Know your worth and negotiate it well
With US job openings hitting record highs, we’re in what’s called a tight labor market. This phenomenon occurs when employers are struggling to find solid employees, which isn’t so great if you’re an employer. But the good news, for most of our readers, is that this presents you as an employee with plenty of opportunity! If you’re looking for a new job, and you’re qualified for the job you’re seeking, this puts you in an advantageous position when it comes to negotiating your compensation. While we know that more money does not always equate to greater happiness, we do believe in negotiating for what you’re worth. In this week’s blog, we’re going to talk about how to maximize your job offer through intentional and tactical compensation negotiation.
Do your research
As you explore new roles, understanding the compensation you’re seeking goes beyond the salary a company is offering. In today’s world, most companies offer base salaries, short term benefits, long term benefits, and performance based compensation. The best place to get started is to review what you’re already receiving to calculate your Total Compensation. First, your salary and bonus. These are simple, just the sum of the total dollar amount. But then, you must dig beyond these surface numbers.
The next set of items to calcular are your employee benefits. Think about all of the benefits that you are offered and take advantage of. This can include your health, life, and disability insurance, and other company-specific benefits like childcare, family leave, tuition reimbursement, student loan payments, adoption assistance, free food, or charitable donation matches. If you’re curious what other companies offer, Levels.FYI has a great resource that outlines employee benefits offered at Google, Amazon, and Apple, and others. You might not know exactly what each of these benefits would cost if you were to purchase them separately, so it’s OK to estimate! We can help you do this with our own estimates in the list below:
401k Matching: Typically 3-4% of your eligible compensation, which often includes both your salary and bonus.
Health Insurance: $6,000 per year for individuals and $12,000 for family basic plans (think Bronze / Silver), $10,000 for individuals or $24,000 for family comprehensive plans (think Gold / Platinum). Check to see how much you pay vs. how much your employer pays.
Dental Insurance: $180 to $600 per year for an individual plan. Families will be slightly more expensive. Again, check to see how much you pay vs. how much your employer pays.
Vision Insurance: $60 to $200 per year per person in your family.
Disability Insurance: $2,000 to $6,000 per year for short-term and long-term coverage, but this varies by age, gender, occupation, health, and other factors. See Guardian’s calculator to estimate the cost to replace your coverage.
Term Life Insurance: $500 to $2,500 per year. Similar to disability insurance, costs can vary. See Guardian’s calculator to estimate.
Tuition Reimbursement: $500 to $5,000 per year.
Student loan benefits: $1,000 to $3,000 per year.
Free food: $2,500 to $6,000 per year depending on the number of meals you eat at the office per day/week.
And then, calculate an estimate for any stock based compensation.
Employee stock purchase plans: $1,300 to $4,400 per year depending on the percentage discount you receive. Check out Mana’s blog on ESPPs for more information.
Restricted stock units: see how many dollars of company stock you will receive each year, without assuming any growth in the company’s stock price.
Stock options: similarly, see how much stock you would own if you exercised all of your shares on an annual basis. Private companies will often point to high growth targets as a way to entice potential employees to come on board. While well-funded small private companies do have the opportunity for faster trajectory growth than a large public traded company, we recommend being conservative on these estimates.
Now just add everything up and you’ve got your Total Compensation! This is a great starting point for understanding the minimum of what a new company should be offering you for a similar role, based on your experience.
Beyond your own figures, there are a ton of resources out there that should help you understand if you’re currently being fairly compensated, and what you should expect in your next role. To some of you this may sound crazy - but we highly recommend you start by talking to your friends and colleagues at other companies. If you’ve advanced careers in the same industry, sharing your experience will enable you to lift each other up! We love breaking down barriers of taboo financial conversations. Recruiters can also be a great resource to find out what the reasonable compensation might be at your level in your industry. If you’d rather hunt the internet, one of our favorite resources is the H1B Database, which gives fantastic transparency and insight into the salaries of individuals who work for your firm and/or in similar fields. But remember, salary isn’t the whole story!
