15 minutes ago, it occurred to me that today is my half-birthday, and now I’m freaking out a little bit.
Ya’ll – I am 25 and A HALF. Much like being 5 and a half, the HALF really matters. Because that means I’m nearly 26, and 25 was my year to get all my $hit together.
Therefore, now is a great time to freak out and re-evaluate every decision I’ve made.
A better use of my time would be to evaluate how far I’ve come though; I think that’s likely more productive for both you and me.
As I’ve mentioned before, I’m in the baller dollars camp of achieving financial goals. To recap: in the personal finance community, folks usually follow the path of extreme frugality or of working to increase their income.
This makes sense – when it comes to money, you have some level of control over both the outputs (your expenditures) and the inputs (your income). However, as other bloggers have pointed out, at some point there’s a natural floor to how little you can spend. After all, we all need food, shelter, and underpants. (If that last one is just me, I’m not sure I want to know.)
Income, on the other hand, has a much higher ceiling. Not only can you bust it at work to increase your income, but you can side hustle after hours to increase your income. If you’re a smart poppet, you can slowly increase your skills and charge more for both your side hustle, whatever it may be, and your main job.
I’ve more than doubled my salary in the past three years. I’ve noticed that a lot of folks my age (especially the women) have not experienced such success, and I’ve spent some time coaching my buds on how to increase their income.
Today, I’d like to share some of my findings with you.
Why Don’t People Just Ask for What They’re Worth?
I’ve learned that there can be any number of reasons why people either don’t negotiate their salary, or negotiate for the wrong level of salary.
Here are a few I’ve encountered (I’m expecting ya’ll to contribute more in the comments):
They don’t know what their market value is.
This is particularly true for new grads, especially if your college’s career department wasn’t all that great (or if you didn’t attend any of their workshops). I remember graduating and being frustrated that jobs didn’t just publish the salary range for the positions they had listed.
This is also true for people who are making a drastic career shift – if you’ve been in customer service for 12 years, you may not have a sense of what an HR salary pays. Same for moving industries – salaries look very different at a tech company versus a utility company versus a manufacturing firm.
They don’t realize they’re undercompensated.
This is more likely if you’ve worked at the same company for a longer period of time. New folks are getting hired on at higher rates (if the economy is good), and your annual raises aren’t likely to catch you up with folks who start at a higher salary for the same job.
They worry about how negotiating will be perceived.
Again, particularly true for women. We don’t want to be pushy or aggressive. Worse, there’s a lot of evidence that we WILL be perceived negatively, and that we’re more likely to be lied to during a negotiation.
The gap here is huge – a study of graduating MBA students (not undergrads – masters of BUSINESS ADMINISTRATION graduates) showed that while half of men negotiated, only one eighth of the women did.
They worry about whether or not they’ll get the job/get fired.
Enough said – the fear is real. More likely for new grads/younger workers, but ya’ll older folks chip in – have you ever seen this?
They confuse their self-worth with their market value.
There’s a reason I left this for last. I think it’s the most prevalent problem I’ve encountered. Here’s what this sounds like:
Me: Glassdoor says that position pays X amount for your level of experience and education.
Person: Oh, but that wouldn’t apply to me, because I don’t have X skill, and I only may Y much now, and I don’t want to come across as irrational asking for such a big jump.
Me: But that’s the market value for your skillset – X skill is only a small portion of that, and you have more experience in this other thing to balance it out.
Person: *shrugs* I’ll ask for like 90% of that and see what I get!
Person here could be anyone – someone who thinks they don’t deserve to make that salary, someone who doesn’t understand the value of their skillset, someone who’s not sure how market value relates to the financial position of the company they work for or want to work for, etc.
It’s clear also that any of these factors could be layered in varying degrees, creating a paralyzing spiral of fear.
Breaking Down Your Fears
I want to be very clear: there are no perfect answers here, and many of the above fears are the emotional derivatives of logical thoughts.
Here’s the deal though: none of the above qualify as an excuse not to negotiate.
