Friday, August 3, 2018

How Do You Negotiate Your Next Pay Rise?

As a minor retail investor like myself, income has always been an important determinant over the years as part of our capital size on top of the other factors such as savings rate and capital allocation.

It is therefore important that we do equally well in our human capital ability and measure it the same way we did for our investment return as an investor.

One way to measure this is through our active income growth rate, i.e the ability to grow our income in the form of sidelines or salary increase either through progression or promotion or pay increase in the next corporate role change.

On this article, let's explore the latter on the pay increase strategy.

Negotiating your pay rise is always an art more than a science.

There are no gospel formula attached to it as long as you know how to play within the boundary of your range.

For one, timing is everything in asking for a pay raise.

When asking for a pay rise in an organization you worked in, it is important that you articulate well what you've accomplished over the past year and make a convincing story to your employer why you are a treasure to the organization. 

Ultimately, negotiating a pay rise is primarily about determining your own intrinsic market value, the same way investors like to appraise the intrinsic value of a company. If you think that the organization is under valuing you as an employee, then it doesn't hurt to bring your case to the table and ask for a pay raise. The worst thing it can happen to you is that you'll get a formal rejection and life will go back to the normal. It is however a different story if you don't have any good accomplishment to sell but yet demand a pay raise. That's just the same as daylight robbery.

During the negotiation process over the course, it is also important that we keep in mind the theory of BATNA. By its own definition, BATNA allows us to keep the most advantageous alternative course of action that we can buffer in case negotiations fail. The key for BATNA is not to have it as a safety net but rather a point of leverage in negotiations. For example, if you are in sales and over the last few rounds of tender, you manage to bring in significant amount of revenues to the company, then the advantageous force tends to side more towards you. You can then use this as a leverage in your negotiation process.

The key message I want to drive here is you need some good accomplishment first, then talk about pay raise. If your current organization doesn't value you, some others will eventually do.

Keep on searching for that treasure.

What About Your Next Corporate Jump?

There are a lot of theories that say jumping to your next corporate change is the faster way for a pay rise.

There is some truth in it.

If we take a rough guide, many of us would demand some sort of pay rise in our next corporate change, which typically ranges between as low as 5% and as high as 20%, depending on your role and the organization's financial means.

The best timing for your next corporate jump is to change within 3-4 months after you get your promotion jump at your current organization (and of course after getting your sweet bonus). That will enable the double multiplier effect to take place within the span of a few months. 

The next best alternative is whenever you are mentally ready.

There are also ways on how you can maximize your remuneration package negotiation.

When negotiating for your remuneration package, it is important that you ask for a pay rise increase from your base pay, without the components of a variable bonus package, instead of the total remuneration. This is because companies often entice new employees with the companies' high variable bonuses but one which is discretionary in nature and hence could change quickly over time. Thus, if you are looking at it from the total package view and you think you are better off but in fact the company performance is poor the following year, then you might be worse off in the end.

If you are negotiating for an overseas posting, it is also important that you consider the aspects of housing/transportation costs and also the difference in tax treatment, assuming your role is localized. Often, companies will engage tax difference by preparing the tax equalization computation so you are not worse off by the higher tax treatment overseas.

How much you are earning often commensurate with the amount of responsibility you might be undertaking so do consider the kind of level that fits you.

Often, people have this misunderstanding that correlates the amount you are getting with the amount of work life balance you are living.

That is also not entirely the case.

You can be earning lower but have a lower work life balance than someone who's earning higher than you but a better work life balance too.

The Tai-Chi power has been well known for decades from big bosses top down.

Lower or higher salary - You still suck it up in the organization.

Thanks for reading.

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  1. Hi B,

    Absolutely agree with measuring our human capital the same way as investments.

    At some point, scoring a 'better deal' at work could simply mean rising to a level of optimal ROI based on our skills and the time required to do the job well and staying there. If moving further up translates to getting 5 times the responsibilities and when there are hardly any capable underlings to 'tai ji' the work, one would be better off protecting the time and making the money elsewhere. Work should just be one of the 'business units' we operate. If we can be a cash cow, milk it! Just gotto beware it is not a dog in impersonation. LOL.

    Being too fixated about getting more pay might trap us the way yield hogs get stuck with 'long term' investments and those who mistake price for value. :)

  2. Hi all,

    I totally agree with EY. It will be better to be dynamic i.e always on a look-out for better opportunity while working efficiently in the current job.