Can We Afford This Candidate?
This section will cover the basics of dealing with questions and rules of salary negotiation. Since salary negotiation is not the focus of this book, we will not go into the details or the complex issues involved in negotiations as some other books are dedicated to the subject. This chapter will deal with the questions that are the most common in the interview process. We are mainly focusing on what the interviewer is seeking when asking questions regarding salary.
Most companies have preset salary ranges determined by participating in salary surveys. They are averaged with other companies to establish “the going rate.” Job descriptions and salaries are compared, and the averages are calculated and shared by the participants of these surveys. The ranges tend to be wide, and all have a high, a median, and a low. The majority of companies typically start salaries somewhere in the area of the middle or median of the range. This is important to know because people tend to look at the high end of the range when they do research about the “going rate” and expect to receive that salary, without taking into consideration that there is a low end of the range.
There are many reasons the interviewer wants to know your specific salary requirement. He or she mainly wants to see if your required salary fits within the range budgeted. Reading between the lines, the interviewer’s question is, “Can we afford this candidate?”
If you are asked what salary you are expecting, this could be a strategic moment when your chances of moving to the next stage of the interview process are at stake. When asked for salary requirements you could price yourself right out of the running before you even get a chance to sell yourself.
If your salary requirement is too high, this could be a reason to terminate the screening or interviewing process: “We can’t afford this person; he is looking for a salary out of our acceptable range.”
If your salary requirement is too low, this could be a reason to suspect that you are not at the level of expertise they are looking for: “This person is too far below the range to have had the experience we need.”
You can see this is a lose/lose situation for everyone involved if the question is asked prematurely and you answer the question flat out.
Here are examples of salary questions interviewers ask:
“What salary are you seeking?”
“What salary are you making at your current job?”
“What salary were you making at your last job?”
Examples of premature answers:
“I was making $50,000.”
“I am currently making $50,000 a year with a yearly bonus.”
“I am looking for a 15 percent increase over what I am currently making.”
This is too much information too soon. It is in your best interest to postpone giving an exact number if possible. You need more information about the job and the salary structure of the company including benefits, bonuses, salary reviews, and the company’s philosophy of paying at a certain level.
A fundamental rule for buying anything is to first learn what it is worth and what the going rate is for this object. If you were going to buy a car, a house, or make any major purchase, you would first check to see what the average price is for the item. Knowing the price of something is a basic principle, and it’s the same principle that applies to job interview preparation. Before you begin your job search, there is some information that you will need to research:
• What are you worth?
• What is the going rate in your geographical location, in your field, for your particular job title?
• What is your education and years of experience worth?
There is no longer any excuse for your being caught off guard if you have access to a computer. The Internet provides all the information you need. In addition to the Internet you can do this research by checking with colleagues (if they will talk about their salary; this is a guarded secret for most people). One way to get around resistance is to talk about “ranges.” You can also contact associations in your industry as they often have salary survey information. And, the U.S. government also provides salary information.
Before you can even think about applying for a job, you should be thinking about salary issues. It is in your best interest to do research to locate information about your worth. The Appendix at the back of this book will provide resources regarding salary sites to research.
It is not uncommon for the first step of the interview process to begin on the phone as a screening process. The interviewer may catch you off guard by calling at some unexpected time and immediately ask for your salary requirement or what salary you are currently making. Even though you may feel a bit tongue tied, be careful to consider your options before you answer. If you are too low or too high, this could end the interview. It is best to delay giving a direct answer until you have no choice.
Examples:
Interviewer’s question: “Could you tell me your salary requirement?”
Candidate’s answer: “I’d be glad to talk salary at the appropriate time, but I really don’t have enough facts at this time to discuss salary. I would be interested in hearing the range budgeted for this position as well as the entire benefits package.”
Or, you could say:
Candidate’s answer: “What does your company typically pay someone with my background and experience?”
Postponing the salary discussion is the best step for you, at least until you have the information you need. If the interviewer pushes for a “ballpark” or “what you are making now,” you could talk about ranges as in the following example.
Candidate’s answer: “I’ve done some research and have found an acceptable range for someone with my years of experience and education is (name a range). Is this the range that your company has budgeted for the position?”
By realizing what is behind the question and being prepared to talk about salary on your terms, you will change your position and not feel like your back is up against the wall. You will be able to talk “ranges and going rates,” and not fear revealing your hand or losing out on a “better offer.”
But, what if the representative is having none of your vague answers and pushes you for your “current” or “last salary?” Here are some possible answers, keeping in mind what’s behind this question.