Let’s break it down:
For youngsters, let me reassure you with the following quote from Time Magazine:
“There appears to be little risk in asking for a modest pay bump. Of the grads who did ask for a salary increase, 80% were at least partially successful. The vast majority of hiring managers—90%— said they had never retracted an offer because an entry-level candidate attempted to negotiate. Rather, 76% said candidates who negotiated appeared more confident for doing so.”
For my lady folks, let me share this: According to a recent Harvard Business School article, “when women do negotiate, they’re no more or less successful than their male counterparts.” The main problem is just that we’re not doing it – not that we’re bad at it when we do. The perception issue is real, but there are negotiation strategies you can use that will help you avoid them. We’ll get there in a few minutes.
I’ll also share some resources for how to determine whether or not you’re undercompensated, and strategies for staying on top of your market value.
Why This Matters
Let’s take a step back first – why does any of this matter?
I’m a pretty straight-forward creature, and I have no problems standing up for myself and asking for what I want. However, my personality is one that does not shy away from conflict or confrontation, which isn’t the case for everybody (thank the universe).
I have a number of friends that I think would rather crawl into a grave and be buried in a pit of snakes than ask for money. What’s a 3% difference anyway? Is it even worth negotiating that bump? I suspect some of these pals would gladly turn over 3-10% of their lifetime of earnings just to avoid ever having this discussion.
However, maybe not so gladly, if they understand the bigger picture.
Did you know that avoiding negotiating your starting salary at your first job can cost you as much as $1,000,000 in lifetime earnings? Even the most conservative estimates state that it’ll cost you at least $100,000.
What could you do with $1,000,000 extra dollars? (Most of my readers would likely say, retire, travel, and never have to talk to a boss about anything (including salaries!) ever again.)
How is this even possible? How did that puny two or three thousand dollar bump turn into such a huge amount?
Think of it as reverse compound interest. Let’s play through a simple scenario to clarify the concept:
Imagine your first job out of college is the only job you’ll ever have. (I know, I know, stay with me.) This job will give you 3% raises every year until you retire.
That means that every raise is based on the salary you had the year before, right?
So if you started with a salary of $100, the next year you’d make $103. The year after, your raise would be based on a salary of $103.
In real job numbers, this might look more like: you make a salary of $50,000. You get a 3% raise – 1500 bucks! Sweet! Next year, your raise will be based on a salary of $51,500, making your 3% raise $1545. Woot!
Much like compound interest, it just piles up year after year.
However, you are likely to have more than one job in your lifetime.
The starting salary at your new job is an opportunity to evaluate if market compensation for your job has changed. However, if the new company knows how much you made previously, they’re likely to use that as an anchor for the salary they offer you.
For example, they may offer 10% more than what you make in your current position. It’s more than what you make now, more than the 3% raise you’re likely to get, but also completely irrelevant. It has nothing to do with the market value of the position you’re applying for, or even the market value of the position you previously held.
Again, let’s ignore that for a moment in the name of clarity:
Sally is leaving a position in which she made $50,000 per year. Her new employer offers $55,000, and Sally graciously accepts.
Bonnie is leaving a similar position, but negotiates a new starting salary of $60,000.
If both Sally and Bonnie receive 3% raises after a year, Sally will make $56,650 and Bonnie will make $61,800. What started out as a $5000 gap is now a $5150 gap that will only grow every year.
You can imagine what the numbers look like after a decade or more. Sally will make 76,132.86 (from the time of her first raise) and Bonnie will make 83,054.03 – nearly $7000 more, every single year. In their working years, Sally will have made $781,488 – not too shabby, until you consider that Bonnie made $846,521 –$65000 MORE! Sally would have to work over 10 months extra just to catch up!
And that’s just over 10 years, and assuming no further promotions. Sally could definitely catch up – assuming she manages to negotiate back to market value at some point.
Why It Matters, Part 2
Even if you’re perfectly happy with that gap, there’s something else you might want to consider.
It’s a helluva lot easier to save money when you’re making more money.
