The Importance of Negotiating a Higher Salary

The Importance of Negotiating a Higher Salary

As I do in my life, I want to keep things structured on MonkWealth as well. That’s why before talking about the importance of negotiating a better package, I’d like to stress the motivation behind it.

First and foremost, we work for money. It’s the most quantifiable measure of our performance, contributions, or value to the company. However, there are still people who claim that they don’t care about the money. I believe them and I understand that they believe that, but believing in something doesn’t make it true (unless the majority agrees apparently). Something I’ve noticed is that every representative who claimed such foolishness brought neither performance, contributions, nor any value for their employers. On the other hand, every capable individual I met was driven by money in some way.

Why am I saying all this? Because in order to understand the importance of reaching our earning potential, we have to accept and admit that money is exclusively why are we doing this. The reason we summon willpower of steel to wake up in stormy dark mornings, the reason we shamelessly disregard friends and family, and the undignified way that we just accept that it is what it is. Everything just because of the paycheck.

And an interesting fact – the exact people who claim it’s not for the money are the first to stop working full-time or at all once they enter a union and thus don’t need that much money. Couple it with the fact that they’re easily replaceable (by robots as well), so they’re not getting a better opportunity elsewhere. All of a sudden there’s no incentive to work and, strangely enough, they’re the first out of the door… Hmmmm!

How to increase your value as an employee

With all that out of the way, let’s analyze what are our options when it comes to maximizing our productivity, or in other words, getting paid more.

One option is working more.

And it’s a valid one, but only to a tiny extent. If you’re paid the same amount per hour, you literally can’t earn more than 24 times that per day. Whether you increase your effective hours, be more proactive, or just slack around all day, you won’t earn a cent more than what’s physically possible. Maybe there is no need to remind you that working 24h shifts every day is unsustainable, but even ignoring that, you won’t be able to do better than 3x your salary (3 x the standard 8 hours).

It’s just not scalable.

What else can you do?

Asking for a raise

Yes, you can ask for a raise. Let’s take a look at a good, bad, and a most probable outcome if you decide to do so.

In the worst case, assuming you’re qualified but not really a critical asset, they’ll remind you that they appreciate your contributions and want you to be happy followed by sentences containing the word “maybe” and random timelines such as “next year”. They’ll keep it in mind for the EOY raise and you might get a bit more than if you haven’t asked, but still – all of this makes me feel miserable even writing it.

The best case scenario is them acknowledging that you’ve been doing a great job, knowing that your market value is higher and discussing it with the ones with authority to approve the decision. After a month or two, you’ll see a bump of max 5%. Great job. And don’t forget that this will hurt your future negotiation leverage because 5% is considered as high.

And the probable scenario is something in between. A tiny little bump you won’t even feel, but will also hurt your future leverage.

It’s basically a lose lose scenario.

And don’t get me wrong, I understand that a 100-200€ raise might mean a lot to some people, but if you get an urge to complain about that, you’re missing the point. Yes, chase every cent, but don’t get into battles you know you can’t win! Get a new job and start high. Also, read Sun Tzu.

With all that said, promotions are where some relatively serious amounts can be made. Be careful though, although they will congratulate you and even throw you a party, most of the time they’ll try to skip negotiation and set a number themselves. And as I said, these salary bumps are not that insignificant, maybe in the 10-15% range most of the time, so the employee will also drop complaining because he’ll be satisfied with what he got.

Always negotiate.

You’re not doing anyone a service. Just read your contract and you’ll understand why you’re there. Think about the disadvantage you have – your employer hired professionals to prepare your contract and optimize the finances, while you’re just a poor soul driven by emotions (“I like my boss, I can’t ask for more every semester, I should be grateful…”). If you’re that close, I wonder why you didn’t agree on a handshake… Or why aren’t you sharing the profits? Never forget: you’re a worker! And as such, you have the obligation to try to maximize your value, while the equilibrium price will be determined by supply and demand at the end, anyway.

And remember, the more times you keep your mouth shut, the more tamed you become. All to the point when you’re so subdued and live for the sole purpose of serving the machine… And that’s the exact moment when you officially lost consciousness and thus gave up humanity.

Enjoy being a plant. Or even worse – dead.

(Re)Start high

This got dark pretty fast. 🙂

We were talking about raises and ended up in a weird place. Weird but realistic.

