This post was written by a reader of The Mastermind Within. In this post, the reader wanted to share their experience with getting a raise, why getting paid your fair share is so important, and how to increase your salary. Enjoy!
Personal finance writers tend to focus on a few of the same big ideas:
- Save more money
- Budget wisely
- Be frugal
These are smart ideas, and I agree with them all. But there’s another common idea that, in my opinion, is significantly more important.
Rather than “reducing your expenses,” I highly recommend people think about increasing their income.
Yes, it’s easier said than done.
But today, I want to share my own experience pursuing a salary increase.
The economics of salaries are simple. Employers have an incentive to pay you less than what you’re worth. They want to get the most and best work out of you, for the least amount of money. Meanwhile, you want to get the most money for the work. Ideally, you and your employer meet somewhere in the middle.
If only things were so ideal! In many cases (including my own), employees are left feeling like they’re on the thin side of the deal.
So today, we’re going to look at a pretty specific case study of corporate compensation. I’ll offer some ideas and tips that have worked for others, and some lessons that you can avoid learning the hard way.
In this post, I’m going to share with you some negotiation tips, talk about the importance of being paid more money, and how you can get paid more at your job.
First, let’s talk about when is the best time to negotiate.
When it the Best Time to Negotiate?
The best time to negotiate your pay is while you’re getting hired. It may seem counter-intuitive. You really want this job, and your desperation means you don’t have the leverage to negotiate more money…right?
But, that’s simply not true. The employer also has a desire. They want you to work for them. You have a demand for money, but they have a demand for your unique skill set.
You both have something that the other one wants.
This is the time to set a “baseline” salary that will affect the rest of your career’s earning potential. All future raises and compensation at that company will refer back to this baseline. It’s simple math. $60K is more than $50K. And, a 2% raise from $60K ($1200) is more than 2% from $50K ($1000). It really is a compounding situation.
How a Higher Starting Salary Can Make a Huge Difference
The table below shows a more detailed example of this.
Let’s look at a 22-year old college grad about to start their first job. In one reality, they accept the position at a $50,000 salary. In the second reality, they negotiate up to a $60,000 starting salary.
After that point, both realities are identical.
- Each year, their expenses are $45K.
- Each year, they get a cost-of-living raise of 2%.
- When they’re 27, they get their first real “promotion” and a 10% raise.
Seems like a legitimate pair of realities, right?
When we compare the two scenarios, we see how the difference in starting salary manifests over the first eight years of a career.
After all expenses, the $60K worker would have earned more than double what the $50K self had earned – $176K vs. $87K!
And that’s only assuming we’re stuffing that money under a mattress. Once you incorporate any sort of investing or compounding return on that money, the gap grows even more.
If you understand how your younger years are the most important time to invest, the disparity caused by starting salaries becomes even more important.
How the Human Resources Department Actually Works
At my first job, I saw Human Resources as a wonderful source of information. I could rely on them for all those nitty gritty details (insurance, 401(k), management structures, etc.)
In fact, the same HR person who hired me stayed on as my HR liaison throughout my tenure. It was a nice process.
However, not all companies work that way.
In fact, HR departments seldom exist for the benefit of the employees (you know, the actual “human resources” for which the department is named).
Instead, HR departments’ primary goal is frequently the protection of the company from the employees. It’s an example of “it’s business, not personal.”
While I do not think that HR is the “enemy” of other employees, I do think it’s important to remember who represents whom in the corporate structure.
If you’re negotiating a salary, it’s the HR department’s interest to pay you less. They are not a neutral party in the negotiation.
If you don’t stick up for yourself, nobody will. It’s business, not personal.
Why It’s Difficult Getting Promoted the “Right” Way
A “problem” that I faced in my career was that my reviews (from management or project teams) looked great. For three years in a row, I received a “top 10%” review.
Meanwhile, my salary percentile–accounting for my experience at that company–was in the bottom quartile. For the sake of simplicity, we can say that I felt underpaid by about $10K-$20K per year. No small amount!
How much of a “problem” is this? Well, it didn’t stop me from living the life I wanted. I could afford all the comforts I needed. I was at the peak of the fulfillment curve. But as I showed above, being underpaid starts to add up over a few years.
I tried to solve my problem “the right way.” I spoke with my manager about how I felt. He agreed with me and went to his manager. That manager agreed too, so we took the issue to HR.
And that’s where we were rebuffed.
I was never given a specific reason why, but HR claimed its hand were tied. They couldn’t simply hand out the ~15% raise that was required to bring me from bottom quartile of salaries up to the median of salaries.
I tried to reasonably solve my problem from within the corporate structure, but I had no leverage.
Why it’s Sometimes Hard to Get a Raise in Corporate America
I began to become more aware of my salary discrepancy when my company was going through a large hiring spree. We had lots of work to do, and not enough people to do it.
Let’s go back to fundamental economics. High demand for workers, low supply of workers; this means salaries should go up!
And sure enough, rumors started trickling through the organizational chart, “Jim’s group just hired a college grad for $X.”
Wait a second…that’s 20% more than what I make! I’ve been here 4 years, and I have a master’s degree, and the customers really like working with me.
Was this injustice? Or did I just have money-grubbing sour grapes?
On one hand, I’m not sure how HR is supposed to solve this problem. If a company has 1,000 employees, how can HR ever create a salary ladder where every employee is (and feels) perfectly compensated based on their talent and experience? Who is going to create those rankings? How would an employee appeal if they feel underpaid? Clearly, it’s not feasible.