Recently, a coworker overheard our boss talking about maxing out his 401k. “Did you know that you can put 18 THOUSAND DOLLARS in a 401k? How do you even DO THAT?”
Well, in fact, I did know that. And I’d be disappointed if BossMan weren’t maxing it out. But consider this: it’s not insane to assume that a VP of Marketing at a tech company makes a healthy salary, somewhere between $150,000 and $200,000. If he makes $180,000, maxing out his 401k is saving 10% of his salary. Big whoop – I put 10% of my salary in my 401k too.
That’s the whole point though – his 10% goes a lot further than my 10% because he makes (a lot) more. One day, when I make $180k a year, I will throat-punch the first person who congratulates me for maxing out my 401k, because seriously – DUH. (Also, not really on the throat-punching. Maxing out your 401k is always great. Let’s congratulate all the people who do that.)
I get that this seems obvious, but sometimes it’s helpful just to lay it out and understand the long-term impact. One conversation (or realistically, somewhere between 3 and 25) can have an impact of tens or even hundreds of thousands of dollars of lifetime earnings.
Another way to think about? The more you earn now, the faster you reach financial independence.
Women: do your part to close the pay gap.
As I’ve mentioned above, the problem with negotiating isn’t that women aren’t successful at it (even if there are still some negative associations), it’s that largely, they don’t do it at all. Some more stats on that:
“A survey by Negotiating Women Inc. of more than 500 women found that 60% take the outcome of their negotiations personally and may believe they are not given what they ask for because they’re not valuable enough to their organizations. This survey, along with others, has shown that women believe their hard work will earn them rewards and recognition and may use that as the reason they don’t negotiate.” – USA Today
And a really nasty one:
“More than 150 managers were asked to allocate a fixed pool of money for raises among equally skilled employees. When they were told that their employees could not negotiate, they gave male and female employees equal raises. When they were told they might have to explain the raise to workers and negotiate, they gave raises nearly 2.5 times larger to men.
Why the difference? One likely explanation is that the managers expected the men to question their raises and ask for more. So if they gave large enough raises to the men, fewer would be in their offices demanding explanations. Just as our model predicts, men got higher raises than women.” – Harvard Business Review
The wage gap is a complex, multi-layered beast. It’s not our fault, but I do believe we can all make a small difference in closing the gap. Negotiating our salaries, advocating for other women, and passing on how to negotiate are all easy things we can do to do our part to close the gap.
Frame it anyway you want to –
— But you need to negotiate.
Negotiating 101: Let’s Do This Thing
There’s going to be a theme for that section, and that theme is ‘knowledge is power.’ My mom used to repeat this to me over and over when I was a kid, which I’m sure incited a lot of eye-rolling, but it’s true for lots of things, and especially true for salary negotiation.
Understand Your Market Value
I recommend visiting three websites: Salary.com, Payscale.com, and Glassdoor.com. The first two will allow you to put in a much larger number of factors to evaluate the salary ranges of a particular title. (Full disclosure – you may have to give them your email address to get the full report.) Glassdoor allows you to see some more general data, unless you work for a larger company, in which case you may also be able to see salary ranges for your position AT your company, in your city. Wow!
The numbers you’ll find will definitely be varied. Take screenshots of all of them, and print them out.
Next, google “[your title] salary guide.” For example:
For example, when I was negotiating my salary, I used a salary guide produced by The Creative Group (highlighted above in purple) and another produced by a company called Mondo. Hooray for Google!
If the ranges are really large, and you still have no idea what to aim for, you can consider a couple of things:
- Meeting a previous boss with whom you have a good relationship.
- Performing informational interviews with people who have the title you’re going after.
#1 would be my preference, assuming you have such a person. They may not even be a previous boss, but a mentor who works in your industry.
Assume that Your Accomplishments are Unseen
This is obvious for a new job – of course a potential new employer has no idea what you’ve accomplished, beyond the soundbite on your resume – but is also true for negotiating with a current employer.
If you meet with your employer on an annual basis to discuss compensation, recognize that a year is a long time to remember what someone has and hasn’t accomplished, especially when managing multiple people.
