When thinking about improving our financial health, most of us focus on our spending. We resolve to create a budget and stick to it, skip the daily latte at our favorite coffee spot, become a one-car family, cut cable or trade an exotic vacation for a staycation.
And it’s true: All of those actions can improve your financial health. But they only address one side of the financial health equation: spending. The other way to improve financial health is to increase your income (while keeping your spending in check, of course).
But increasing income is often overlooked by my clients. Somehow, reining in spending seems more virtuous and doable than negotiating a higher salary. However, many of my clients aren’t earning as much as they could be.
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I’ve seen hundreds, if not thousands of salaries — and I’ve seen some huge deltas. Even accounting for education and experience, company size, cost of living and industry, salaries vary wildly. For example, I’ve seen client salaries for what appear to be pretty similar jobs range from $60,000 to $150,000.
The time to evaluate and possibly increase your income has never been better. During the Great Resignation, the U.S. “quit rate” reached a 20-year high, according to Pew Research. Worker shortages are apparent everywhere.
Almost two-thirds (63%) of employees told Pew that the top reason they quit their jobs was salary. That’s a lot of people who believed they weren’t getting paid what they were worth. If you feel like you could be one of them, here are some practical suggestions to negotiate a bigger paycheck.
Step 1: Determine If You’re Being Paid Enough
Salary is a taboo subject, so it’s difficult to find out what others are earning. Online databases such as Glassdoor and PayScale rely on anonymous salary data with no way to verify their accuracy. Plus, the databases may be out of date and not reflect the current job market.
However, online databases can be a good starting point to get a feel for what other similar firms pay for an employee with your experience and responsibilities. Just don’t make them your only resource.
The best way to find accurate salary data is to ask someone in a similar position to yours. Awkward? It can be, but hopefully you’ve nurtured a network of peers and more senior people who are willing to share what a reasonable salary range would be. You’re not asking them to disclose their salary but what they think the salary range for your job should be.
You could also reach out to people through online networks such as LinkedIn or through professional associations you belong to.
Titles can be misleading. A vice president of marketing at one company could have drastically different responsibilities than a vice president at another firm. When you’re broaching the pay topic, ask about their job responsibilities as well.
Sadly, gender and racial pay gaps still exist. In 2022, women earned 84% of what men earned. It would take a woman an extra 42 days of work to earn what a man did in 2020. The disparity is even greater between black women and white, non-Hispanic men. Black women earned only 63% of what their white male counterparts earned.
When doing your research, the best approach is to ask as many people from as many diverse groups as you can. Otherwise, your ballpark salary range may be an anomaly and not the norm.
Step 2: Ask for a Raise
Let’s say you do discover that your salary is at the low end of what you should be paid. What’s next? You could look for a job at another employer and negotiate a bigger salary. It’s pretty common to request a 10% to 20% pay increase when you switch jobs.
But leaving isn’t always the best option. What if you like your co-workers, the work and the company culture? Don’t leave; instead, ask for a raise.
Many of us dread asking for a raise, so we simply don’t. Women are especially hesitant, not wanting to rock the boat or appear too aggressive. During the pandemic, 42% of employed men asked for a raise compared with only 27% of women.
Women aren’t asking for raises, and they are also less likely to negotiate salary during their initial job offer. More than two-thirds (68%) of women accepted the salary they were offered and did not negotiate compared with 52% of men. Over the course of a career, not negotiating salary or asking for raises leads to women making $900,000 less than their male counterparts.
That almost $1 million can have a pretty significant impact on your financial health.
Here are some tips I’ve shared with clients to help them make the most powerful case for why they deserve a raise:
- Share what you’ve learned during your research. Having done your homework on what others in your position earn shows you are professional and take salary negotiation seriously. Talk about salary trends for people with similar roles, qualifications and job responsibilities.
- Focus on the value you bring to your position and the company. Highlight your strengths, your commitment to the job and your accomplishments. Please don’t be shy! If you’ve taken on additional responsibilities or learned new skills, now is the time to show your hand. Taking online courses, reading about your industry, or earning certificates on your own time — and your own dime — count.
- Timing is everything. If you just landed a huge sale or aced a project or solved a complex challenge that saves your company money, now is a perfect opportunity to request a salary increase. Ride the wave of your success.
