Michael had been delighted with his salary when first hired. And he’d been surprised and pleased with the annual bonuses and increases. Indeed, within no time, he’d met the modest financial goals he had set that he had thought would take a decade or more to reach. His employer also had a solid benefits package including retirement contributions. Overall, Michael’s compensation was the last thing about which he would have thought to complain. Yet when the bookkeeper made an innocuous quip about how much money he was making the company, apparently as its star financial performer, Michael gave his first thought to whether his compensation was what he actually deserved and could get on the open market.
Context
Compensation is an important topic when addressing job success. On one hand, if the income from your job isn’t working for you, one way or another, then you might find it hard to call your job a success. Yet on the other hand, if the income your job provides is more than meeting all your financial goals, then maybe you should call your job a success, even if your job feels like it’s falling short on other, non-economic measures. A key to the compensation question is to give that question the right overall context. At some stages in life, such as when you’re just starting out, when you’re just getting back into the workforce after a long time away, or when you’re retired and just trying to get out of the house, any compensation from a job may be enough to make the job worthwhile. But at other stages in life, such as when you’re trying to keep a roof over your family’s head and the children clothed and fed, the compensation from your job may be its only significant measure. When evaluating your compensation, first give it the proper context. Be sure you know what your compensation needs to do for you at your current stage in life.
Budget
You can look at your compensation in two ways, from either one of two different directions. First, you should look at your compensation from the standpoint of your household budget, plans, and needs. You work for purposes, and one of the biggest of those purposes is to provide for your household needs and plans. One direct way of evaluating your compensation is to determine whether it is meeting your household budget. Don’t expect your compensation to immediately provide a luxury lifestyle or enable your profligate spending. Instead, examine your reasonable monthly expenses, and measure them against your monthly earnings. Include retiring debt, building an emergency fund, and accumulating savings in your monthly expenses. If your current compensation is enough to meet your budget, maybe you’re doing just fine. If not, then you may need to reduce your budget, seek an increase in your compensation, or both.
Market
While your household needs may be your biggest interest in examining your compensation, you can also look at your compensation from the standpoint of what your services would command on the open labor market. In other words, could you earn more from another employer than you’re earning in your current job? If so, then maybe your current employer should pay you more to retain you, or you should move to that other higher-paying job. Labor markets are not entirely open. That is, workers can face transaction costs in moving from one workplace to another, whether moving expenses or brief periods of unemployment between jobs. Missing information is one of the big hidden costs of a job move. You may think your new job pays more, but in practice you may find the higher wage eaten up by new housing, commuting, or parking costs, or diminished by longer hours and greater stress. Consider the market for your services when evaluating your compensation, to see if your current employer is overpaying you, underpaying you, or paying you a fair wage. Your employer is likely studying the labor market, but you can, too. But be sure you adjust the market wage for other expenses.
Studies
You may have several ways, some of them risk free and others not, to evaluate the value of your services on the open market. The U.S. Bureau of Labor Statistics compiles labor market data reflecting compensation means or mediums. You might be surprised at what you can learn from that data about the national or regional compensation levels for your job. Private professional, industry, trade, and human-resources associations also collect and publish compensation information. That information may allow you to discern the mean and median compensation not only for your job but also for your education level, seniority, region, urban or suburban location, and other particulars. You can then compare your compensation with the data to see if it is within, significantly above, or significantly below the median when adjusted for the most-significant factors. Be cautious in making those comparisons. Your employer may have good reasons for departing from industry norms as to its workforce overall or as to you in particular. But arming yourself with data generally can’t hurt. Inform yourself, to the extent that you can.
Inquiries
You can also ask around your workplace, and ask acquaintances who work for other employers, about compensation ranges. Private employers generally do not publish compensation information within or outside their workforces. You won’t be able to go to your employer’s payroll clerk to find out what everyone’s making. Yet you may be able to go to human resources to find out compensation schedules and step increases. And state laws generally prohibit employers from keeping employees from sharing their own compensation information. Your employer won’t tell you what others are making, but your co-workers may tell you what they are making. Asking your co-worker to disclose their income can be a sensitive request, indeed likely inappropriate in highly compensated, professional workplaces where incomes may vary based on performance or other peculiarities. Yet line workers in units with flat, equal, or scheduled compensation may be fine with disclosing their wages, when the same as everyone else’s wage. You face some risk in asking others about their wages, so you be the judge in whether it’s worth it. Yet consider quietly asking around. You may have to share your wage level in the exchange, and the disclosures could lead to hard feelings, but the information may help you.
