Negotiating a Pay Raise

Daniel YergerFinancial Planning 1 Comment

This past weekend, my wife and I played “Diplomacy” with a group of friends. Diplomacy is an older game from the 50s that looks a lot like Risk, except that it’s set in Europe at the start of 1901, and there are no dice. Instead, every move every player can make is completely within their control, save that other player’s moves carry identical weight, and thus, if one army meets another, nothing will happen, unless that army is supported by an ally or a larger army of your own. Consequently, the entire game revolves around, as the name might imply, diplomacy. Thus, while it is in the nature of the game that occasionally, one player will betray an ally, the majority of moves made in the game are done in concert, negotiating moves in mutual self-interest for the good of advancing each individual’s position. The ultimate objective of the game is to control over half of the board and only one player can win. Yet, a study of the game and the data around its play in competitive tournaments over the years and around the world shows that only in about a quarter of games does anyone win, and in fact, three-quarters end with surviving players agreeing to a draw.

So why bring up this board game other than describing its basic mechanics? Because Diplomacy teaches its players quickly that while aggression or deceit can make for temporary gains, it’s far better to build a strategy with mutual benefit with one’s allies at the heart of the strategy. This is a valuable thing to keep in mind as you advance your interests in the compensation arena. As we sit at the end of the year during many companies’ annual review season and budgeting season, it’s a good time to consider how to discuss compensation and try to move the needle not only on your pay raise but also on your career.

Want a Pay Raise? Research First

Before you jump into an annual review or any discussion and negotiation of your pay raise, it helps to do your research. First and foremost, be very clear about your title, years of relevant experience, and your qualifications. So while you might have ten years of experience overall, the four years spent waiting tables in college before you started your software development job out of college probably don’t count. Some great resources for researching compensation are below:

  • Bureau of Labor Statistics: This is a government agency that tracks a large amount of economic data, including data on salaries, pay ranges, rising or falling demand for the job, and regional variations. This data is extremely high quality because it’s largely derived from reported payrolls and taxpayer information. One notable element is that while it provides pay ranges for the roles (e.g., average pay and the pay at the standard deviations in either direction), be mindful that it doesn’t do a good job of parsing experience level in roles. So if you’re new to a profession, expect to come in lower than averages, and if you’re very experienced, expect to come in higher than averages.
  • Glassdoor: This is the “company reviews page” of the internet, with a specific emphasis on interviews, salaries, and reviewing the company’s management. This resource is especially beneficial in two ways for negotiating a raise: First, if you’re in a bigger company, many employees with your exact role are likely to have published not only reviews of the company but their own compensation data, so you can get a feel for whether you’re in the upper or lower range of the pay range for your role. Second, even if your company is smaller and doesn’t have a lot of reviews or any reviews, you can look at competitors’ reviews and data to see what your talents might earn you if you were to go to another company.
  • This combines the worlds of both Glassdoor and the Bureau of Labor Statistics insofar as you can search based on job title, experience, and geography, to get an estimated range of compensation for your particular level of experience in your locale. While the data on doesn’t reflect as high of quality of sources as the BLS or as company-specific of information as Glassdoor, it can help you get a feel for what’s appropriate in your role.

Mutual Interest Over Aggression

When it comes to broaching the topic of a raise or promotion request, remember that both parties in the conversation need to get something out of it. You cannot simply demand more money without making a case as to why more money is warranted. While raises for things like adjustments due to cost of living are fairly easy to argue (“I shouldn’t be paid less this year than I was last year”), raises that represent a material bump in compensation should be more carefully considered. A company with specialized talent or technological requirements often makes a big investment in employees and, thus, has retention on their minds. In turn, companies that see high turnover in employees likely won’t make much of an effort to retain someone who is asking for more than they can offer. To make a succinct example, a company employing veteran software engineers is likely more open to compensation negotiations than a Walmart negotiating with a cashier.

In the case of a company that looks to retain talent, suggesting that it’s a worthwhile investment for the company to provide a raise in alignment with both your talents and experience with the company. Replacing you in the future might not only cost the company in a direct sense, such as the delay to the launch of a product or development of a new line of business, but also may end up being more expensive if the marketplace for your skillset has moved past where you started and become more expensive in the interim. Therefore it’s ultimately in the company’s interest to give you a raise or raises to ensure continuity and that their growth and operations aren’t inconveniently interrupted.

