Are You Being Paid What You’re Worth?
There’s an old adage – If you’re being paid fairly, you’re not asking for enough. As humoristic as that expression may first seem, there is actually a certain amount of truth in it.
Your salary says a lot about what you think you’re worth. It also speaks to what your employer thinks you’re worth – or what they think your role in the company is worth and how much they can actually afford. Your salary sets expectations. It should also be an incentive meant to encourage loyalty, and, most importantly, it acts as an investment your company is making in their growth and success.
In this short article, we’ll take an in-depth look at what factors go into determining a salary. We’ll also look at some ways you can find out if your salary is competitive in the job market, and if not, what you should do to ask for a better salary.
Though this article speaks to salary employees, to a large extent, the concepts we will look at are also applicable to contract workers and freelancers. After all, this information is pertinent to anyone who needs to ask for appropriate compensation for the work they do.
Salary As An Expense
As a business owner or manager, there are a few different ways you could look at a salary. In some respect, a salary could be looked at as a cost, an expense, or as part of the overhead of a business.
This perspective puts the employee on the same plane as raw materials, utilities, fees, and taxes. It’s not a very flattering way to look at employees, but it does have its proponents. In accounts payable, salaries often go into the same side of the ledger as these other concepts, so it is not completely unnatural for a business owner or manager to view salaries this way.
However, as an employee or a contract worker, having your salary equated to an expense is not the most desirable way for you to be viewed.
Expenses or costs are an accounting notion. It is binary, black and white. From this perspective, you are either an asset or a liability. When it comes to how a business owner or manager sees you, you don’t want to be either.
Salary As An Incentive
The carrot at the end of the stick. The promised reward for a job well done. Some salaries are designed to be just that. They are bonus-based – commissions, a percentage of sales, royalties, etc.
From a strictly effectiveness point of view, incentive plans do not work. They are premised on faulty psychological assumptions. With a salary conceived as an incentive, both you and your employer have set you up to fail.
Numerous experiments and trials have shown us that incentives work for one thing and one thing only – temporary compliance. They fail to affect the most important factor that determines behavior – one’s core value or attitude. Incentives fail to generate a lasting commitment or even enthusiasm for the task or objective they are meant to encourage.
From The Harvard Business Review on the topic: “Rewards do not create a lasting commitment. They merely, and temporarily, change what we do.”
If your pay is based on rewards, you are being incentivized to play it safe. Creativity and exploration – 2 aspects that are essential to success – are rewards in and of themselves. Put an over-emphasis on the results and you are doing so to the detriment of creativity and exploration.
Salary As An Investment
When a business owner or manager views salaries as an investment, they are placing a financial stake in the success of that employee. That employee represents potential and profit. When the company grows, it makes sense that the investment should grow as well.
In fact, viewing salary as an investment is a lot like salary as an incentive – but this time the shoe is on the other foot. It is the owner and the manager who are incentivized to make the employee successful. They are the ones who have made the investment, and they have a stake in seeing a healthy return.
When a salary is viewed as an investment, often this mindset is accompanied by an emphasis on training and continual learning. This is important when negotiating a raise or a salary restructuring. With more training and greater experience, it makes sense that you should be worth more to the company. After all, you are now more highly skilled than when they initially hired you. Their expectations of you should be elevated and, as a reflection of that, your salary should be elevated as well.
When and How to Ask For a Raise
The old adage, “Timing is everything”, though technically true, might be misleading. Timing is merely the result of an opportunity meeting with action. The key lies in understanding when there is an opportunity and then having the courage and the preparation behind you to take appropriate action.
The best time to ask for a raise will vary from person to person and from situation to situation. But there are a few good answers that carry weight across all contexts.
When Should I Ask For A Raise?
- When you are ready for greater responsibility
- When the company you work for is growing (and should, therefore, increase the amount it invests in the company)
- When you’ve acquired more credentials (i.e., getting an MBA to increase your value as an employee)
- After a fixed arbitrary length of time – i.e. 1 year
What Preparation Do I Need to Do Before Asking for a Raise?
- Know the salary range of your position. You can ask HR for the salary range of your position. Peruse job boards to see what other companies are offering for a similar position.
- Know what your company can afford. To get an idea of your company’s financial status, you can view financial statements from previous years as well as annual reviews of the sales team.
- Practice your pitch. Keep it short and simple. Make sure to frame your salary in terms of an investment, not an expense. Cite training programs you have completed and experience you have gained that should make you more valuable.
Avoid making these common salary negotiation mistakes.
- Engaging in a salary negotiation before you’ve done the necessary homework
- Focusing solely on your needs and not addressing the needs and expectations of your company
- Focusing solely on the dollar amount without taking into consideration other aspects of compensation you and your company could benefit from (such as smaller workplace adjustments that improve employee health)
- Setting an either-or ultimatum
Salary negotiation is also a discussion about expectations – what your employer expects from you and what you expect from your employer. It is a good idea to set a precedent by asking for a raise with the implicit understanding that it will not be the last time you make such a request.
The negotiation should be fluid and ongoing. As the company continues to grow and their expectations of you evolve, so should the discussions about your compensation. Avoid ultimatums and keep the door open for future negotiations.
The Bottom Line
The truth is that your salary is rarely a reflection of your actual worth. Rather, it is a reflection of market expectations, how much a given company values a given position, what the company can afford, and how much you are willing to fight for good compensation.
Your value to a company should not be stagnant. It should grow just as your talents and experience level grow. And, in consequence, your salary should grow as well.
But, in the vast majority of cases, your employer is not going to seek you out to renegotiate your salary. You will have to take the initiative. But isn’t taking initiative one of your talents, one that your employer respects and likes about you? Perhaps it’s time you put that to the test.
This article has been published in accordance with Socialnomics’ disclosure policy.