The burden of proof is on YOU.
It’s helpful to keep track throughout the year of your accomplishments. Start a folder in a Dropbox (or Evernote, or where-the-heck-ever) and save notes to yourself throughout the year. Make note of happy customers, projects completed on time, nice things people have said, ways you’ve improved the workings of your department or contributed to relationships with other departments, and ways you’ve worked to improve yourself.
That last point is particularly salient – companies love active, engaged, curious employees who want to learn more. That kind of employee is very expensive to replace – and therefore in their best interests to retain. This means a bigger raise for you.
Most people wouldn’t think of mentioning attending classes, reading books, attending conferences, sitting in on webinars, etc., during a performance review, but it’s worth it. Honestly, there are so few people who are truly invested in their jobs that even things you’d do for fun (because I know ya’ll are hustlers) count and are worth mentioning to your superiors.
Think About What You Want
Is it really more money, or is it more responsibility with the potential of a promotion in the near future? Is it a combination of more money and more vacation time? More flexibility?
Clarify exactly what it is that you want. When I first had my daughter, it was more important to me to be able to work from home a few days a week than it was to make more money. Knowing that helped me prepare for a successful negotiation.
Think About What Your Boss Wants
If you present your raise as something you’re entitled to, your boss will be inclined to show you just how unentitled you are. Presenting the market value of your skills and recent achievements shifts the focus to a much more logical basis. You have data to back up your claims.
The second half of that is thinking about what your boss wants to achieve. How can giving you a raise or promoting you (or hiring you) help them achieve their goals? Are there additional responsibilities you could take on, or skillsets you could learn?
Take a Class
I have an MBA, and took a whole class on negotiations. It will likely be the class that makes the entire MBA worthwhile. However, I also took a few student-alumni salary negotiation workshops the school offered, and found them to be very informative.
If you live near a college or university, call them up and ask if they’re having any salary negotiation workshops you could attend. It might be part of a larger negotiations course, or, ideally, an evening or weekend program for students and alumni. My school invited the community to attend, so it’s possible there’s a free or low-cost workshop near you.
These skills will help you negotiate everything from your salary to the price you pay for every house, car, or yard sale item you ever sell or buy, so it’s worth investing in them.
Read This Book
If there’s not a convenient class near you, read Getting to Yes (affiliate link). Getting to Yes was the textbook for my negotiations class, and provides a clear framework for how to structure any type of negotiation. It’s a great starting point on how to approach a negotiation, and how to prepare. I’d approach it like a workbook, and use each chapter as an exercise. Heck, practice with a friend and you’ll both benefit! It might be the most valuable ten bucks you ever spend.
Compile the salary information you’ve gathered, your accomplishments, and your negotiation strategy. Then practice presenting it a million times until you can do it without sweating, apologizing, choking up, crying, or anything else unseemly that presents itself.
Practice with your friends or family. Have them present any potential objections your boss might have. Take notes of these objections, and practice your responses. Practice in a mirror. Outline your argument in the car on the way to work. The more calmly and logically you can present your argument, the less you’re likely to get emotional during the discussion.
While you don’t necessarily want to come across as too scripted, your boss will appreciate that you’ve done your homework, and presented a clear, concise, logical argument. That gives them the bullet points to go back to their boss and pitch you for a bigger raise (or starting salary).
Negotiate Like You’re Negotiating for Your Best Friend
This ones specifically for the ladies in the house. In another Harvard Business School article: “research also shows that women perform better (e.g., negotiate higher salaries) when their role is to advocate for others as opposed to negotiating for more for themselves.”
If you start to doubt yourself during your preparation or during the negotiation itself, take a deep breath, and think about how you’d go to bat for your best friend or coworker. You know their strengths, their weaknesses, and how hard they’d work to achieve their goals. You would argue for them all day long, not just because you like them, but because you can confidently communicate their value without personal fears or ego getting in the way and clouding your judgment.
Dang ya’ll. This one was a beast. Clearly, this is something I feel pretty strongly about. So now it’s your turn.