What should companies and employees consider when negotiating compensation?

To help you and your company negotiate compensation, we asked financial experts and business leaders this question for their best tips. From investigating competitive salaries to looking into growth potential, there are several things that may help you when negotiating salary.

Here are nine things companies and employees should consider when negotiating compensation: 

  • Consider Market Value and What You Can Offer
  • Reflect on Background for Competitive Salary
  • Increase Retention With Mutually Beneficial Pay
  • Know Your Value
  • Review Risks to 4th Quarter Hiring
  • Weigh in on the Whole Compensation Plan
  • Look at Growth Potential
  • Be Knowledgeable of Company-Wide Pay
  • Make Transparency Part of the Process


Consider Market Value and What You Can Offer

As an employer, you’ll need to calculate your market value for each potential candidate. Ideally, your estimate of their value will correspond with the employee’s appraisal.  If you have a recruiting firm help you with hiring, they should be able to help you determine a market value as well as a good strategy for negotiating the salary. There are three fundamental factors to consider when estimating a candidate’s market value. The first is the standard salary for workers in their position. The second is how much value they could add to your organization. And the third is determined by your business. It includes employer related factors like the size of your nonprofit, the salary provided to other existing employees, and the current success of the organization.

Jon Schneider, Recruiterie


Reflect on Background for Competitive Salary

Companies and employees should definitely consider a potential hire’s background. Consideration should be given to an employee’s academic background and the background of the job, and the role requirements. This way, you can better align your employees to the right role and provide a competitive salary based on market expectations. By understanding the company’s needs and the employee’s expectations, you can be better prepared to negotiate. 

Rronniba Pemberton, Markitors


Increase Retention With Mutually Beneficial Pay 

Employees, almost more than anything, want to be compensated fairly, especially in a high-demand job. If you put a lot of pressure on them to produce quickly and efficiently, let your standard determine their pay and reward their hard work with what is fair, not what you can spare. They will feel their loyalty is reciprocated and are more likely to uphold their commitment to the job.

Roy Ferman, Seek Capital


Know Your Value

When employees are negotiating their salary, they need to know what the average rate for their specific position is. It’s easy and crucial to do your research before the negotiation, and sites such as Glassdoor can provide such information. In addition to this, employees need to let employers know they are worth the money. This means providing documentation of successes in projects as well as any growth. 

Employers, especially hiring managers, need to be prepared for this. You need to expect the employee is going to know this information, and if you are going to negotiate against this, you need to do your own research and have your own proof of why the employee may or may not be there quite yet.

Olivia Young, Conscious Items


Review Risks to 4th Quarter Hiring

If someone chooses to start working at the new company in October, November, or December, they could (in some cases) be leaving money on the table. If an employee is starting a new job in the 4th quarter, keep in mind: 1. They could be forfeiting a bonus from the previous job because they left before an award was granted (despite working almost an entire year); and 2. If bonus eligible, come the following year, they would only receive a prorated bonus and increase from the new job. So essentially, they’d have to work for the new employer for 15 months before feeling the benefits of a bonus/pay increase; and 3. They could also be ineligible for a pay increase at the new job. 

Some companies have policies where employees who were hired or received an increase in pay during the 4th quarter would be ineligible to receive an increase in the 1st quarter. These are all things to consider when negotiating so you can supplement the loss they may experience because of 4th quarter hiring.

LaShawn Davis, The HR Plug


Weigh in on the Whole Compensation Plan 

Both the company’s and employees’ goals are to sign in a covenant with both parties thrilled to inaugurate working together. Always remember that negotiating compensation is not about employers getting the upper hand. It’s about mainly getting a fruitful arrangement that makes the organization and the employee happy to start working together. Moreover, negotiating on the base salary and the bonus might take you to the dead end. Maybe the organization loves your personality but authentically does not have the budget to satiate your needs right now. Make sure that the entire compensation package is more than just your base bonus and salary.

Caroline Lee, CocoSign


Look at Growth Potential 

When negotiating compensation with a potential new hire, really consider what he or she will bring to the table. Do they click all the boxes for the skill sets that you’re after? And, do they offer other skills that could make them a more valuable asset? When you can look down the road and see the potential for a new employee beyond the position for which they are applying, this should be noted when setting a pay scale. Employee retention is at an all-time low, so you’ll want any employees, whether new or existing, to feel as if they are well-compensated for their work.

Travis Killian, Everlasting Comfort


Be Knowledgeable of Company-Wide Pay

Know all of the company’s compensations: basic salary, commissions, incentives, allowances, yearly bonuses, benefits such as insurance, vacation and sick leave, and others. Then, consider the workload and work schedule that comes with it. It is also justifiable to demand or provide a higher salary or better compensation than the previous job. As employers, avoid lowballing your employees, because compensation is one of the factors that keep employees motivated and loyal.

Joe Flanagan, VelvetJobs


Make Transparency Part of the Process

Companies should lead the compensation process by providing reliable data to explain the thought process behind their compensation. There are a plethora of different quality sources in which companies and employees are able to get compensation data. For employees, know the range of your job and be able to speak to examples of the value you have brought to the organization. By coming prepared with data and value, the conversation is much easier to have.

Steven Brown, DP Electric Inc


Terkel creates community-driven content featuring expert insights. Sign up at terkel.io to answer questions and get published.