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 could be considered whether it is one's first job out of college or a mid career job change. Further, there are financial consequences when you are in a career working for a company that you are even very happy with, of not doing salary negotiation at the right time.
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 not only applies to your first salary and subsequent incremental raises but also to salary market differentials when you changes roles within a company. You may move into a job requiring significantly more responsibility or effort, but the salary you had beforehand can influence the starting salary of 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.
Suppose that same person started at $55,000 or more. That same pay hike of 10% would provide the same employee $5500 additional salary per year. With the first salary band, the employee would still be under the $50,000 mark after one full year of effort and after a 10% pay increase, while in the second situation the employee would be at over $60,000 a year after a 10% pay increment.
Now consider the compound effect of these two starting salaries on the employees earning potential. First let's examine a 4 year horizon all things being equal (that is, suggesting no pay raises and no promotions). The person earning $45,000 will have earned $180,000 in gross salary in four years. The person earning $55,000 will have earned $220K in 4 years. That is a $40,000 differential just based on where the person starts 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.
When it comes to negotiating salary, be courageous and consider requesting for more.
This could be considered whether it is one's first job out of college or a mid career job change. Further, there are financial consequences when you are in a career working for a company that you are even very happy with, of not doing salary negotiation at the right time.
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 not only applies to your first salary and subsequent incremental raises but also to salary market differentials when you changes roles within a company. You may move into a job requiring significantly more responsibility or effort, but the salary you had beforehand can influence the starting salary of 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.
Suppose that same person started at $55,000 or more. That same pay hike of 10% would provide the same employee $5500 additional salary per year. With the first salary band, the employee would still be under the $50,000 mark after one full year of effort and after a 10% pay increase, while in the second situation the employee would be at over $60,000 a year after a 10% pay increment.
Now consider the compound effect of these two starting salaries on the employees earning potential. First let's examine a 4 year horizon all things being equal (that is, suggesting no pay raises and no promotions). The person earning $45,000 will have earned $180,000 in gross salary in four years. The person earning $55,000 will have earned $220K in 4 years. That is a $40,000 differential just based on where the person starts 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.
When it comes to negotiating salary, be courageous and consider requesting for more.
About the Author:
Trevor Davide Grant is a IT manager in the IT field and has extensive experience in salary negotiation. Trevor has worked for global telecom, electric utilities, software development consulting, and a prominent web 2.0 site. He has learned salary negotiating in the most effective way. Learn great tactics on the topic of salary negotiating at www.HowToNegotiateASalary.com.
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