|LIKE MANY salaried people, you may be quite convinced that you ought to be getting paid a far sight more than you are. But have you ever paused to think that you could actually be getting more if you had simply negotiated better when taking the job? Salary negotiation is a vital part of a job interview, but its a sad fact that most of us are fairly uncomfortable about it. Its possibly because we have been brought up to be polite and not pushy; or it may just be an innate distaste for selling oneself. Whatever the reason, its important to overcome the discomfort over talking money, as otherwise you may end up getting much less than you deserve. And that could eventually short-change your family finances. |
Theres also a school of thoughtheaded by chartered accountants and tax plannersthat argues that theres little negotiating room when it comes to salaries. They say that since almost all components of a standard salary fall into the tax net, it makes little sense to negotiate for, say, more perks instead of a higher basic. And, they add, employers are not likely to circumvent the law just so a prospective employee gets a better deal.
But does this mean you have no room to negotiate? Far from it. In fact, the recent shift to a larger portion of performance-linked variable pay means you can now set targets and be sure you are paid for meeting them. Linking performance with salary is a win-win deal. You get paid more for performing better, and your employer gets a result-oriented employee who improves the companys performance.
The emphasis on performance is more visible in job functions such as sales and marketing and the core business of the company. "These functions have a direct bearing on the overall corporate performance and therefore human resource departments have felt the need to establish a direct link between performance and reward," says K. Pandiarajan, managing director, Ma Foi Management Consultants.
So, how do you manage to persuade prospective employers that you should be getting more than whats offered? Remember, salary negotiation is more an art than a science; theres no tried-and-tested formula that will guarantee a 10-20 per cent hike. But keep the following points in mind when negotiating your pay package and you could maximise your salary.
Do your homework
First, research the market and the industry. Understand the market conditions and the salary range for someone with your skills. Find out the companys pay structure and see if it is in line with what is offered by other companies.
For example, five years ago, the committed portion of the salary far exceeded the performance-linked bonus (see graphic on page 23). At very senior levels, ESOPs were common. Today, in middle and senior management positions, there are three essential components: committed salary (fixed basic, housing and conveyance); variable performance-linked pay; and equity. The last is more prevalent in software, some pharmaceutical companies and large family-owned businesses, and start-up ventures. Says Anil Sehgal of Proactive Consultants: "There are barely five or six heads in the committed salary component; in the past, there were more than a dozen."
Dont sweat the fixed pay
You may want to try and increase the fixed components of your salarybasic, HRA and conveyanceto maximise your take-home. However, most companies are unwilling to deviate from the parameters set in accordance with their HR policies. And, Pandiarajan adds: "With the changes in tax laws, there is no point hankering for more allowances in cash." Fewer components mean you have a less cumbersome salary package.
Look sharp for the variables
Variable pay comes to around 30 per cent of the cost-to-company; in fact, some consultants are convinced that this could go up to 70 per cent in future. The variable pay component includes performance-related incentives and long-term variables such as promotions, ESOPs, and life and accident insurance schemes. "The higher the level, the higher the variable pay component. Increasingly, senior managers are being held accountable for concrete results and their pay reflects this expectation," says Dhruv Shenoy, vice-president marketing, Monsterindia.
The advantage of this is that good performance is invariably rewarded. In fact, even in functions where there is no apparent quantitative measurement of results, it is possible to bring in objective evaluation to deciding the variable pay. Or, you can negotiate to increase the amount you get as equity and insurance and the like, and reduce your performance-linked pay.
However, an increasing number of companies are offering a larger portion of the salary as performance-linked pay. Says Varda Pendse of Celebrus Consultants: "The trend is spreading among all professionally managed companies." Theres also the new concept of total targeted remuneration, an idea popularised by insurance and consumer durables players. If you are confident of exceeding targets, you could negotiate for the maximum variance in performance pay, which will be in addition to the cost-to-company.
