Salary Negotiation: How Much Are You Worth?

by Safani, Barbara Wednesday, August 26, 2009
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I recently sat down with Jennifer Loftus, National Director for Astron Solutions. Jennifer develops, designs, and implements base pay compensation systems and she is an active member of SHRM’s Total Rewards Special Expertise panel. I asked her some of the questions job seekers often have about compensation and her responses should be required reading for anyone looking to better manage the salary negotiation conversation with prospective employers.

What resources or strategies do you recommend to help job seekers benchmark their value in the workplace?

Benchmarking a position’s value isn’t easy! There’s lots of information out there. The hard part is knowing what to focus on and what to ignore. Job seekers should look to compensation data provided by their industry association to determine their personal value. The Bureau of Labor Statistics is another potential source of information regarding compensation and benefits. Many times, individuals rely on free sources of salary data they find on the Internet. Internet-based sources often lack credibility. They may present data without thoroughly analyzing for quality control issues. Also, individuals – rather than employers – often report data to these sites, which can result in inflated salary figures. When establishing your own job value, don’t lock yourself into a specific pay rate, such as $75,000 a year. Rather, consider a pay range, such as $65,000 to $85,000, to give yourself the greatest opportunities.

Additionally, always keep a total rewards perspective. Total rewards means that you as an employee receive more than your paycheck from your employer. There are 5 elements of total rewards – cash compensation, benefits, work/life balance, career advancement and development, and performance management and recognition. Consider your personal value in terms of all 5 of these elements, and their importance to you, before turning down a job offer where you think the salary is too low.

Additionally, always keep in mind that most organizations have a unique compensation philosophy. For instance, some organizations want to be the top payer in Miami, FL. Others want to be a middle of the road payer for engineering firms in Manhattan. Another may be a low payer in Denver with robust benefits. If you receive an offer that seems low, consider your personal compensation philosophy against the organization’s. Salaries can vary widely between locations and industries. Also consider the total rewards approach to see if your philosophy and the organization’s end up with the same total package at the end.

Are salaries trending downward?

It may appear that salaries are trending downward, due to layoffs. Particularly in organizations laying off longer service employees or providing early retirement, average salaries for specific jobs may be lower. However, we typically don’t see salaries permanently dropping in terms of real dollars over time. Organizations very rarely lower their starting pay rates or salary ranges.

What industries are experiencing growth and are more likely to offer competitive salaries?

When you look for growth, think of industries that have to exist. Healthcare and educational institutions are two that stand out. Unfortunately, people will continue to need healthcare services. Education is a key to success. Both industries have weathered the recent economic storms better than others and continue to offer strong total rewards programs. As for the competitive nature of the salaries they offer, non-profit organizations dominate both industries. As such, their salaries overall may be lower than those found in for-profit industries such as banking, consulting, and high technology. Although the pay rates in these industries may be lower, however, those rates have also been more stable than those of other industries.

Are there certain geographies in the country where job seekers are more likely to negotiate a better offer?

Job seekers are more likely to negotiate better offers in areas of the country with less recessionary impact. For example, upstate New York took less of a direct hit than Wall Street in Manhattan when the economy shifted dramatically. Additionally, locations that have typically had challenges in attracting and retaining talent – think climate extremes or areas that are harder to get to – also afford more negotiation opportunity.

What is the average cost of a benefits package per employee? Is it reasonable to try to negotiate fewer benefits in exchange for additional compensation?

In total, benefits typically run about 40% of base pay. This figure includes both voluntary benefits, such as health insurance, vacation time, and retirement plan contributions, as well as mandatory benefits, such as social security, unemployment coverage, and worker’s compensation programs. Voluntary benefits are typically 20% of base pay, mandatory benefits another 20%. As an example, a person earning $50,000 would on average receive voluntary benefits worth $10,000 and mandatory benefits coverage worth another $10,000, for a total compensation package of $70,000.

Job seekers could try to negotiate lesser benefits in exchange for additional compensation. Typically, however, employers provide benefits packages on a group basis. This group approach often doesn’t afford negotiating flexibility to employers. Customized benefits packages is a trend I expect to see more of moving forward. Currently, however, individuals may have more success negotiating in the opposite direction – less compensation for more benefits.

What is the average merit increase for 2009? What other types of financial incentives can job seekers negotiate outside of base compensation?

Great timing on this question! WorldatWork just released the results of the 2009 – 2010 Salary Budget Survey, which reports summary data from 2,743 organizations across the US and Canada. According to WorldatWork, the average merit increase budget for 2010 is 2.8%. If you remove all the zero increase budgets, or organizations that aren’t providing a merit increase in 2010, the average budget goes up slightly to 3.2%. Those zeros are important – up to 43% of organizations are freezing pay for some or all of their employees in 2010.

Given the dramatic changes in the economy, I expect that organizations will begin to phase out merit pay. Variable compensation will become an even more important part of employees’ total compensation. Job seekers today can demonstrate their commitment to their potential employers’ success, and their own personal return on investment (ROI), by focusing negotiations away from base pay increases and towards bonus and incentive opportunities. Job seekers can also turn to negotiating for additional benefits to build their total compensation package.

Is a signing bonus ever offered to a job seeker who is not leaving one employer to go to another? If so, describe a situation where a company would offer a candidate without a job to fall back on a sign on bonus?

Oh, yes! Signing bonuses are not only for people who are changing jobs. Many times healthcare organizations will offer signing bonuses to new graduate nurses and new graduates in other allied health fields where there is a shortage of talent. With many employers competing for a handful of graduates, the competition among employers can be stiff. I have also seen these types of signing bonuses used in the IT field. The lack of talent and specialized knowledge in the market drives competitive employers to use signing bonuses and other lucrative attraction and retention techniques.

I see more job postings that state relocation is not available. Is this truly the case and what circumstances would warrant relocation assistance?

I too have heard that the number of relocations are down for a variety of reasons. First, relocation can be costly. With more local job seekers available due to the economy, the argument for relocation becomes less compelling. If an organization can hire someone local with the same skill set as someone from far away, the organization would rather pay $0 to bring the new hire on board than the thousands of dollars associated with relocations. Additionally, the organization bares a risk when relocating an employee. If the individual doesn’t work out, or changes jobs relatively soon, the organization has incurred a large expense with minimal ROI.

When would relocation make sense? Relocation is a viable option if the candidate has unique job skills that are in demand by the organization or has a book of business or a powerful network they’re bringing to the organization. Additionally, if a position has been vacant for quite some time, it may be less expensive to relocate someone than to have vacancy cost dollars impacting the organization’s bottom line.