The pay increase you should expect when changing jobs
By Jose Ruiz
How much? There is no easy answer for this question but the best way to address is it is to understand a company’s typical thought process. Regardless of what companies will openly admit there are three things that will determine what a company will offer you when changing jobs:
What you are worth in the Market
This has nothing to do with your perceived value, it is important to distinguish your perceived value from your market value. Your market value is simply based on what others with a similar skill set and experience (your competition) are currently or willing to make. I have had candidates tell me: “I saved the company $500,000 dollars last year why can’t they pay me 50% more?” And the answer is pretty straight forward, harsh, but straight forward: Because they don’t have to if someone else can save them the same amount for 25% less than what you make.
So, research the market when setting your expectations. Once you arrive at market data it is important to understand how it is used. If you take market statistics as a reference, consider that companies will try to make offers below the 50 percentile to guarantee room for growth and development. The area above that percentile is reserved for compensating performance and experience at the corresponding level. If at any point you are able to negotiate above the 50 percentile be cautious of what your future will look like. You might be staring at a few years with below average salary increases.
Your current salary
This becomes a none-issue if you are at market, but if you are under the market it will force a question: Why are you below market? In many cases there is a valid reason. But beware of how you present your case. Companies will know about other companies more that you might expect. Company names in your resume and your current salary will hint to what your performance has been. Questions marks will fly if you have been with a well recognized organization for the past 4 years and your salary is below market. Regardless of how well the interview process goes and how good an organization may be when evaluating potential employees there is never a guarantee that a new hire will perform as expected. So if you are below market don’t expect a significant immediate increase to bring you to market level. Companies will typically provide an increase to bring you on board but it will be up to you to bring yourself to market level by performing. So worry about positioning yourself in an organization that will FACILITATE getting back to market level within a certain amount of time versus trying to find a sponsor that will immediately take you there because they feel for you and believe your story.
It is also important to consider that while companies understand that money is important they will seek a candidate’s decision based on the challenge, expected career path and career development and not on an immediate boost in pay. For that reason, most organizations will shy away from providing sharp increases when presenting an offer. The average increase, assuming that the increase does no put you outside the hiring companies range for the position is between 15-25%. The higher the salary the lower the percentage tends to be. In very few instances do we see organizations that are willing to increase an executive’s salary by more than 25% when they bring them on board. So once again, worry about positioning yourself in an organization that will provide a level of responsibility, training and experience that will allow you to progressively increase your market value and consequently your salary.
Chase responsibility and experience that can be marketed and the money will come.
Their internal pay structure
You would think that the pay structure in most companies would match market data. Unfortunately it is not always the case and not because organizations would not want it that way. External events can change the market quicker than what a company can or would be willing to react to. When we see a mismatch it is typically a temporary supply and demand issue for specific industries and disciplines. In most instances companies will prefer to take more time to fill a job opening or even lose a few employees to a hot job market over turning their cost structure upside down or generate disgruntled employees by increasing the salary range for specific positions while keeping other similar ones the same.
Jose Ruiz is a Principal in Heidrick & Struggles’ Monterrey office. As an executive recruiter he has worked on executive search projects for multinational clients in industrial sectors and consumer markets.
About Heidrick & Struggles International, Inc.
The world’s premier provider of senior-level executive search and leadership consulting services. The firm’s executive recruiters and leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. In Mexico, Heidrick & Struggles operates offices in Mexico City and Monterrey. For more information about Heidrick & Struggles please visit www.heidrick.com
Nice article. You did an excellent job of explaining how the companies view salaries and your market value. It’s important to have realistic views of your value to the company. Besides, in the long run, compensation should not be the driving factor in selecting a position. The challenge, opportunities for growth and level of responsibility are more important for long-term success.
You did a great job with the article, but when reality rolls around the facts need to be placed on the table. An employee should not be looking for a raise for being promoted, but rather, they should be thankful they kept their job.
Outsourcing and having the majority of hands on jobs shipped overseas is the cornerstone of complaints when someone is replaced vs promoted. Especially in this O-day and O-age.
JL Mealer
Mealer Companies LLC
http://mealercompanies.com
America’s Next Major Automaker
& 100% Self-Regenerative-Fueled
High Capacity Electricity Producing Device MFG
This may be very common practice which is not a very good practice among all the recruiters but I do not agree with this logic.