Key performance indicators. When negotiating, you will do well to follow the advice given by Hastha Sivaramakrishnan, principal consultant (search business), Ma Foi Management Consultants. She says: "Clarify what the performance metrics are. Understand the key performance indicators before you negotiate your performance pay."
Both individual and organisational performance will be considered when evaluating your performance. But remember that each sector has its own unique methods of computing the performance-linked component. For instance, a company in the hospitality sector tracks performance using twin parameters of task and relationship management. A consumer durables company, on the other hand, assesses performance using shareholder value, customer value and employee value.
The trick in maximising this variable component is to check if the pay is linked to your individual performance, team performance or organisation performance. "Often, employees who joined with high performance pay components end up frustrated if, after all their sweat and toil, they get peanuts, as they were unaware that it was the overall organisations profit that was to be shared among some employees," says Pandiarajan.
How to max your pay. To align your pay to performance you must be sure of your areas of strength and be able to position yourself in a good, aggressive team. Apart from this, you can also negotiate the percentage of your total compensation package you want as performance pay. To do that, assess the extent to which your job profile lends itself to performance evaluation. For instance, if you are a receptionist or an administrative executive, your performance can only be measured by the overall progress of the company. Remember that in routine staff functions, its best to keep the performance pay limited. This will stand you in good stead if your company makes the shift to offering non-monetary recognition systems as well. Negative pay for non-performance will probably debut soon.
Explore the equities option
If you have been made an offer for a senior management post, negotiate hard for an ESOP or a sign-on bonus. "This is not as common as it was at the height of the IT boom, but is still offered to key personnel in line functions that are core to an industry," says Sehgal. Typically, if an MNC setting up shop wants to lure an employee, it will be ready and willing to pay a hefty sign-on bonus. The only difference is that these days, the bonus is only a tenth to a fifth of the salary, instead of half the salary, which it was earlier. Thats still money in the bank, so dont ignore this component.
Speaking of ESOPs, Pendse says: "One of the consequences of the dotcom collapse is that employees are unwilling to trade stock options for cash." But leading software companies are still willing to offer 2-3 per cent of the total compensation as stock options. Before you accept, however, make sure you are comfortable with the companys track record, check if future projections are realistic and study the lock-in period and sale clauses well. It also helps to check the companys philosophy on underwater ESOPs (if the option price is higher than the ruling market price). Otherwise, you may find yourself with little to show after a long stint in a company.
Dont ignore the perks
If you are in a position where you can command any pricebecause of your skills and experiencemake sure your prospective employers offer you a Golden Parachute. This usually means six months to one years cost-to-company compensation and will safeguard you from sudden retrenchment for reasons other than performance. "Ensure that such agreements are always legally correct and mutually agreed upon," says Sehgal.
Then, of course, there are the lifestyle perks that make such a differencecompany-hired accommodation, car, phone, laptop, mobile phone etc. You may also find that it makes good sense to negotiate for wealth creation and asset-building opportunities such as housing loans and car loans. Already, companies in sectors such as telecom, banking and media are offering these perks to employees. And, thanks to the plethora of private insurers, companies are willing to cover employees for medical expenses, accident and even loss of service.
Also, dont forget that some traditional private sector and leading profitable public sector companies still offer superannuation. "Life insurance bonds are also in vogue. In fact, if you are switching jobs at very senior levels, negotiate for your company to compensate the loss in annuity on account of your leaving the previous job," says Pandiarajan.
With companies becoming increasingly flexible regarding salary structures, HR managers feel that customised salary packages will increase. As careers become shorter and compensation becomes entrepreneurial, wealth creation will drive salaries in a big way. Negotiating a salary can sometimes resemble haggling with a hawker. It can be fun if you do it right, but, as in most things, the trick is in knowing when to stop. All you have to do is develop assertive negotiating skills, and ask for what you think you are worth. You have nothing to lose and a whole lot to gain.