The Secret Process Behind Your Low-Ball Salary Offer
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You’ve just received a job offer at an organization with a promising future. Unfortunately, the starting base salary is $15,000 less than what you’d expected.
How much room do you have to negotiate the cash portion of your offer? Is this offer really a “low-ball” offer? If you do negotiate, what should you ask for — a $15,000 increase to the base pay, a bigger bonus contingent on performance, continuing education benefits, or something else?
To determine the most effective way to negotiate, you’ll want know how organizations typically determine salary decisions and differentiate pay.
Our latest Compensation Best Practices Report (CBPR) asked 7,100 HR and Compensation professionals about how their organizations make pay decisions. In this post, we’ve pulled out the most relevant findings for job seekers. Then, we’ll provide you with a set of questions you can ask during a salary negotiation process get yourself a better offer.
More Organizations Are Sharing Their Pay Process With Employees
In 2018, 58 percent of organizations aim to be transparent (level 3) with employees about their pay process. These organizations are planning to tell employees not just how much they make, but also how the organization uses data to determine salary ranges, where an employee’s pay falls within the range and how employees can move up the range.
We’ve seen this trend towards transparency over the past couple of years, as more organizations have seen that being open with employees about compensation is one of the best ways to increase employee satisfaction. We conducted research on employee engagement in 2017 and found that a transparent pay process has a greater impact on employee retention and satisfaction than paying people competitively.
Employers Compare Their Salaries Against the Market
According to our 2018 Compensation Best Practices Report, only 8 percent of organizations do not compare their jobs to the market. The majority are reviewing market data to determine the salary ranges for their jobs.
Organizations are becoming more intentional about how they use their comp budget to drive business results. They determine the price of jobs based on the market(s) they’re competing in for talent, how competitive they want to be in relation to others in the market, and what they want to reward (such as performance, and particular skills).
Organizations know that they need to pay competitively to keep their talent. Market data factors heavily into whether organizations compensate more for competitive jobs (54 percent), move their pay ranges (36 percent), or give raises (42 percent).
More than half of surveyed organizations have completed a market study within the past year. For competitive jobs or jobs that move quickly in the market, they’re checking market data on a monthly, weekly or daily basis!
Organizations Pay More for Some Jobs Than Others
Not all jobs are valued the same. Overall 51 percent of organizations compensate more for competitive jobs. Let’s break down what this means. For “core” jobs, accounting roles for example, an organization may decide to target the 50th percentile of the market, or pay “at market.” For jobs that are deemed highly valuable and competitive (i.e. software engineers), they may decide to target a higher percentile, such as the 90th percentile of the market.
Your Position in a Salary Range Is Determined by Your Proficiency Level
Organizations typically place each employee within a range based on the individual’s proficiency level in the role. They typically set guidelines on how an employee progresses through the range and qualification criteria for a promotion (how an employee can move into the next pay grade).
As we mentioned above but worth reiterating: 58 percent of surveyed organizations are planning to share salary range information with their employees.
Why You’re More Likely to Get a Bonus Than a Big Raise
Pay is a package. Organizations are increasingly relying on variable pay, including incentives, bonuses and commissions to retain employees. Seventy-one percent of all surveyed organizations use variable pay. By far, the most typical form of variable pay is the individual incentive bonus (67 percent), followed by spot bonuses/other discretionary bonus programs (39 percent).
Merit-based pay plans (59 percent of organizations) and discretionary bonuses (34 percent of organizations) are rising in popularity as tools to retain employees. Fifty-six percent of organizations are investing in learning and development opportunities to retain employees.
What To Do During the Negotiation Process
Knowing how organizations generally approach making pay decisions, here are steps to take to determine where a potential employer has room to move so you can get the best offer:
1. Figure out what market the employer is benchmarking its jobs to. Tailor your asks to what’s acceptable.
Organizations are using market data to determine pay, but each organization defines its market differently — typically based on the industry they want to target, the locations they compete for talent in, organization size and type (i.e. for-profit, non-profit). You’ll want to customize your negotiation to each employer without generalizing. What’s appropriate for one role may not be appropriate for another. For example, if you’re interviewing at a series-A startup with 30 employees, you should assume that budget they’ve set aside for your base pay will likely be smaller than a similar role at a 3,000-person firm. Yet, the smaller firm may be willing to give you a significant amount of equity.
2. Ask about the organization’s pay process.
If the recruiter or hiring manager is only giving you a salary number without context, ask them questions to figure out how they reached their decision and how much room you have to move:
- What data sources do you use to price the positions at your organization?
- Can you share the range for this role and what my position is within the range?
- How quickly do employees in this role typically move to the top of the range?
- If there’s a significant portion of variable pay in this offer, you can ask “what’s the typical total cash compensation that people in this role receive? What about for top performers?”
- What’s the total cash compensation amount that I’m looking at for this offer?
3. See if you can get more pay based on individual performance.
We learned that employers frequently use individual incentive bonuses. Ask the potential employer if they can provide you with performance-based bonuses, and how frequently they are paid out. If you cannot get a higher base pay, you may ask be able to make up the difference by asking for a larger individual incentive bonus.
4. See if you can shorten the time till your next salary review.
Organizations are increasingly attempting to link pay to performance. If the organization can’t pay you the base salary you want, they might be amenable to sitting down with you in three or six months’ time to reconsider your salary based on your performance.
To learn more about how organizations are making pay decisions, read PayScale’s Compensation Best Practices Report.
To get more guidance on how to negotiate an offer, check out PayScale’s Salary Negotiation Guide.
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