I’ve recently written some posts about evaluating income based on the number of household members and about assessing the cost-of-living to income ratio. It is more accurate to think about your income per person relative to your neighbors than to simply compare overall household income numbers. We also talked about the 50/30/20 rule that says that your cost-of-living should only be 50% of your overall income. We then assessed what an income should be based on the MIT Living Wage calculator. This produced a very high income requirement to live a comfortable life in my area. A very high income. While that income is likely unrealistic, it is important to get as close to that income as I can conveniently get. Here are some thoughts I have on the need to regularly improve income and how to get it.
Don’t Get Complacent
While we should always be grateful for the income we do earn, I think it is important to constantly reassess what we think a good income should be. Labor rates change over time and for a number of reasons. Also, certain industries can have huge increases in demand (and thus salary) compared to others in your area. I’ll never forget the time a coworker was asking me about a friend who left our company for twice what our highest paid employees were making. My coworker sighed and said in dismay, “Man, I really I settled”. He had two kids with another on the way and he was making only about 1.5 times minimum wage.
I’ve met other friends and coworkers who I knew had accepted jobs for much less than they should have and then stayed at those jobs for years with either no raises or only very minimal increases each year. They were being paid well below the market rate for their work and experience but they had become stagnant and complacent. They could have found other jobs with similar hours, commute, and work environment and made 30% more for the same exact work. But they settled.
Getting Paid More Means New Jobs and Negotiating Fearlessly
I remember seeking career advice from an old timer when I was working at my first IT contracting gig. My current company was offering me a promotion at no increase in pay despite my high performance and newly acquired skills and experience. Meanwhile, a competing company had offered me a new job in a slightly different area of IT but with a 25% raise. I had shared my competing offer with my current company and asked if they could match it or at least improve on their promotion offer with no raise. They gave me a lot of grief about being disloyal and refused to budge on their promotion offer. I asked this old timer who worked near my desk what he thought about the situation and he said something that really stuck, “They will always pay more to get you than they will to keep you.” I ended up taking the new job and I always remembered that piece of advice.
Several years later, I would be talking with a very successful IT salesman who told me that I should never leave a position for less than a 30% raise if money was the only concern. He believed there was just too much turmoil in switching jobs to do so for less than a 30% bump. So I took that to heart and have always targeted 30% when making job changes. Sometimes there are other reasons for switching jobs other than just money. Perhaps the work environment you are in is toxic or perhaps another job will allow you to develop skills and learn new things that you can’t get where you work. Perhaps you are unemployed and any job at your old salary is preferable to homelessness. If there is significant value in a new job besides just the pay increase, perhaps going for less than a 30% increase is a good idea. In any event, it should help give you an idea of what to think of and what to ask when negotiating a salary.
Total Compensation Package
When talking with a recruiter or hiring manager, I don’t give a salary requirement when they ask for it. I tell them I always consider the total compensation package before giving a final number. I give them a range but I make sure that my the upper end of my range is relatively high so that I have room for maneuver. I ask them to send me the company benefits and insurance coverage information before I give them a number.
When I get the information, I do the math and see what they are covering and offering to see what my real income will be. $100k a year at a company that only covers 50% of my insurance costs is not as good as $100k at a company that covers 100% of your insurance premiums. When I come back to the negotiating table, I have the chance to go lower than the highest part of my range and this will make them feel better that they are getting a good deal. I would not be in a good position if I had to come back and ask for more than I initially said in my range.
If you say something like, “I always factor in total compensation before I give a salary requirement but I am looking for something in the range of $100k to $150k.”, then they will know you are a cool operator who does his homework and doesn’t give in to pressure. They can sweat a bit while they wait for you to send a follow up email, knowing that the top of their offering range is $140k and you might be too expensive. But when you come back with, “Thanks for all the information you provided, I’d be happy to accept for $130k if that would work for you all.”, they’ll feel relieved that you are affordable.
Meanwhile, you’re happy that you didn’t settle for $100k like you felt safe asking for initially. You don’t want to use too large of a spread for your initial range. I think $50k is the most I’ve ever used. But you really don’t want to just blurt out a number that feels safe when you’re in early negotations and especially not before you’ve seen the total compensation package. You could actually end up losing money compared with your current job if the total compensation package at your prospective employer is less than your current situation even after a raise is thrown in.