Now, let’s say you somehow got the 10% raise. Let’s assume that you’re in a junior position. Here is where the importance of negotiating your starting salary comes into play:

Person #1 started her career with $45k, while person #2 started his career at $35k. Although the yearly raises they’ll both get are worth almost nothing, person #1 will get 4500$ more while person #2 will get 3500$ more. Compounding also applies – each yearly increase will be applied on the current year’s base salaries.

You see the point? No amount of intra-company raises can make up for all the time and wealth we can lose by not negotiating a higher starting salary.

Also, remember that our employers and colleagues don’t have the same mindset as us. Many grown ups are sincerely in peace if they have enough to survive, pay bills, and take a vacation, ending on a positive 0 at the end of the year. I have been the target of sincere wonder from people who couldn’t grasp why I’m not finally satisfied with my career, after everything I achieved. These people keep forgetting what we’re giving in return. They’re also forgetting that there is always room for growth! But it’s fine. While out of working hours we live in a democratic society so everyone is free to have their own beliefs.

Negotiating a starting salary as high as possible will not only yield more money on the short run, but also all future salary increases will be based on it.

What did I do

Basically, I started earning as a software developer by going freelance after university. It made more sense at the time and the earnings were higher than what most of my university acquaintances got.

However, I was a victim of a misconception that working from home is really important, but failed to understand the conditions under which that holds true. Namely, I wasn’t really building a product with equally enthusiastic people nor enjoying a dream job… I was simply catching project after project, delivered results, got paid, and it was gone. It was nice to learn what working with clients means, something that many developers don’t understand until they’re “seniors”, but something was not right.

I couldn’t word it properly back then, but what haunted me was that although I was earning more than I could’ve at an entry level job, what I was doing wasn’t scalable. While chasing for clients, I thought I was building a brand, but it turned out that I just got temporary unstable jobs with no benefits.

So I decided to get a job and continue earning on the side as well.

There’s quite a story I can tell here, comparing how slow and inefficient everything was once I started, completely unlike what I expected… But my career path is a story for another post… We were talking about negotiating a starting salary…

I didn’t do it.

Driven by the willingness to work (wtf, right?), I just accepted the offer. Needless to say, freelancing while working left me with no time for myself. It wasn’t only not scalable, but not sustainable as well.

On top of that, I wasted so much time that was not utilized at the office… Which actually makes me really happy that I didn’t negotiate a higher starting salary. If I did, I may have felt grateful and thus limited my earning potential with the maximum amount I could earn as an employee in a developing country.

But this way, in a few months after seeing that it didn’t make sense, I had literally no problem quitting. I just left.

Applied full time in a country I liked and in which working makes more sense and within a couple of months I had an offer and a visa, ready to move.

Moral of the story: one of the few reasons for not insisting on maximizing your value is if you’re getting your feet in the water and/or have absolutely no leverage to do so. Apart from such cases, always fight for the best value. The compensation package should be the one and only factor when picking a job. Not the culture, not the colleagues, not the boss. Just the money. A conscious being can’t be fulfilled in a cage anyway, so there shouldn’t be any regrets when sacrificing “company culture” for more money.

Also, don’t work overtime. Longer hours are not an excuse for a higher compensation. Doing overtime also lowers your hourly rate, so you might be better off elsewhere if you’re “forced” (lol) to.

What happened next?

I was always into FIRE, but only started approaching it structurally after I relocated. Everything before was only saving as much money as possible (one of the best habits ever, but still a financial mistake). What I’m trying to convey is that I finally learned how scarce of a resource money is and, if working anyway, we should do everything in our power to maximize it.

This was followed by series of negotiations in various instances: from raises and promotions to job changes. From leveraging my skills and knowledge to leveraging the supply/demand ratio. From catching every percent I could to doubling my salary in less than 3 years and then some. I was on FIRE!

And I’m not done.

However, I have to mention that I don’t think that income is the most important thing in life, even when it comes to personal finance. As my recent experience shows, we can generate monetary value without exchanging a more valuable resource for it. But even saying that, the fact that we need to actively try to maximize our earning potential as employees still holds true.

Bottom line

Money is the one, only, and exclusive parameter you should consider when switching jobs, and the exceptions are few.

Things that are not exceptions include: getting a stressful position, fearing burnout, hating the environment you’re in, etc.

I’m being real. Don’t be afraid of any of those! Just don’t put your signature on contacts that ask for your soul instead of your time and you should be fine. Remember that you live in a free society and are good to walk away with a month’s notice. If you’re not, you might be selling your soul, so be careful.

And the best part?

You’ll go out of the room feeling like a winner!

Until you remember that you’re just a rusty cog fighting for cents in a ruthless world where permanent happiness doesn’t exist.