Candidate’s answer: “I’m just not ready to talk salary without some more information from the company and what the job will entail so that I have something to compare it with. Rather than go back and forth, the range I would be interested in is $ [name a starting figure] to $ [name a closing figure].” Be sure the range is broad with an acceptable number at the low end. If you are offered your low-end number, you were the one who named the number, and it may be the number that they consider acceptable for you.
Or, you could say something like:
Candidate’s answer: “The base salary that I received in my last job was combined with an extremely generous benefits package and bonuses. I would need to hear the details of the package that you offer in order to compare.” (If, of course, this is true)
When you consider any information about salary, you must remember to take into account the “full package.” Every benefit and bonus adds on dollars to your salary number.
Example: At your last company, you received three weeks of paid vacation, plus personal time off. How much does three weeks of vacation cost the company? That is a paid benefit. At this company they have three weeks of vacation, but that includes your personal time off. You just lost some days off. What is the value lost? Or, perhaps this company only offers two weeks of paid vacation. What have you lost in the way of benefit compensation?
This is an example of someone who jumped at an offer before doing his homework:
Nicholas received an on-the-spot offer and was thrilled. This was the job he wanted, and he was anxious to get started. He was going to get more money and a bonus. What more could he ask for? He accepted on the spot.
When he got home that evening, he sat down with pencil and paper and began to evaluate the offer and what he was getting overall. He was not only shocked by what he discovered, but wished that he could go back and talk about some of the issues. But he had signed on the “dotted line” that afternoon.
Once you sign the offer letter, you have essentially signed a contract. It is too late to go back and negotiate. Try not to accept an on-the-spot offer unless it is absolutely out of this world or you are desperate and don’t want the offer to go away. It is generally wise to evaluate what you are gaining and losing. Let’s look at what Nicholas found out by doing some simple calculations.
Nicholas was offered $55,000 per year, with a hiring bonus of $5,000 paid in two payments over the next six months. This was a $5,000 increase from what he was making on his last job and a bonus to boot: an extra $10,000.00.
When he and his wife looked over the benefits package, however, they discovered that he would now have to pay the insurance premiums for his dependents. His last employer had paid the premiums for the entire family.
This would cost him $350.00 per month, or $4,200 per year.
His new vacation package gave him two weeks time off, accrued over the next 12 months. His former package included three weeks vacation.
This decreased his compensation by $962.00, one week’s vacation pay.
Nicholas was receiving a 6.5 percent yearly bonus based on company earnings in his last position. His new company does not have a planned bonus as part of the salary. Bonuses are earned based on performance, and given as judged appropriate.
This was a decrease of $3,250.00 per year, the lost bonus.
His former employer matched 50 cents for every dollar contributed up to 6 percent on his 401(k) account. This company does not match funds.
This was a decrease of $1,500.00 per year (based on 6 percent contribution).
His calculations showed a minus of almost $10,000 a year from his new offer, based on cost of insurance premiums, lost bonus, and lost matching 401(k) contributions. He wasn’t quite so thrilled with the offer anymore.
At least he got that $5,000 hiring bonus, which will cushion the fall. But even that will be affected, as he didn’t anticipate the higher tax rate on “special” checks that was deducted from the bonus money. These higher rate taxes can run as high as 41.5 percent.
Nicholas got the job he wanted, and maybe that is worth more to him than the money difference. But it would have been wiser to make the decision with all the facts before signing the offer letter. He might have been able to negotiate another $5,000 to compensate for the difference in benefits. Or, given the higher tax rate, he could have negotiated for an increase in the hiring bonus.
It is best to take some time to reflect on the “total package.” Benefits can be worth another 20 percent to 50 percent of your salary. There are other factors to consider besides money: more challenging work, a better company, or a greater opportunity. It may be worth giving up dollars now to invest in your future. However, the decision should be thought through before rushing ahead.
One more issue to take into account is when you are going to start your new job; it is a good idea to find out when yearly reviews and increases take place. Not all companies have annual reviews and raises, but if this one does, it is something to factor into your calculations before accepting an offer at certain times of the year.
If pressed to give your answer to an offer on the spot, always stall for time. Tell them that you need to do some calculations and think about it. There is only one window of opportunity to negotiate your terms of employment. Once you say yes, the window closes.
Of course, if you have been out of work for some time, the salary discussion may change because your salary history may not be current. In fact, you may be satisfied with an offer that is the “going rate.” This is a very individual issue based on your situation and your needs.
Before the interview, it is a good idea to do an inventory of your basic financial needs beginning with your fixed monthly total. These are the fixed costs that must be paid every month, no matter what is happening. They include your cost for living accommodations, utilities, telephone, credit cards, insurance, Internet provider, car payment, and similar expenses.