Postings
Pursuing other job offers can be another way, albeit a much riskier way, of finding out whether your compensation in your current job falls in line with the labor market. Of course, you face no risk from just looking at compensation ranges in jobs posted online. That information can be a helpful guide, especially if you can find jobs like your own in your own locale. Those compensation ranges may give you a picture of how your own compensation fits in the local labor market, although they wouldn’t necessarily tell you where you would land within the range, toward the top or at the bottom. You could apply for those other jobs to see if you can get an offer and, if so, at what compensation level. The surest way to have reliable information about the market value of your work is to get another offer for it. But beware applying for other jobs, lest your current employer learn of your applications and reevaluate or even terminate your current employment. Managers can have peculiar reactions when employees go job hunting, even if only to test the labor market. Some employers value loyalty more than skill and productivity. Don’t get yourself fired for looking around.
Negotiating
Armed with whatever wage information you are able to discern, the question is then what to do with it. Whether and how to negotiate over compensation can depend on several things beginning with your need for a wage increase and whether, based on your performance and the labor market, you deserve an increase. All the better, from a negotiating standpoint, if you have another job you could take with another employer at a higher wage. The employer’s ability to grant an increase is another significant factor. Don’t ask for an increase during a recession, when your employer is cutting expenses and considering layoffs. Conversely, consider asking for an increase if your employer’s business is booming, and you need and deserve the increase. Also consider the effect on your job relations of negotiating over a wage increase. Some employers have no problem with employees seeking wage increases, whether the employer grants them or not. Other employers, though, may construe a wage negotiation as a sign of disloyalty, a lack of appreciation for the employment and wage, or even outright disrespect. Consider asking your mentor or a trustworthy personnel department representative whether employees negotiate for raises. The biggest factor in whether to attempt a negotiation may indeed be whether the employer entertains such negotiations.
Negotiators
If you do decide to negotiate over your compensation, choose wisely with whom to negotiate. Bookkeepers and payroll clerks, although they may prepare and convey or direct deposit your paycheck, generally lack any authority to increase wages. Unless they are the owner or owner’s on-site representative, don’t waste your time or burden them with a pay-increase request. Your supervisor may be an appropriate first person to ask about a pay increase. If your supervisor lacks the authority to adjust wages, your supervisor should be able to direct you to the proper person to whom to direct your request or may even convey your request for you. Asking your supervisor first is also often wise because you may need your supervisor’s positive recommendation for you to receive a pay increase. Get your supervisor on board first, if you can, with a direct request for a positive recommendation. If your supervisor won’t support your pay-increase request, you might think twice about pursuing it. You might better ask your supervisor where you need to improve to gain your supervisor’s support. Authority to approve a pay-increase request may reside among a unit manager, operations director, finance administrator, and executive or other owner’s representative, while one of those employer representatives may take the lead in communicating with you.
Negotiations
Try to arrange a personal meeting with the employer representative for your wage-increase negotiation. Avoid, if you can, negotiating by email or telephone. Being in the room with the employer representative allows you to communicate not just through words, which either side can easily misunderstand, but also through attitude, posture, tone, and demeanor. Keep your tone respectful and demeanor calm at all times. To negotiate for a wage increase, begin with the request itself. The employer representative with whom you meet may have already anticipated your request and be willing to approve your request without further justification. If so, don’t justify the request anyway. You’ve already won. If, instead, the employer representative immediately denies your request, then don’t argue, although you may politely ask for an explanation, if the representative hasn’t already given it. If, instead, the representative invites your justification for the request, begin with your supervisor’s positive recommendation if your supervisor indeed supports your request. Then provide your data supporting your request. Listen to the representative’s response. Ask questions about the response to clarify, not to argue. Thank the representative for any increase, and thank the representative for the time and consideration if you receive no increase. Look the representative in the eye and offer a handshake when you do so, and leave timely and politely. Send a follow up thank-you card or email if workplace culture suggests that special sensitivity.
