There are a couple of my friends, who, despite a solid educational background are earning much lesser than their peers.
Unfortunately in India, one's talent is not recognized unless she/he is vocal about it. No employer is going to give you good increment, despite good reviews, unless you ask for it. There will always be reasons: cost cutting, economic crisis and so so. However once you put your papers, the same company is willing to pay you more to retain you
The following strategy will work for those who are valuable contributors to their companies. Most people just take their review and increment judgments for granted and do not negotiate for a raise. And they are left wondering why, despite being a hardworking and talented employee, they are not financially rewarded well.
Know your market value
The secret to solving the above mystery lies in being aware of your market value and skills. You can do the following
- Read market reports on the salary ranges for your experience and skills
- Attend interviews of other companies even if you don’t join them to understand the market.
- Know that salary is a range,not a hard and fast figure: keeping talented employees is the biggest challenge for most companies
- Ensure you discuss with your goals with your manager much in advance and have specific targets set for you
Once you are ready with all this information, in your next review, you are at a much better position to negotiate for a raise. You know
- You have performed well in your job against the targets set for yourself
- Your market value in the job market
- You aren’t desperate; you are at a positional advantage in the negotiation
- You aren’t easily replaceable
Companies are willing to pay in the top range of market value for their best employees. It costs them more to hire a new one and retain them. They would rather have you if what you are doing is important to them and aren't easily replaceable. Even if they hire a new one, it would take time for the new person to understand the organization and start contributing to the firm.
In the worst case, you can change jobs, which is what most people do in reaction to the poor salary increments during reviews. They give up, put with that or shift a job in a fit. However, unless you gain more in terms of designation, opportunity and other benefits, shifting jobs for salary is a bad idea. Frequent jumps to companies in your CV make you look like an unreliable employee. This doesn't mean you shouldn't negotiate. You employer will have more compelling reasons to pay you well when you are well aware of your market value. Your are not being unreasonable here, just asking for fair salary
Some companies have polices to pay at top range, they may not pay the best but they compensate with other benefits in terms of work quality and culture of the organization. Some may offer you best salaries but the work could be crappy. You have to make a choice which not only pays you well but provides you good learning and a career.
Increments in salary have compounding effects
Your starting salary is very important; it acts as a base for your future incomes. Look at the chart below of 5 guys hired at different salaries, with different performance ratings, and their salary after 5 years of service with the organization.
As you can notice, employee E who has been performing consistently every year still can't catch up with employee C or D who are hired at higher range, but been only average performers or lesser. Employee A had to be a consistent top performer to stay ahead. Hence it is very important for you to get your salary re-rated as per market value. An oversight at your hired salary can have a large impact on your future income. This is because, the low salary base at which you are hired, is compounded into your future. The simple act of negotiating for getting paid well would have a much bigger impact in your wealth creation than any financial planning may have.
Ensuring you are fairly paid is the simplest step in your financial planning, which can help you achieve your goals faster. You could also look at increasing your incomes by owing small businesses, pursuing your hobbies as business (if your employment contracts allow you) and through investments.
Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need 1.5hr a week for 4 weeks to get stock of your finances, savings, earnings etc.
Disclaimer: This article is for educational purposes only and is not an investment advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.