should have negotiated harder, but I wanted the promotion. Finally, the fourth, I got the recruiter to do it for me. All in all, I was fortunate to be employed when I was offered a new position (except the first one) so I knew that if there was no incremental benefit over the last job, I can always stay at the current one and try to find something better. That had worked out well for me.
    Leo T. Ly @ isaved5k recently posted…10 Passionate Canadian Personal Finance Bloggers To Follow In 2017My Profile

    • Thanks for sharing your experiences with negotiating over your career. Sounds like you’ve done really well for yourself over the years. I would have never thought to get the recruiter to do it for me. Smart idea 🙂

  6. I like your point about 99% of hiring managers won’t rescind an offer. In other words, what do you have to lose. I asked for a certain amount and got it with my current job. I’ve since interviewed at two other companies that offered me too little. It was a bummer to to spend time interviewing, but helped me to realize what I’m worth, and help me appreciate my current job a little more for all the benefits they give me.
    CoupleofCents recently posted…The Gift that Keeps on Giving: InvestmentsMy Profile

    • Thanks for sharing CoupleofCents!!!

      While a bummer that the other companies couldn’t meet your requirements it does make it nice to see what else is out there and see that the grass isn’t always greener 🙂

  7. Glad to hear the interview went so well for you! No surprise, sounds like you were very well prepared. As you may know, I’m in a somewhat similar spot as you (although mine has been dragging on for quite some time!) as I am looking for a new/similar gig in London. I hope to hear more soon too at which point I’ll proceed with interviews and salary negotiations etc. So very helpful and timely post!

    Some of the extra benefits I’d love to sneak in, which I heard aren’t too uncommon for expats moving overseas, are paid return flights home once a year. I’ve been giving thought to lots of your points, although don’t know my walking away number. I’m sure my compensation will be relatively fair, knowing my employer so well over the last 10 years, and it’ll be hard to say no to London.

    Best of luck to you!
    The Green Swan recently posted…2016 Investments Year-End ReviewMy Profile

    • Thanks for the kind words. I can’t wait to read your epic post when you wrap up London. I think all of us in the PF community will be celebrating along with you 🙂

  8. It’s nice to read actual research results in this topic. It’s difficult to say what’s the best strategy. Of course you’re in an easier situation if you want to move from one company to another. If you’re unemployed, it’s more tempting to accept an offer without any negotiation.
    Roadrunner recently posted…The Biggest Dividend Investing MistakeMy Profile

    • I hear ya Roadrunner. When I first came out of school. I was desperate for a job and definitely jumped on the first offer that I got. Whether I could have squeezed a couple of extra dollars from them I didn’t care. I needed to pay bills and didn’t want to delay it 🙂

  9. Great info here, MSM. I haven’t been in the traditional work force for over 13 years, but use a lot of these same tips when negotiating freelancing jobs. I agree about the fear factor, it’s tough to ask for more when you’re really dependent on or wanting the job. Having no debt and a plush emergency fund helps make that fear go away. 🙂
    Laurie @thefrugalfarmer recently posted…The 10 Best Prepping and Survival BooksMy Profile

    • First off let me say congrats for being out of the traditional workforce for thirteen years. I can only hope to aspire to be you 🙂

      Second you are absolutely right when you don’t carry any debt and have a nice fat emergency fund that it makes it much easier to have no fear 🙂

  10. I’m female, but I’m fairly assertive, so I didn’t have a problem asking for a fair salary. But, I have to say, I wished companies would just be more transparent. I like how the government has a level and steps associated with it and you knew exactly what you were going to get and what others around you are making. That would level the ground for everyone.
    Primal Prosperity recently posted…“Some Travel, Others Journey”My Profile

    • That’s awesome that you were able to receive fair compensation. I know I am definitely at times a little timid when it comes to money.

      Although it’s not something that I think about as much since the government has a pretty fair pay structure 🙂

    • I have definitely gotten butterflies and a lump in my throat. But it’s a much better feeling than the opposite side which is berating myself for not being more assertive.

      I found that practicing with a couple of close friends with different styles helped reduce my anxiety.

  11. Great topic. Like many I actually just accepted whatever they gave me out of college. I was just happy to have something. I didn’t even negotiate a raise after my first year as well haha! Luckily I did get a raise though…After that, I started to negotiate raises near the end of the year. It’s always a weird subject for me (like many people), but I’ve learned that it never hurts to ask. Worst thing is you don’t get it and the best case is you get more income!
    Andrew recently posted…5 Reasons Why You Should Get A Side HustleMy Profile

    • I totally agree with you Andrew that the worst they can say is no. I think I feared rejection or worse that they would fire me so I kept my mouth shut. But at this point I feel like I can start being a little more vocal 🙂

  12. Good points, MSM. I’ve never negotiated my salary. For my current job, there really wasn’t any wiggle room as all of the physicians receive the same hourly rate. But for my other jobs, particularly the ones I got after college, I never bothered to negotiate. One factor was fear, the other factor was not knowing or being confident in my worth as an employee.
    SomeRandomGuyOnline recently posted…Real Estate Lessons From Mama and Papa SRGOMy Profile

  13. Negotiating is important. In my current position, I asked for 8.33% over my offer. While I did not get my asking salary, they did split the difference and I got half. It never hurts to ask and I believe all hiring managers expect it, thus why 99% do not rescind the offer.

    • Thanks for sharing HopeToRetire!!!

      That’s awesome that you were able to negotiate a bigger increase. It’s definitely something I need to do in the future 🙂

    • Thanks for sharing Dyana!!! I have to admit that I was super scared to negotiate as well. I was just happy to have a job each time 🙂 Hopefully now that I’m in a better position I will have more flexibility in negotiating in the future 🙂

  14. I have negotiated a pretty hefty raise for myself before, but I have never attempted to negotiate a starting salary. Great information, thanks for sharing!

    • Thanks for stopping by Laurie!!! I’m glad that you enjoyed the article and sounds like you are already a master negotiator if you are getting hefty raises at work 🙂

  15. Spot on about the non-financial benefits Mr Mustard Seed.
    People too often forget what can be squeezed out of even government departments when negotiating salary extras.

    Be creative when discussing your worth, look for the breaks and don’t be afraid to ask. At the very least it demonstrates your ability to spot opportunity.

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