- Don’t settle for cost-of-living-adjustments (COLA). Unless you leave your company or get a promotion, your company may just offer a modest yearly increase to keep up with the cost of living. In 2022, those increases won’t even keep up with inflation. U.S. employers are set to offer employees an average raise of 3.4%. As I write this, inflation was pegged at 8.6%.
- Still hesitant to ask for more? It costs an average of $26,511 to replace an employee, and that figure is much higher for well-paid, experienced professionals. As a result, employers are more open to bumping up salaries to retain workers. You never want to make empty threats to leave, but remember that keeping you, even at a higher salary, is likely more cost-effective for your employer.
The good news is that more companies know that they need to increase salaries for their existing employees. More than half (56%) of C-suite executives say they have observed salary discrepancies between new hires and more tenured staff in the past year. Of those, 62% say that are reviewing compensation plans and increasing salaries for existing employees to align with current market rates.
Step 3: What If the Answer Is ‘No’?
I advise my clients to strongly negotiate their base salary, but if it’s clear that the employer won’t budge on their offer — and you really want the position — non-salary benefits that indirectly boost income are an important piece of the total compensation package.
While you should go into any salary negotiations — whether for a new job or asking for a raise at your current job — confident that what you are asking for is a competitive salary for someone with your experience and responsibilities, consider asking for non-salary compensation that doesn’t affect your company’s payroll costs but allows you to spend less.
The average American spends $2,600 a year commuting. Negotiating full-time remote work puts an additional $216 in your pocket each month. But even a hybrid schedule that combines remote and in-office work reduces your commuting costs and therefore increases your take-home income.
If negotiating a higher salary isn’t an option, one area you can negotiate is vacation time. While asking for an additional week or two of vacation won’t add to your overall salary, the extra time you have to relax, recharge and spend with family and friends may be far more valuable than the extra 1% or 2% pay increase.
What is the company’s 401(k) match? Is it negotiable? Bumping the match up even a few percentage points can mean hundreds of thousands of dollars in your retirement savings over your career. Let’s assume that your salary increases 3% per year, a pretty conservative estimate, and you contribute $10,000 per year to your 401(k). The rate of return on your investments is 6%. If the company matches 5%, your balance after 25 years is just north of a million dollars. Increase the match to 7%, and you’ll have more than $1.3 million.
The best time to negotiate non-salary compensation is once the potential employer has offered you the job and before you sign the offer letter. They’ve put in the time and effort to determine that you are the right person for the job and are more likely to accommodate non-salary benefits to close the deal.
A positive company culture can also indirectly boost your income. Is the company committed to work/life balance, giving you more time to pursue hobbies or interests outside of work that lower your stress level? Do they offer health and wellness programs that help you keep your fitness resolutions and result in reduced out-of-pocket health care costs or lower premiums? Do they offer tuition reimbursement or training so you can enhance your skills and advance into a higher-paying job?
Can you negotiate a better title? Sure, a better title doesn’t put more money in your pocket but if you decide to pursue career opportunities outside your current employer, “director” sounds more impressive than “manager,” assuming that your job responsibilities are in line with a director-level position.
In a lot of ways, financial health is analogous to physical health and well-being. Say you want to lose some weight to improve your health. Most physicians would recommend that you attack weight loss from two fronts to get the best results: eating fewer calories while increasing your activity level.
The same is true for financial health — continue to look at ways you can reduce unnecessary spending, but don’t neglect the impact of asking for — and getting — a better salary.
The Timing Is Perfect to Negotiate New Perks
As a result of the pandemic, 88% of HR managers have added new perks to their benefits packages, making now a great time to negotiate non-salary compensation. Here’s a partial list of some of the common — and less common — benefits to negotiate in addition to your base salary.
Work/Life Balance Perks:
- Compressed workweek
- Fully remote or hybrid work
- Additional vacation time
- Flexible hours
- Sabbaticals
- Parental leave
- Health and wellness programs
Financial Perks:
- Increased 401(k) match
- Stock options
- Signing bonus
- Financial planning assistance
- Child care reimbursement
- Elder care reimbursement
Continuing Education Perks:
- Tuition reimbursement for you and your family members
- Student loan payments
- Access to online courses
Feel Good Perks:
- Time off to volunteer
- Charitable contribution matching
Insurance Perks:
- Disability
- Life
- Vision
- Dental
- Pet