Workers who negotiate a small increase in their salary every three years can achieve far more than a pat on the back, a new study finds. They could also earn an extra $1 million over the course of their career.
Consider two workers: Jim, who starts at $45,000 — and accepts a typical 1 percent pay raise each year — and Jane, who negotiates for a starting salary of $50,000 and negotiates a 4 percent raise every three years. After a 45-year career, the difference in their total lifetime earnings is $1,037,773, Salary.com pointed out in a recent study. And that doesn’t take into account bonuses, promotions or stock options. “It’s a theoretical scenario,” says Abby Euler, general manager at Salary.com, “but it gives a very good idea of what some people could be leaving on the table.”
To achieve a 4 percent pay raise, however, employees might have to push harder than the average worker. Most U.S. employers gave pay raises last year of around 3 percent, according to two separate studies by managing consultancies Hay Group and Mercer Group. Before the Great Recession of 2008, those studies found, pay hikes hovered at closer to 4 percent. “As economic conditions improve, now is a great time to negotiate your rate,” says Priya Kapila, manager of compensation consulting at CBIZ Human Capital Services, a human resources consultancy in St. Louis. The extra income could be used to achieve a major goal like buying a house, funding higher education or retiring comfortably, she says.
Despite such obvious benefits, only 41 percent of workers push for a pay raise, according to a survey published last month by Salary.com — even though 84 percent of companies expect their employees to request one. Not arguing for a pay increase can have a far-reaching impact on a person’s quality of life, says Jeff Baldock, a career coach in Toronto. “Income is recognized as one of the most important social determinants of health,” he says, “so when an individual opts out of seeking a raise, they are in essence neglecting their health.” Indeed, some studies have indicated a relationship between a higher salary and better emotional health.
So why do so many workers remain silent? “They’re fearful that they might irritate the boss and lose their job by negotiating,” says Steve Ferris, senior associate dean of the Trulaske College of Business at the University of Missouri. “People lack confidence and don’t like to have a difficult conversation.” When it comes to negotiating, however, employees might be forgiven for believing that they are swimming against the tide. Many employers “condition” the American workforce to believe that negotiation is a waste of time, says Tim Sackett, president of HRU Technical Resources, an information technology and engineering staffing firm in Lansing, Mich. For instance, a boss might talk about how the company constantly needs to cut back on perks. “We buy into the lie,” he says. The good news: No employers admit to having fired or even demoted an employee for asking for a raise, according to the Salary.com survey.
Why do companies make their workers ask for raises? “Managers want you to prove that you have career growth,” Euler says, “and if you don’t do that, it may say something about your performance level.” Rather than seeing an annual review as a confrontation, experts say, employees should look forward to the annual pow-wow as an opportunity to showcase their work. “Employers expect staff to negotiate,” Euler says. “In fact, many regard it as a part of the job.”
Before meeting with the boss, an employee should know what his or her job is worth, Ferris says, and have an idea of the financial state of the company. Online tools like the Job Seeker’s Salary Calculator and the Salary Wizard, for instance, allow people to input their job title, zip code and education level to determine the market rate for their job. The most common mistake during salary negotiations is to be defensive or emotional, Euler says. And mentioning a personal need for more money — pregnancy, an unemployed spouse, a rising mortgage rate, or car trouble — is not likely to lead to a raise, she says. “Make your manager as confident as possible in your abilities,” Euler says, “so when your manager decides to put your case to his manager, it’s a no brainer.”
Quentin Fottrell is a personal finance reporter for MarketWatch based in New York. You can follow him on Twitter @quantanamo. This article originally appeared on MarketWatch.com and is reprinted by permission from Marketwatch.com, ©2014 Dow Jones & Co. Inc. All rights reserved.