Sign-On Bonuses Can Be A Gimmic To Save Your Employer Money
I always try to ask for more than I think I feel comfortable about asking for. The worst they can do is say no but they normally at least try to counter offer (we can’t do $140k but how about $130k) or throw in a sign-on bonus. Although, a word about sign-on bonuses really quickly; they do get taxed at close to 50% so you are not going to see very much of it. A $5,000 bonus is really only $2,500. If you were negotiating for $100,000/year and they offered you $90,000 with a $5,000 sign-on bonus they would be saving $45,000 on you over five years assuming you stayed there that long. Meanwhile, you would be shorting yourself $47,500 over the same period. With inflation eating away at the value of your paycheck, you’ll lose significantly more than $47,500 in buying power. So, do the math and make sure you don’t get bedazzled by a sign-on bonus.
Money Isn’t Everything
Anyway, I think it’s important to reassess our salary compared to the industry on a regular basis to make sure we aren’t stagnant. It’s especially true for large families and families with single-incomes. I consider it an obligation of being a sole provider to make sure I’m getting paid as high as I can all other factors being equal. However, although it’s important to earn the most you can in the current market, there are some things money can’t buy and there are definitely jobs that pay more but are not worth the hassle and stress. When I was younger, I traded out an awesome job as an ATM technician at $11/hour for a $12.50/hour member service representative job. I went from a job I loved – traveling locally every day and fixing things – to sitting at a desk all day doing tedious paperwork for a toxic boss. It was definitely not worth the $1.50/hour raise. I’ve also taken a very well-paying job where I found out that the office environment was toxic beyond toleration. I left after nine miserable months. The grass is not always greener and money doesn’t make up for bad employment situations. Lesson learned.
Counter-Offer Considerations
If a competitor tries to poach you, you can take the offer back to your employer and they might decide to counter it. If you have a good relationship with your boss and an otherwise good work location – meaning you don’t have any other reason for leaving other than the attractiveness of the other offer – it could be a good idea to stay where you are and accept the counter offer from your current company. Just remember, their profit margin on you just decreased so you could be on the chopping block if cost-cutting measures come up in the future.
However, if there were reasons other than money causing you to want to leave – if you were searching for new jobs to escape where you work because you are unhappy there – then taking a counter offer is a poor decision. First, you will likely realize that money doesn’t compensate for the workplace problems you don’t like. And second, if your boss knows you were looking for employment elsewhere and that’s how you came to get an offer, they will probably see you as a flight risk and start looking for your replacement after you accept.
If you’re really on the fence, you might do better to accept the other company’s offer, leave, and then come back later as a rehire than to stay and accept the counter offer. I’ve seen this happen a number of times. If you were looking for new experiences or skills and you left for more money as well, you can always politely decline the counter offer, and go work at your new job. If things don’t work out, you haven’t burned any bridges, and your old company will be happy to bring you back at your new salary requirement if they can find a place for you. In the industry I work in, there is always turnover so it is very likely a new spot will be opening or opening soon. This may not be the case where you are so take that into account.
Conclusion
As sole providers, I think we owe our families the highest income we can negotiate all things being equal. Don’t chase money alone. Consider commute, work environment, opportunity for advancement, skills aquisition and so on. Work/life balance is important and money isn’t everything. But, if given a choice between two otherwise similar jobs, why sit at a desk for $20,000 less per year than the market will bear? This will definitely mean moving from company to company and maybe even back again. This is not really appreciated by the older generations who valued staying at one company for an entire career but it is perhaps the new reality of the modern job market. Since this is the case, don’t burn bridges with employers because you may well be asking them for a job in the future. The world is a lot smaller than you think and you will probably come across some of the same people again at other companies.
Remember to consider the whole value of the compensation package, not just the salary. Ask for their benefits information and don’t give them a final number until after you have taken time to look at the whole situation. Use a salary range to give yourself leverage and to help them feel like they’re getting a good value.
Finally, make sure that you are asking for more than you feel comfortable asking. You will have no one but yourself to blame if you low-ball your offer. Asking for a premium salary with confidence will set a better tone for future negotiations than timidly asking for a low end amount. The hiring manager knows the range they were looking for and if you low-ball yourself they will think you are a chump and easily handled.
Hopefully this is helpful. I work as a contractor in a field where people move around all the time. Maybe this is nothing like your career field. So take what I say with a grain of salt. Eat the meat and spit out the bones. But, even if you never plan on changing jobs, at least keep track of what incomes in your area and industry are like so you can see how your income compares. It’s the only way you will realize you need to make a change if you do. It’s also the only way to confirm that you are doing all right and no change is needed.