Let me offer you this advice. Get dispassionate about it. You need to drain the emotion out of any discussion of compensation. People get caught up in “fairness” and all sorts of traps that can lead to poor and potentially self-destructive arguments for more pay.
You need to be smart. I like The Godfather. Be Michael, not Sonny…or worse, Fredo.
There is no “best way” to enter a negotiation. Much depends on you and your specific situation. However, there are some clear “rules of the road” to keep in mind that will help make you far more effective in getting what you’re worth.
Note: There are obviously more things you can negotiate for, but this is focused on more pay. I’m assuming you have an existing position, understand the “total compensation” package (health, retirement etc.) and want more salary
A quick case study: Here is a disguised (but true) example of how this can play out that we can use to show a few concepts.
Gail has been a top ranked performer in her day to day responsibilities, built support with multiple members of the executive team by doing “night work” to help them with their initiatives and never said “no” when asked to take on a challenge. As a result, she has gotten stretch assignments allowing her to move quickly into a hot new technology area with rapid growth. She has blown every assignment away.
Dave has done well. He’s a solid performer who has done good work. But he’s never really taken on much beyond his day to day. His area of expertise is a profitable niche for the company, but not an area of dynamic growth. He’s consistently earned good reviews.
Who’s got more leverage?
In the case above, Gail got outside offers and got a BIG pay raise. Management told Dave they were comfortable with where he was when he asked for more.
So how do you raise the odds of you getting what you want?
Let’s break this into two phases. “Laying the Foundation” is about setting up the best conditions for your discussion and “Having the Conversation” discusses actually getting what you what.
Laying the Foundation
Any comp discussion has a long run-up
This is a medium to long-term process. In the case above, Gail is getting paid for several years of performance and a market she created for herself internally and externally.
Performance (at least PERCEIVED performance) matters. So as unhelpful as it may be to say, the success of your raise discussion will be heavily influenced by the results you have delivered over a period of time. In other words, have you been creating leverage for yourself with your performance?
A big part of building this leverage is based on what I call building support. If your performance is limited to your defined responsibilities and only your boss sees it, do you really have any support? You need to build your own network and set of positive relationships. Relying on your boss’ can be fatal. Here’s a prior post on building support
So as you approach this discussion, be clear in your own mind whether you’re seen by your boss as a “star”, “solid contributor” or “so-so” player and how many people will agree with them.
Develop a clear picture of the salary increase process at your organization
There are two distinct types of raises in many organizations. Let’s call them “in-process” and “out of process”.
An in-process raise happens in the normal course of the organization’s review cycle. Think of this as the annual raise. Its timing and rules are usually knowable to you. Even though there is a program and (often) formulas in place, you can strongly influence the process.
You need to understand the timing of reviews, how (or if) your review drives the formula for raises and how much discretion/flexibility your boss has.
Typically a manager has a limited budget to allocate across their group for raises. You need to be out in front of the process to communicate your expectations and get a sense of where you stand to maximize your “normal” raise.
When I ran a business at 3M, your review level set up parameters for raises that I needed senior executive approval to exceed. There was a limited pool for raises that was a zero sum game. If I had an average of 2% increases to allocate and I gave someone 3%, that meant someone else got 1%. The highest end for the best performers was ~5%.
So if you’re looking for 15%, we’re “out of process”.
An out of process raise happened when someone was looking for more than the typical bump, or wanted it out of the normal time cycle. This requires A LOT more setup and selling in many organizations.
Here you’ll need to understand the organizational and HR process for making a decision. You’ll want to know things like: what your boss can approve, how high (or broad in a partnership) they need to go based on what you’re looking for, does HR lead or follow in the process etc.
Be clear about what is persuasive
You need to think like your management and make a sale to them from their perspective. In the end only a few things really matter; performance, leverage, the market and support.
Performance – Are you seen as a “star? Do you “deliver” in the context of your organization?
Leverage – Are you just asking, or do you have some stick in the discussion? We’ll discuss below how to get and use leverage. The question here is do you really have it and will you use it?
The Market – Is your position easily benchmarked? If so where do you stand? If not, how do you draw a comparison? Are people hiring?
If you are a good web developer and you can show me that you make 20% less than “market” for our city, then I have to think about the risk of losing you. If you’re 20% above market and hiring is down, not so much. (This could be leverage, but I think of it differently).
Support – We discussed this above. From the start do you believe management will support your case? Have you built a set of relationships that you can activate here? You are a lot further down the path if management wants to get something done and has tactical problems than if you need to make a case to even get their attention.
Understand your motivation
I want you to think through how “rational” vs. emotional driven your goals are.