To be frank and honestly with you that to know the worth of a job is not that easy it come with education, experience, the desired role, span of control, size of impact or contribution etc. which may vary from company to company.
Also fixation of compensation ranges with in a Company depend on many factors which are as follows.
1. Compensation philosophy of the particular company.
2. Nature of business of the particular company and it’s competition in the market.
3. Scope of the Roles with in the organization.
4. Demand and Supply of labour.
Hence to be precise an individual to understand the worth of a job one should see the potential of a candidate rather focusing on the roles in the previous company as each company and their roles are unique to themselves.
For example an individual is doing a particular job in a small set up / organization and gets x amount as a salary, where he utilizes 50% of his capability as per demand of the job. Then what happens when the same candidate applies for a job in a bigger company for a bigger role where he can use 100% of his capability of and do you think the same principle will apply here as mentioned in your write up?
I’ll quote another example in many cases some of the bosses hinders the growth path of their own subordinates by paying them below market and getting the desired performance by suppressing them this is the reality in today’s context is this the individual’s fault? If the recruiting company is going to pay less by referring to his previous roles and salary and ignoring the fact of internal parity then definitely they would do mistake and consequently employee may turn down the offer or if he joins due to compelling reason then he/ she may look green pasture after few months.
Hence my advice to the all recruiters is to be fair towards the candidate and maintain internal parity the candidate deserves rather than to suppress him as he was drawing lower salary in the previous job.
Jose,
Mucho gusto. It enjoyed your article. Very very helpful – it validated a lot of what I believe (I have been using a quick “what’s the range, let’s not waste anyone’s time” and “i’m looking for about 20%, depending on the job”.
If you are ever in Nashville, do let me know.
Saludos,
Cory
Hello Jose,
If I were to describe your article as just excellent, I would not be doing a great justice. If I may suggest that your article be turned into a coaching “digital lifestyles” series for employees to uplift morale and in building their careers. In addition, the series will be most fitting for employers to assist and educate them in developing creative individual development plans to retain employees, allow a happy career growth, and avoid the perceived injustice in salary increases. Based on my personal experience when mentoring my team, it is so true what you have said: “Chase responsibility and experience that can be marketed and the money will come.”
Thanks.
Wadih Tannous
Thanks Jose for the great write-up
Ali
Dear Jose,
That was a crisp capture of the considerations that go in the mind of the incumbent and the organization.
In my experience, I have seen a fourth dimension operating which is
WHAT’S THE PRICE THAT THE ORGANISATION IS WILLING TO PAY FOR THE BOX in the structure and in the current situation ?
This goes beyond the generic logic of the organization ability to pay and the internal pay structure.
Especially in Sales and Marketing, the consideration is defined by whether the incumbent to the BOX is for one who is expected to
• Strategies market penetration
• Work on consolidation
• Think out of the box for diversification
Each of them though in the same responsibility level carries certain price-premium differentials.
Lateral application of the same principle can be seen in other functions also.
One must examine the organization situation to size the challenge and if he fits the bill to meet it, there is always a premium on the position and I have seen smart candidates who have done their how work positioning themselves to get the premium at ease.
This I call as THE ART OF SMART NEGOTIATION.
Once again, very useful tips for considerations that goes back and forth in the minds and across the table.
Mohan M Prasad
Thank you Jose for your very well written article, and thank you Susan Oberle for your comments. Both have helped me set my priorities in my current job search.
Jose
Thanks for the excellent article!
Thanks Jose for this excellent article.
Jose,
This is a great article. I think that you really “get it” to an extent that many don’t.
That said – I have a theory – when you tell people a range, or any numbers at all – they only hear the top numbers and nothing else. If many execs read your post, they’re going to think that they should expect a 25% increase upon getting to their next job!
The example I use typically, is if you were to tell your neighbor’s college age kid that you’d give them 8-12 dollars an hour to do your yard work, and they did it for 2 hours – would they expect $16 or $24?
Again – great piece – dead on in all regards… Thanks for writing it!
David
PS. Charles – I’d advise not trying to get more time off as a main negotiation point – you haven’t even started working yet and you want to not work! I know this isn’t your real rational, but it may be percieved as being so. If you do bring it up, do so towards the end of the process, after much has been already determined.
Ron – you need to get to a better company!!! If they’re not willing to pay up for talent… they’ll keep getting where the level has been set – if they pay up, the watermark will be higher, thereby attracting better people overall.