Monday, July 12, 2010

The Time to Negotiate A Raise is During the Hiring Process

Below is a table of numbers I put together the other day when thinking about this subject. When you get hired for a new job, you're excited about it, and you might be tempted to avoid haggling over your new salary, especially since you don't want to make any waves before you even start. But here's one reason to think twice before you accept your new employer's starting salary offer:


The table above compares 2 sets of salaries over a 10-year period.

'Fred' is a new employee starting a new job at a salary of $70,000 per year. The 'Total' column next to Fred's salary adds his total earnings at the new company, year after year.

'Sally' is being hired at the same company as Fred, at the same time, in the same job. Sally negotiated a higher salary before she started working at her new job. The difference is only $2,000- less than 3 percent of their annual salary, so no big deal- right? Wrong.

Look at the difference it makes over time. The table assumes annual wage increases of 4 percent, which is generous (in some cases), but remember that many jobs have extra bonuses that are calculated based on the base salary, such as shift differentials, holiday pay, weekend pay, year-end bonuses, etc. So in reality, many peoples' salaries increase at a higher rate than 4 percent per year.

As you can see, even if Sally just stays in this same position, without getting any promotions or extra incentive pay, her salary will increase from $72,000 to $87,599 after just 5 years.
And after only 5 years, Sally will have earned an extra $13,265 just by negotiating a $2,000 annual increase in salary before she started her new job. That represents almost 20 percent (18.4) of her first year's salary.

Even if that doesn't seem like an impressive figure over 5 years, stop and think about what you could do with an extra 18 percent of your annual salary when it comes time to make your next job transition. And all you have to do is ask- at the best time.