I would characterize things like “knowing you make 10% less than the published averages in your market for your role” as rational. Emotional break down into petty ones like “I know Sally makes more than me and I am a stronger contributor” vs. more symbolic ones like “I need to see a visible sign of my boss’ support.”
There’s a fine line here, admittedly. Sally really may be a poorer performer and be paid more. But a “fairness”-based motivation needs to be tempered to win a result. That motivation isn’t an argument for more in and of itself. The market based motivation is almost an argument for more on its own.
Completely irrelevant to management is that fact that you have personal financial problems. That may be driving you, but you need a better argument. I go into more detail on managing your financial house here.
The point is to understand why you want more so you can manage yourself.
Understand the risks to manage them
Be comfortable with how much value you put at risk. The risks in my experience include:
Getting labeled – Being seen as “high maintenance” and/or “out of touch”. This is a way to lose support, not gain it.
Messing up your situation – Having a bad enough interaction (whether through emotion, unprofessionalism etc.) that you actually muddy your day to day work situation. Think – “I lost favor and don’t get plum projects” or “I mysteriously went from being a top performer to average in the latest review cycle”.
Reality Sandwich – Sometimes (like Dave above), you find out others don’t think you’re “high potential” even though you do.
As Marshall Goldsmith notes in his book What Got You Here Won’t Get You There, 80-85% of executives rate themselves in the top 20% of their peer group. Well, you may find out others think you’re below the 50th percentile. Bummer.
I always think it’s better to find this out, but depending on the strength of your ego it may be a blow.
Having the Conversation
Remember, you’re only “worth” what you can get…
Stars get paid in the long run. I know this sounds harsh. But it’s reality. Simply wanting more is not persuasive. We all want more. But there’s only so much compensation to go around.
You need to create a sense in management that they must compensate you or run the risk of losing you. For that to work, they have to feel that they CAN’T really replace you.
On another note, NEVER confuse your pay with your personal worth. As Michael says, “It’s not personal, Sonny. It’s strictly business.”
How far are you willing to go?
Is a raise something you want? Is it something you need or it will affect your performance? Is it something you will leave over?
Be clear BEFORE you start how far you are willing to go. You want to understand how strongly you feel and what your risk profile is as you enter the discussion.
Have a picture of what you will be satisfied with (and be flexible)
How much is enough? Have a clear number in mind.
Also – think through whether part of what you are looking for is overt support from your boss. If you ask for 15% and your boss gets you 8% in a tough year, are you good? I can’t tell you how to feel about this, but think it through.
In the same vein, understand your company’s pay scales/bands. Knowing this, don’t be naïve and ask for things that simply can’t happen. If you are at the top of a pay band, then you should be talking promotion, not raise.
Assess your leverage and whether you want to use it
Do you have credible alternatives to use as leverage? Are you willing to walk away?
Credible Alternatives: The best leverage is usually another offer. I got a big bump early in my career when I had a huge external offer but didn’t really want to leave. That is the market re-pricing you as an asset. (My bump while big, was ½ what the external firm offered me. Without it though I never would have gotten what I got.)
You have to create these alternatives. So if you are plotting your raise for the near term, you have to actually be working to create a market for you. At a big company, this can be an internal one. This is often much less risky. Just grab coffee across organizational boundaries and do interesting work.
Externally, people need to be able to find you. I have written a lot on this, so will skip it for this post. Here’s a link.
By the way, this can have the halo affect of making your boss think through what you mean to them. Remember that familiarity can breed contempt…or at least ambivalence. Show them someone else wants you and they may love you more.
Walking Away: Are you willing to? If not, don’t go there. You may not like what you learn.
Remember that just because you have leverage doesn’t mean you have to use it. Make sure it’s worth it. If you have an existing position that is decent, you want to be very careful about over-reaching. Some genies can’t be put back in the bottle.
Having said that, if you want a lot then you need to build leverage systematically and learn how to wield if effectively.
Build and make your case
Having laid the groundwork and thought through your needs and risk profile, it’s time to actually plan your discussion.
Be clear and data driven. Assemble a fact based case for why you are worth more.
Remember that how you negotiate matters
If you handle this professionally and with data and leverage, you impress. If not, you lose face.
Be data driven and understand the process. As mentioned above, if you approach your boss 3 weeks after the annual process has closed and say you need the raise “now”, it’s not likely to go well. If you don’t have an external offer in hand as leverage, you need to start a dialogue well in advance.
This is a repeated game, so don’t lose sight of the long term
I think that it is critical to have a serious pay conversation with your leadership every 3-5 years. You can’t go to the well whining about pay too often without being seen as a pain. But you need to do it once in awhile or you’ll just drift along on the “normal” pay path.
That may be OK. But if it’s not, then make your case.