SALARY AND BENEFITS NEGOTIATION

Salary and benefits management is a broad, and complex field. One achieves expertise through training and experience as a specialist or generalist. There are competencies associated with Reward or Remuneration Management, also known as Compensation & Benefits Management or simply put Salary & Benefits Management. Salary, Wage, and Pay are terms used sometimes interchangeably to describe payment made by employer to an employee in return for employee’s labour. Salary is a fixed regular payment paid on a monthly basis in arrears whilst a wage is a fixed regular payment, usually paid on a daily or weekly basis. Benefits also known as perks or fringe benefits can be in monetary or non-monetary terms or a mix of both. In a unionized industry, wages are negotiated through Collective Bargaining process resulting in a Collective Bargaining Agreement (CBA) that stipulates terms and conditions of employment for job grades under a Trade Union or National Employment Council (NEC). I will focus on salary and benefits negotiation in relation to non CBA and NEC jobs because wages negotiations for CBA and NEC jobs are structured within a legislated framework.

Salary and benefits negotiation may happen at any or all of three broad phases of employment lifecycle; acquisition, development, and termination depending on motivation, willingness, and affordability principles underlying remuneration philosophy. Employer and Employee are the negotiating parties and either of them may initiate the salary and benefits negotiation. Have you ever negotiated your salary and benefits? If yes, why and if not, why not?

Employer initiated negotiation:

·       During the recruitment and selection process, employer may invite employee to negotiate salary and benefits. In some instances the employer just offers what’s available on the table based on approved job and salary grades in the organization. The question becomes should a candidate ask for salary and benefits information during interview process? It depends on the situation. Sometimes employers and or recruitment agencies share information with potential candidates. It’s prudent for candidate to express interest in the job before asking for the salary and benefits details. As the candidate progresses with the recruitment and selection process, one may ask for salary and benefits information if employer has not done so.

·       Best practice is when employer has job grading and salary structures benchmarked. A salary structure sets minimum, medium and high salary and benefits points per each job grade hence the term salary scale or range. So when negotiating with an employee, the employer may choose to negotiate at the lower, medium or upper quartile of the salary structure per grade. Accordingly, two or more employees may be holding same job position in terms of job title and grade, for example, Human Resources Business Partner (HRBP), but earn different salary and benefits, hence, salary differentiation. The differentiation may be a result of how individuals negotiate, perform, or are placed in terms of talent and succession plan. However, in the public sector the situation is generally that employees in the same grade with same job title earn same salary and benefits. In addition, in the spirit of transparency salary and benefits structures in the public sector are published for everyone to see. In the private sector there is emphasis on confidentiality hence employees are not supposed to share their salary and benefits information. In some organizations any unauthorised sharing of salary and benefits information is considered a breach of policy and may result in disciplinary action.

·       Employer may offer inflation adjusted cost of living allowance or salary increase. This is common when inflationary pressures erodes employee’s purchasing power.

·       What are your salary expectations? This is a popular question that employers put across mostly to managerial and executive employees during the recruitment process. Many interviewees consider this a ‘tricky’ question. The question stresses some candidates to a point that they respond by saying ‘I have no figures in mind and I’m willing to accept whatever the employer has to offer.’ One thinks this is a ‘safe answer’ to give and not rock the boat. This is not a tricky question and the candidate is expected to give an informed response and not hot air. Employers ask it for various reasons such as;

a) Planning in line with approved salary and benefits budget. Employers negotiate within approved guidelines hence the information provided by the candidate assists the employer to assess if they can afford or require approval to go beyond set parameters.

b) Assessing candidate’s attention to detail and self-assessment of worthiness of one’s skillset and experience. The employer is checking if candidates have an appreciation of how much their skillsets are worth in the labour market.

c) Make a deal or no deal decision depending on affordability and perceived value of the skillset and experience. Some candidates over price whilst others are indifferent or under-price their skillset.

d) Market intelligence and benchmarking. The information that candidates provide during interviews help employers to assess how well or bad their salary and benefits structures are in relation to competition for talent. Some candidates however exaggerate their earnings with a view to start negotiating at a higher level. So the insights that the employer gets during an interview need to be validated through a proper salary and benefits survey. This confirms Adam Smith (1776)’s assertion that wages are determined in the marketplace through the law of supply and demand. When there is scarcity there is high demand. An organization pays a premium to secure talent. Hence, basis of talent wars.

