Salary Negotiation: What Salary Should I Be On?

The negotiation of a salary can be a daunting task, especially if you haven't attempted it before.  Even for those who have had experience in negotiating a salary the same tactics wont necessarily work with a different company or a new role within the same organisation.  Here's a post about how to work out what salary you should be asking for.  It doesn't take into account various industries or more complex calculations, we'll address them later.  You need to ask, what's in it for me and what's in it for them, that's what it all boils down to!  A simple set of rules do however need to be applied each time though, and getting these wrong will reduce your chance of success.

When you work for a company, the work you produce is given a value.  This value is always more than what you will be paid as a salary and any bonus.

As you are visiting this website you probably already have a value that you wish your salary to be; write this down.

How much does it cost to employ you in the role?  Exclude your salary here, we're talking about how much it costs the company to provide a car, desk, phone, expenses, electricity, rent on the building that you work in, insurance, health benefits, staff that support you (secretaries ect), consumables.... all the extra overheads that the company pays to have you working for them.  Most of the values you probably won't know, find out or take educated guesses, and guess high!  Write this figure down.

What margin does the company make on its products or services?  Try and find this out and it will give you an idea of how much value you need to bring to the company for them to pay you the salary that you are asking for.

Add together the values of the salary you are asking for and the value of the other total costs to have you working for them.

For example:
Salary Requested: £40,000
Cost of employing you (not including salary): £12,000
Total: £52,000

Take the total and add the margin, for this example I'm using 60% which is the standard margin for a successful manufacturing company I have worked for:

£52,000 / 0.4 = £130,000

Therefore you can see that you are required to return a high value for the company that you work for even for them to provide you a pretty average wage.

Of course there are numerous other things to consider, for example the expected and required growth of a company could mean another 5% needs to be added, and some companies will expect even greater returns on investment on their staff, so do a little homework and try to get an idea of other salaries compared to the employees return value to give you an idea for your own salary amount.

This simple calculation makes you realise that it is expensive to employ staff, and the company must return a decent value from your skills and services (nearly three times what you cost them) so that they can make a decent profit.

This is why a lot of businesses offer a bonus structure and this should be considered when negotiating your salary.

If you generate a high return value for the company consider asking for a bonus structure to be put in place if there isn't one already.  Most of us are in jobs where a bonus structure can be instigated.  Sales is a given; it's obvious that the more you sell, the more the company makes, therefore the more value you are bringing them, it's common practice to reward an individual for this.  Even for people who are not in a customer facing sales role there are still likely to be targets in place which you are expected to achieve, asking for a return on the profits when these targets are achieved is common sense.  You may need to work out the return for the company on over achieving these targets so you can work out the bonus value.

Considering a bonus is good for you and the company.  First of all, agree on a salary that is mutually beneficial.  A bonus program then allows the company to see those who out perform others and drive the company forward.  If you're reading this then chances are you are probably one of those who doesn't just turn up in the morning and just do their job, but you strive to push yourself and your company forward; this is what businesses want in their staff!

I always get people to ask themselves what would the business be like if there was another 10 clones of themselves working for the company?  If you can honestly answer that the business would be a more profitable and successful place then you're the sort of person that the company is lucky to have.  Always strive to be in the top 10% of productive and profitable people in whatever company you work for!

If this has generated more questions than it has answered for you consider the four questions below to help you work out what salary you should be on:

  • What is the standard salary for someone in my role in this industry?
  • Do I bring other skills and services to the job that others don't?
  • What is the difference between my last salary and the salary being negotiated, is the percentage increase realistic?
  • What is the competition paying, and why?

I've worked in offices where people have moaned about their salaries, stating that they barely have enough to get by on.  Remember, the company isn't likely to be interest in what you claim to need to live on.  You are expected to cut your cloth accordingly and live the lifestyle that you can afford!