But, some discrepancies just scream that there’s an issue.
While I certainly felt that I was underpaid, I also know that some of my peers were in even worse scenarios. Or, in other words, that I was overpaid relative to them.
They had a more justified gripe than I did! In a utilitarian world, shouldn’t I vouch for them before I vouch for myself?
Wouldn’t that be nice. But, unless you and your coworkers are part of a union, the idea of vouching for the betterment of all employees is strictly verboten. You can’t stand up for others. You can only stand up for yourself. It’s sad, but it’s also true. You can encourage others to stand up for themselves. I think that’s great.
But you should tread carefully before organizing on the behalf of others.
Getting a Raise by Getting an External Offer
After trying out the “right way” to solve my problem internal to my organization, I realized that I didn’t have many options left. I started looking elsewhere.
Just like my company was hiring, lots of other companies in our industry were hiring too.
One day, I got a random message on LinkedIn, and began talking to an engineering headhunter. A couple days later, we were speaking on the phone. A week after that, I had a phone interview with an engineering manager. And the following week, I was flying down to their facility for an in-person interview.
The interview went well, I liked what this company worked on, and they made me an offer. Here’s an important detail: the offer was good, and I was willing to take the job. I enjoyed the tasks of my current, lower-paying job more. But I was willing to make the move to the new company.
I returned to work the following day with the new company’s offer letter in hand. I went to my manager, he went to his manager, and the group of us went to HR.
Suddenly, HR did a 180° flip. The previous month, a 15% raise was out of the question. But faced with the prospect of me leaving the company, the negotiation scales were tipped back in my favor. I had leverage. My HR group matched my new offer, equal to a 29% raise. Boom!
Are You Wasting Time by Declining a Job Offer?
I accepted my company’s counteroffer. But I also felt a bit guilty.
I had wasted the headhunter’s time. And wasted the other company’s hiring manager’s time, and the time of people who had given me a tour. I wasted their money when they flew me to their facility, and when they put me up in a hotel.
But should I feel guilty? Or is just part of playing the corporate game?
What’s occurring, in my view, is a proverbial “race to the bottom.” I feel that HR forced my hand and played hardball. My choice was to either submit to their tactics, or to call their bluff – I had to go seek out competitive offers from other firms. And this meant facing the possibility of wasting another firms’ time.
It’s an accepted paradigm (at least in my industry) that workers will hop from company to company, or that HR departments will play the “offer -> counteroffer” game.
If everyone’s playing, then nobody should feel bad when their time is wasted. After all, they’re playing the same game, too.
But I’m not planning on making a habit of wasting other companies’ time and money. And in a perfectly fair world, I would gladly compensate the other firm for their few hours of time and the <$1000 in expenses.
The raise I got would be well-worth that expense.
When to Share Your Compensation with Your Co-Workers
Before we wrap up, I want to revisit some ideas about co-worker interaction. While you and your co-workers are likely in similar boats – if one is underpaid, many are likely underpaid – you’ll find that people approach salary issues in vastly different ways.
In my experience, I had a few close confidants. Before my raise, we had all confided in each other that we were unhappy with our compensation. We knew we were in the same boat.
I shared my “success” with them, and they found the information very useful. Not everyone wanted to follow my exact footsteps, but it was helpful for them to understand what I had done. Some wanted to wait until their next promotion. Others just wanted more experience, so that our HR department would be more likely to match any outside offers.
However, other people at my company are diametrically opposed to the “corporate hopscotch” or “offer-counteroffer” tactics. My raise took me from the bottom quartile to around the 60th percentile.
That means that I “leap-frogged” over about 40% of my peers. And that absolutely rubs some people the wrong way.
Now they feel like there’s injustice. If they did what I did, then there would be another “race to the bottom.”
Everyone would constantly be seeking external offers and leveraging them for local raises.
Next thing you know, I’d be in a position where everyone had leapfrogged me, and I’d be back at the bottom of the pay ladder. And the cycle would start again.
I’m clearly biased here. I don’t think what I did was “wrong.” But I hope you understand that different employees will have different reactions to you “breaking ranks” to seek out a raise.
Are You Being Paid Your Worth?
If you haven’t already asked yourself, the time is now: are you being paid what you’re worth?
Even if your workplace is filled with the nicest folks on Earth, you should consider whether they are paying you a fair amount. Perhaps your company publishes its wage scales for comparison. Or maybe you should use a website like Glassdoor to understand what similar workers in your area earn.
There isn’t any harm in exploring.
Speak with your manager or HR, sometimes, all it takes is a brief conversation! But, keep in mind, there’s a line between personal relationships and business relationships.
The only person guaranteed to vouch for you is YOU!
You might find that coworkers, HR representatives, or even your managerial chain-of-command aren’t as supportive as you’d hope. That’s ok. Be polite, but stand behind your convictions.
If you get rebuffed, consider looking externally. Don’t just do it for leverage, though. Look for real jobs that genuinely interest you. You may end up surprising yourself and find a new job altogether.
Either way, I hope the brief math in this story shows you the long-term power of a raise. Even a 10% difference in pay can lead to vastly different financial situations over a few years.
I had a harder time getting a raise than I’d hoped, but I’m already seeing a huge difference in my budget and investing and savings rate.
You should consider how a raise will help today, but also tomorrow, and all future tomorrows.
So, are you being paid what you’re worth?
Again, I want to thank this reader for sharing their story in this post, and I hope that this post has been useful to you 🙂 What do you think? Is this similar to experiences you have had in Corporate America? How have you gone about getting a raise?