Employee initiated negotiation:

·       Remember the question what are your salary expectations? The question sets foundation for salary negotiation process. The candidate therefore is expected to give a credible response. A safe approach is to start by highlighting your current salary and benefits structure. Then use that as a base to start from. You can also decide to take a drop in salary and benefits if that suits your overall game plan. If you decide that way then usually a follow up question is ‘why do you want to take a salary cut? Your rationale must again be credible. Some employees trade-off salary cut by negotiating for a joining or sign-on bonus. This type of bonus is a once-off amount of money paid to a new employee by employer as an incentive to join an organization. A sign-on bonus usually comes with clauses in the employment contract whereby if the employee quits before a specified period, he/she must pay back in full or partially the signing bonus.

·       Work hard, get noticed and earn a promotion. Career advancement comes with increase in salary and benefits.

·       During the course of your employment you may want to ask for salary and benefits increase. Various reasons trigger such a need. Don’t ask for a pay rise simply because you have personal financial problems. The employer may have a view that you are failing to budget your finances or you are living beyond your means. Be tactful in presenting your case. Share with your line manager your medium to long term personal goals such as schooling plans for your children, buying a house, buying a reliable car for personal and business use etc. By so doing you plant a thought in your line manager that you need his / her help when opportunity arises. During salary reviews and incentive payments, your line manager may take into consideration your situation and do something about it. Preference is given mostly to high performing individuals as well as individuals with high potential for career progression feeding into succession plans. Such discretionary ‘favours’ are usually justified as talent retention interventions.

·       When negotiating for salary and benefits increase remember the saying there is never enough money. So don’t present a view that your salary and benefits are low and threaten to resign. You never know, your line manager may accept your resignation and then what? Sometimes employees make the mistake of telling their line managers that so and so earns more than them or their friends in other organizations are earning much more than them. Remember the principle that salary and benefits are confidential so how did you know about your peer’s salary? Do your research and tactfully share information as well as disclose sources of such information to your line manager. As you focus on what’s in it for you also consider what’s in it for the employer.

·       Sometimes employees overvalue themselves by thinking acquiring additional qualifications they should earn more. Remember you are paid in exchange for your labour. In essence you are paid for being productive. Additional qualifications may not translate to increased productivity. Emphasis is on pay for performance and not qualifications.

·       Be realistic and flexible when asking for salary and benefits increase. Executives find it easy to make a business case for pay rise to the Board when the business is performing well. Instead of salary increase what else may you consider for negotiation? Study loans, company sponsored training program, share option scheme, company paid vacation, employer guaranteed mortgage loans, membership subscriptions to professional bodies, improved tools and office set up etc.

·       If you are self-employed or owning a business, set a salary for yourself if you are directly working for the company otherwise your earnings should come as a shareholder through dividends or profit-sharing. Have the discipline of not paying yourself from the till or cash box.

Termination of employment contract induced negotiation:

Some employment contracts provide for severance package as a result of retrenchment or mutual separation. In some countries redundancy or retrenchment payments are legislated whilst in other countries the package is negotiable between employer and employee.

Tell-tale signs that negotiations for salary and benefits may be difficult to undertake and achieve:

·       When employer is borrowing or taking a bank overdraft to pay salaries. A business that struggles to raise enough revenue to cover its expenses is at high risk of closure.

·       When employer start selling assets to pay salaries hence incapacitating productivity.

·       When employer pays bonus including a 13th cheque when business achieved a loss. Such a situation arises when employees want to fulfil employment contractual entitlements at the expense of business survival. 

·       When employer has discriminatory practices and structure payroll according to different segments of employees.