Once you’re feeling confident that you understand your current compensation and the marketplace, it’s time to evaluate the tradeoffs. Before any negotiation takes place, we encourage you to think about all the tradeoffs you - and the company that’s hiring you - will be making if the negotiation goes in your favor.
Cash vs. non-cash compensation
Now that you understand the total compensation package being offered, it makes sense to do a comparison on what you’re leaving behind. One concrete example is measuring the tradeoff of staying with a company who offers a 401k match versus joining a company without a 401k match. Although a 401k company match is more common now than it was ten or twenty years ago, we still find companies who do not offer this perk. If, for example, your base salary was $250,000 at your old company and you received a 4% match, you’d need an extra $10,000 in gross pay at your new job to compensate.
Equity vs. cash compensation
Many of the richest people in the world got wealthy because they took a big, concentrated risk on one stock. When a company offers you equity as part of your compensation package, they’re providing you the opportunity to take exactly this kind of risk. Once you begin a salary negotiation, one of the trade offs you might need to think about is the breakdown between equity compensation and cash. To evaluate this tradeoff, think about:
What amount of cash do you need each month to live your life? If you’re a client of ours, this is your Mana Mindful Spending Plan.
How strongly do you believe in management and the company itself?
How much of an impact will your role have on the company’s stock price?
What is the ultimate goal of the company? Is your company planning to go public? If it’s already public, is the plan to sell to an even larger acquirer?
How much income and net worth would constitute your ‘enough’?
Time vs. money
Many of our clients in the middle stages of their careers realize that life is about so much more than climbing the corporate ladder. When it comes to accepting that next big job offer, we’d encourage you to think about how the demands of your job will change along with this next big pay bump. If you’re moving to a new company, you might think about whether the company culture will (or won’t) support your lifestyle goals. Here are a few questions some of our clients have found helpful to ponder before accepting their next position:
How structured is the team I’ll be joining? Will I be in charge of building a new team, or is the team I’m joining composed of tenured employees?
What is the company vacation policy? Is it truly ‘flexible’ or is it a culture that frowns upon time off?
What are the hours expected of me? Will I be working late hours and/or traveling often?
As you ask these questions, we’d encourage you to think about whether your new job will be additive (or subtractive) to your life goals. Maximizing compensation is more cut and dry, but maximizing your life energy to enable greater savings is what we encourage above all. For individuals working long hours, it's common to outsource or "streamline" many aspects of your daily life, and these optimization habits typically cost money! The more convenience, the more expense. We've seen examples where entire salaries have been used to cover childcare (and these individuals would rather be spending actual time with their children); or cases where ordering take-out every single night is a requirement because of long working hours (when cooking was previously their favorite hobby). Of course, the perfect balance is different for everyone.
We started this post with a reminder that today’s labor market puts you at an employment advantage. Knowing the extent of your worth should boost your confidence, and now is a great time to flex your bargaining skills with new job offers. But even if you aren’t looking to change jobs, calculating and understanding your compensation package should be an enlightening exercise. Tagging a dollar value to each hour you spend at work should help you prioritize what matters in the rest of your life. At Mana, we know that success and wealth go far beyond the numbers, but sometimes uncovering what those numbers are can help your dream to the fullest. And so, we encourage all of our readers to know your worth and negotiate it well!
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Stephanie Bucko and Cristina Livadary are fee-only financial planners based in Los Angeles, California. Stephanie is the Chief Investment Officer and Cristina is the Chief Executive Officer at Mana Financial Life Design (FLD). Mana FLD provides comprehensive financial planning and investment management services to help clients grow and protect their wealth throughout life’s journey. Mana FLD specializes in advising ambitious professionals who seek financial knowledge and want to implement creative budgeting, savings, proactive planning and powerful investment strategies. As fee-only fiduciaries and independent financial advisors, Stephanie and Cristina never receive commission of any kind. Stephanie and Cristina are legally bound by their certifications to provide unbiased and trustworthy financial advice.