In the case of a company ambivalent about retention, making an argument that you’d like to take on more responsibility or advance in your career is likely to land better than simply asking them to make offers to keep you. In these environments, there has to be an expansion of responsibility to warrant a pay raise, because any individual employee is, unfortunately, more replaceable than they’d like to think. Consequently, asking to become an assistant manager, team leader, supervisor, or specialist in some way is a better value proposition to ask for more compensation than simply asking them to pay more to retain you.

Defenses Against Pay Raises

Many companies, particularly bigger companies or government agencies, will have a systemized manner in which they handle reviews and raises. Consequently, the basic defense of many organizations such as these is to simply say: “It’s not in the budget” or “We give raises based on XYZ system.” While that all may be true, such that your manager doesn’t have the ability to unilaterally grant you a raise upon request, that simply emphasizes the importance of laying the ground work throughout the year. A few strategies can help improve the outcomes by the time a review cycle comes up.

  1. Express needs indirectly: Don’t simply badger your manager for a raise throughout the year, but explain the changing and growing costs in your life. You’ve gotten married, you have children in piano/ballet/football, you bought a new house or just did a renovation, and gosh darn it, all these things are just so expensive! How does anyone keep up with the cost of living around here? Doing this creates an empathetic opportunity for your manager to recognize the genuine needs in your situation.
  2. Ask for responsibilities at work: Asking for more tasks and responsibility is a clear signal to your manager that you’re interested in advancing, and any good manager is happy to see their employees engaged in advancing their careers. However, taking on more responsibility then creates a mandate to perform. The appropriate cycle is to ask for a new responsibility, do well at the responsibility in the first “cycle” of that responsibility, and then review your performance in that area with your manager and attach an ask to it. The ask could be regarding how your performance with this responsibility reflects on your review or whether it could warrant advancement within the organization sooner rather than later.
  3. Anchor your asks: When it comes down to brass tacks, having done the research and identified the areas of mutual benefit between you and your employer, be sure to put your ask out first. If you want a six percent raise, introduce that idea much earlier in the review cycle than the moment of truth. This is particularly important if your company uses a “compensation pool” to allocate money for raises because if you aren’t a squeaky wheel about your performance and needs, you can end up getting the same 3% raise “as everyone else” rather than being the exceptional employee who gets a slightly bigger piece of the pie.

Ultimatums Are A Strategy of Last Resort

Sometimes in diplomacy, you have to make an ultimatum. “I need X, or else.” This is a strategy of last resort because it demands an outcome of your negotiating counterpart that they may not want to make or be in a position to fulfill. Consequently, not only does it make things unnecessarily hostile, but even if you get what you want, you may have turned up all available social capital to attain it. Ultimately, a hardball negotiating tactic like an ultimatum is only as good as your ability to back it up. “I want a fifteen percent raise, or I’ll quit” only makes sense for you if you have another job with a raise attached to it waiting in the wings. If it’s simply a bluff, then you’re stuck with the consequences. You either get your fifteen percent raise, and now you really have to spend a great deal of time performing in such a manner that you show you deserve it, lest you simply create ill will among your colleagues, or you don’t get it, and you either have to eat crow and stay or actually quit. Not really a winning strategy.

For the Managers

For those readers in a leadership position, I haven’t forgotten you. If you’re the lead executive or business owner of your organization, there may be little you can do about pay raises since the success of the organization or the approval of your board may be the only thing that gets you a pay raise. This is the subject of another article altogether. But, when it comes to being the decision-maker around the topics I’ve outlined for your employees in this piece, consider the most winning strategy of all: taking a genuine interest in the wellbeing and success of your employees. If you have an up-and-comer in your company, be sure to express your appreciation for their commitment and talents. Proactively engage with your team about their careers, ambitions, and interests. Proactively advocate for their pay raises rather than making them ask you for them. Take the time to think of your people as more than “help” but as valuable members of your organization, all of whom contribute singularly to your team. If you find yourself thinking, “Well yeah, that’s true, but what about that one guy who isn’t so great?” Then it’s time to think about ways to help that one guy either improve or move onto something they’re better suited for.

Either way, regardless of the seat you find yourself in as a leader, it’s imperative that you take your team’s well-being seriously. Not only in the culture and workplace environment you create for your team, but in understanding that you are playing a role as shepherd of their welfare and life’s ambitions.

Comments 1

Leave a Reply

Your email address will not be published. Required fields are marked *