No rocket science in salary negotiations

How much? There is no easy answer for this question but the best way to address is it is to understand a company’s typical thought process. Regardless of what companies will openly admit there are three things that will determine what a company will offer you when changing jobs:

What you are worth in the Market
This has nothing to do with your perceived value, it is important to distinguish your perceived value from your market value. Your market value is simply based on what others with a similar skill set and experience (your competition) are currently or willing to make. I have had candidates tell me: “I saved the company $500,000 dollars last year why can’t they pay me 50% more?” And the answer is pretty straight forward, harsh, but straight forward: Because they don’t have to if someone else can save them the same amount for 25% less than what you make.

So, research the market when setting your expectations. Once you arrive at market data it is important to understand how it is used. If you take market statistics as a reference, consider that companies will try to make offers below the 50 percentile to guarantee room for growth and development. The area above that percentile is reserved for compensating performance and experience at the corresponding level. If at any point you are able to negotiate above the 50 percentile be cautious of what your future will look like. You might be staring at a few years with below average salary increases.

Your current salary
This becomes a none-issue if you are at market, but if you are under the market it will force a question: Why are you below market? In many cases there is a valid reason. But beware of how you present your case. Companies will know about other companies more that you might expect. Company names in your resume and your current salary will hint to what your performance has been. Questions marks will fly if you have been with a well recognized organization for the past 4 years and your salary is below market. Regardless of how well the interview process goes and how good an organization may be when evaluating potential employees there is never a guarantee that a new hire will perform as expected. So if you are below market don’t expect a significant immediate increase to bring you to market level. Companies will typically provide an increase to bring you on board but it will be up to you to bring yourself to market level by performing. So worry about positioning yourself in an organization that will FACILITATE getting back to market level within a certain amount of time versus trying to find a sponsor that will immediately take you there because they feel for you and believe your story.

It is also important to consider that while companies understand that money is important they will seek a candidate’s decision based on the challenge, expected career path and career development and not on an immediate boost in pay. For that reason, most organizations will shy away from providing sharp increases when presenting an offer. The average increase, assuming that the increase does no put you outside the hiring companies range for the position is between 15-25%. The higher the salary the lower the percentage tends to be. In very few instances do we see organizations that are willing to increase an executive’s salary by more than 25% when they bring them on board. So once again, worry about positioning yourself in an organization that will provide a level of responsibility, training and experience that will allow you to progressively increase your market value and consequently your salary.

Chase responsibility and experience that can be marketed and the money will come.

Their internal pay structure
You would think that the pay structure in most companies would match market data. Unfortunately it is not always the case and not because organizations would not want it that way. External events can change the market quicker than what a company can or would be willing to react to. When we see a mismatch it is typically a temporary supply and demand issue for specific industries and disciplines. In most instances companies will prefer to take more time to fill a job opening or even lose a few employees to a hot job market over turning their cost structure upside down or generate disgruntled employees by increasing the salary range for specific positions while keeping other similar ones the same.



Jose Ruiz is a Principal in Heidrick & Struggles’ Monterrey office. As an executive recruiter he has worked on executive search projects for multinational clients in industrial sectors and consumer markets.

About Heidrick & Struggles International, Inc.
The world’s premier provider of senior-level executive search and leadership consulting services. The firm’s executive recruiters and leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. In Mexico, Heidrick & Struggles operates offices in Mexico City and Monterrey. For more information about Heidrick & Struggles please visit
www.heidrick.com

The views expressed in this blog do not necessarily represent the views of Heidrick & Struggles.

Views: 113

Comment by Linda Ferrante LoCicero on February 12, 2010 at 12:06pm
Bravo, Jose!!! Very well written article! Too many times I hear exactly the opposite of what you are proposing. I am so, so glad that someone else agrees with this philosophy. In our community (Metro Detroit) the economy has been 'resetting' itself for the past 18 months and salaries are all over the place. I would also caution against a company that is well above the 'market' rate in salary range. There's a reason they are willing to pay more . . and it's not always good!
Comment by Ron Rafelli on February 12, 2010 at 12:14pm
Great article, Jose. From someone who has been in corporate HR for 15 years, this is all good info. The saddest part is that with most companies it doesn't matter how good you are (you could be the best widget assembler in the history of the world), they won't hire someone who is above their pre-determined range. I have lost some fantastic candidates who would have provided 100x the return on the company's investment of a few thousand extra dollars in salary. This is all set up to not tick off the mediocre employees in the group who don't even deserve their "mid range" level salaries. It is really unfortunately in that it inhibits a business's long term growth when it happens repeatedly.
Comment by Charles Van Heerden on February 12, 2010 at 6:21pm
Jose, thanks for demystifying some of the issues around pay, particularly for negotiating offers. Candidates would be well advised to have a good understanding of the total package. In my last role I had ten items on my negotiating list - including more leave. Very often a company may not be able to pay above market due to internal equity issues, but may be quite willing to add some benefits.
Comment by Fiona Anne MacKinnon on February 12, 2010 at 10:01pm
great article, thank you Jose. And thank you Charles for your comment. I am a headhunter based in Singapore and often need to manage the expectations of end of contract expats who want to stay in the region as well as help companies work out how to secure the candidate they want. This posting is a reality check I can point both side to.
Comment by ExecHunter on February 16, 2010 at 5:34pm
Jose,

This is a great article. I think that you really "get it" to an extent that many don't.

That said - I have a theory - when you tell people a range, or any numbers at all - they only hear the top numbers and nothing else. If many execs read your post, they're going to think that they should expect a 25% increase upon getting to their next job!

The example I use typically, is if you were to tell your neighbor's college age kid that you'd give them 8-12 dollars an hour to do your yard work, and they did it for 2 hours - would they expect $16 or $24?

Again - great piece - dead on in all regards... Thanks for writing it!

David
Comment by ExecHunter on February 16, 2010 at 5:38pm
PS. Charles - I'd advise not trying to get more time off as a main negotiation point - you haven't even started working yet and you want to not work! I know this isn't your real rational, but it may be percieved as being so. If you do bring it up, do so towards the end of the process, after much has been already determined.

Ron - you need to get to a better company!!! If they're not willing to pay up for talent... they'll keep getting where the level has been set - if they pay up, the watermark will be higher, thereby attracting better people overall.

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