Rationales
Try to stick with objective rationales more than subjective, general, or declarative statements like I deserve it. Begin with objective rationales having to do with your work performance, such as your increased knowledge, skill, and productivity, and additional responsibility you have taken on. Don’t plead your need as the primary rationale for an increase, especially if your need suggests your irresponsibility with finances or in maintaining a household budget. Simply saying I have bills to pay won’t help. On the other hand, you may in passing indicate your special need for asking for a wage increase now rather than waiting for step increases, especially if those needs are moving and compelling, such as medical bills due to a child’s illness or the sudden work disability of your spouse. But generally, employers do not pay based on employee needs. They pay according to employee value.
Benefits
Negotiating over benefits can differ, and can be both easier and harder, than negotiating over wages. You may have a substantial financial interest in improving your work benefits package. Benefits can easily comprise a quarter or more of the total value of your compensation. Better health insurance may save thousands in deductible and copay costs. A retirement plan and annual contribution may, with investment increases, earn you tens of thousands or even hundreds of thousands in retirement savings over the course of your employment. Benefits, though, must under federal law generally not discriminate among employees or between certain classes of employees. You probably won’t be able to get better health insurance or retirement contributions than other employees. Yet you might be an effective advocate for yourself and other employees around certain benefits, especially the choice of health-insurance plans. Your employer may, at no additional employer cost, be able to offer additional health-insurance plan options that better fit your personal and family health-insurance needs. Take up those benefits issues with your employer’s human-resources department, especially if they make a significant difference to you, your household budget, your financial risks, or your family members’ access to medical services.
Bonuses
Many if not all employers approach the compensation of their workforce with two principles in mind. The first principle is to provide roughly equal base compensation to equal classes of employees, to maintain workplace morale and loyalty, as if we’re all in this work together. The second principle, though, is to provide equitable compensation relative to individual performance and value, as if we’ll pay you more than others if you prove you’re worth it. Some employers satisfy both principles by providing roughly equal base compensation for employee seniority and classes, while granting unequal annual bonuses reflecting individual performance and value. If your employer grants annual bonuses, you may see your individual productivity reflected in that bonus. Employees don’t generally have the opportunity to negotiate over bonuses. You may, though, have an annual evaluation before the award of bonuses in which you can objectively demonstrate your work productivity and value. Use your annual evaluations for that purpose. Come prepared to show how you have contributed uniquely and positively to your employer’s profits and mission.
Reflection
Record in writing what your compensation means to you within your household circumstances and at your life station. Reflect over that writing in the coming days until you are sure that you have articulated it accurately. How well or poorly is your compensation fitting in your household budget? What can you learn from online research about whether your compensation is within the labor market range for your work, in your locale and with your education and seniority? Can you learn anything helpful from your employer’s representatives about annual step increases for your position or increases for taking on additional responsibilities? Are you comfortable with inquiring among your co-workers or acquaintances in similar positions with other employers, whether your compensation is equitable? What can you learn about compensation for positions like yours, from reviewing job postings in your locale or another locale to which you would readily move? See if you can identify with whom in your workplace you would properly negotiate over a wage increase. Is the time right for your company, for you to request a wage increase? How would you objectively justify that increase? Review your benefits package, especially your health-insurance plan, to see if you might do better financially or from a healthcare-access standpoint with adjustments in the plan. If so, approach your employer’s benefits administrator about potential plan options. Finally, if your company grants annual bonuses, prepare for your next annual evaluation to objectively show your increasing productivity, responsibility, and value to your employer.
Key Points
Your compensation may depend on household needs and life stage.
Evaluate your compensation within a sound household budget.
Use market studies and local inquiries for compensation information.
Local job postings may reveal compensation ranges for like positions.
Make negotiations over wage increases cordial, timely, and rational.
Identify the right managers with whom to negotiate over wages.
Use objective work criteria to justify your wage-increase request.
Seek health-insurance plan options to improve job benefits.
Use annual evaluations to objectively justify your annual bonus.