Next there are the variable fixed expenses. These expenses include the personal spending you do on clothes, food, grooming, entertainment, education, travel, and so on.
Together, these numbers make up your total living expenses. These numbers in turn will serve as a guide to what you need to earn to survive and whether you can afford to take an offer. It is important that you know these numbers to help decide what to accept. If the offer that is being made is $1,000 a month short of your total living expenses, you will have to assess where or if you can cut back. You may have to turn down an offer because it will not support your total cost of living.
These are very personal decisions that will affect your willingness to interview for this job if the salary is not what you need. Your needs will determine the discussion and steps you take.
The subject of your current salary or your salary requirement will not be limited to the “phone screen” alone. These types of questions will more than likely come up again during the in-person interview. It is in your best interest to let the interviewer bring up the subject of money first. You will be busy letting the interviewer know why you are the best candidate for the job and why you are worth more than the “going rate.”
Keep the following in mind throughout:
1. You can’t negotiate anything until you have an offer. Don’t go there yet.
2. Know your walk-away point—when you can’t afford to take the offer.
3. Know the rules of salary negotiation before discussing salary. (See below.)
4. Know what you want: the whole package and the priorities of wants.
The examples below are situations that demonstrate the need to be familiar with the basic principles of salary negotiation before you begin your interviewing process. Being knowledgeable about some basic rules can make the difference between success and increased dollars, or failure or even accepting an offer that doesn’t “feel” good.
You go to the interview prepared with the numbers you need and what you want in the way of salary. When the interviewer asks you questions about salary, you are prepared and ready with answers.
When asked what your salary requirements are, you have several options:
• You can tell the interviewer what you were making at your last job. (Not recommended if you can avoid giving this number out.)
• You can give a range that is acceptable to you, making sure that the lowest number is enough to cover your basic needs. (This is the best way of handling this difficult question.)
• You can ask for a range that this position typically pays. (Getting the interviewer to name the number first is the best position for you.)
• You can postpone the discussion until you have more facts about the company and the entire package. (If possible, this is the best scenario for you.)
There is no right or wrong answer, but how you handle this discussion will be key to your ability to try to negotiate a higher offer or package.
If the employer determines that you are right for the job, the company will take the lead and make an offer. It is now your turn to move the dance to the next stage. But first, you must evaluate the package. Take into consideration the:
• Base rate (always the top priority) and timing of annual reviews
• Alternative compensation: bonus, commission, stock options, profit sharing
• Benefits: premiums for insurance, paid time off, matching 401(k), working conditions
• Other perks: car, education reimbursement, training, laptop computer
Some basic calculations will tell you how closely the offer meets your needs, values, and worth.
This section explains in more detail how to apply the seven rules of salary negotiation.
Wait until the subject is broached. Then answer that you are open on salary and are looking for an opportunity or that you would like to postpone that discussion until later in the process. This is a good time to ask what salary range is budgeted for the position. If you are asked what your former salary was, you might state that you would like to hear more about the responsibilities of the job before you compare salaries, or that there were circumstances in your other job that kept your salary below market value. If you are asked what salary you are looking for, depending on where you are in the interviewing process, state that you think it is too early to discuss salary and you would like to hear more about the job before you discuss the particulars of money.
You are in a far stronger position to negotiate after you have the offer. Your chances of getting a higher salary improve if the interviewer is convinced you are the right person for the job. This falls somewhere between “They want you” (they’re ready to make an offer) and “They got you!” (you’ve signed on the dotted line, and it is too late to go back and start over).
Some employers make on-the-spot offers. It is always a good idea to take time to think the offer over. Once you’ve accepted the offer, it’s too late to negotiate any terms of the agreement. If pressed for a decision, tell the employer that you have a personal policy of taking 24 hours to think over major decisions.
Too many people have been burned after negotiating a sweet deal only to find that when management changes, there is no record of the negotiation. Get it in writing! If you negotiate a change, make sure you get a new offer letter or an addendum memo. An e-mail is acceptable as a formal document.
The tone of the negotiation should never be confrontational. You should be aiming for a win/win situation.
If you cannot settle on a salary, perhaps an early performance review/salary increase can be negotiated. Sometimes you can negotiate using vacation or benefits. The answer is always no unless you ask the question.
It is in your best interest to negotiate the base salary first. Your future raises will be affected by this sum, not to mention Social Security, unemployment, life insurance, and others.
Sometimes the employer’s hands are tied due to internal salary equity. You may be asking for more money than some of the current employees are making. Sometimes you will be offered a hiring bonus.