Making the Most of Your Compensation: Discussing Your Current Salary

At some point during the negotiations you will certainly be asked and be expected to answer questions about your salary. When these questions come up, you need to have well-thought-out responses. You should be comfortable enough with what you are going to say so that there is no hesitation. You can then move quickly to another subject without drawing undue attention to the issue. The key to this is preparation.

The following key points of negotiation will prepare you to discuss your salary with prospective employers and not disadvantage yourself in the negotiations.

Try to avoid discussing your current compensation for as long as possible.
A good example of what can happen when salary is discussed improperly can be explained through the experience of a business acquaintance of mine whom I will call Rick.

Rick had been contacted by a recruiter looking for a chief operating officer for a small manufacturing company. The recruiter described the company as one that had been poorly managed by its prior owner, but that had tremendous potential. The investors were looking for an entrepreneur who could bring the company's cost structure into line, market their product aggressively, and prepare the company to go public in a few years. The recruiter wanted Rick to understand that the salary might be a little low, but that he would be given a significant equity position. If the company was successful, his stock would more than compensate him for any loss of salary. After some further discussion about the company, the recruiter asked Rick what his salary was. He responded that his base salary was $100,000.

Rick's response to the recruiter's question was reflexive. It was the response most people make when they are asked about their salary. It was also the wrong response. The best response is to avoid divulging salary at such an early stage in the process. This may be difficult to do; however, it is not impossible.

Consider the impact of what Rick told the recruiter. A candidate's current salary is the single most important factor and employer will use in determining what to offer. As a rule, if a new job doesn't involve a promotion or a relocation to a higher-cost area, an employer will offer a 10 to 15 percent increase over the employee's current salary. Even when a promotion or relocation is involved, an employer will use current salary as the starting point in deciding what to offer.

From the situation described to him Rick could expect to be offered a base salary at or slightly below his current salary level, plus a substantial grant of stock or stock options to compensate for the company's inability to increase his salary. Unfortunately for Rick, his salary disclosure enabled the company to offer him the same salary and enough equity, in light of his salary, to make it worthwhile to change jobs. That is exactly what happened.

Discuss your total compensation, not just salary.
How can you make the most of your current salary without lying? The simplest way is to consider the value of your total compensation. When providing salary information, include not only base salary and bonuses but also benefits such as car allowance, reimbursement for club dues, expense accounts, deferred compensation, stock and stock options, pension benefits, 401(k) plans, company-paid insurance, and so on. If possible, avoid being too precise, at least during the preliminary discussions.

How should Rick have responded? Instead of stating that his base salary was $100,000, he could have countered with something like this:
RECRUITER: What is your current salary, Rick?
RICK: Last year I made approximately $150,000, including my bonus and other perks.

Such a response takes into account not only Rick's $100,000 salary but his bonus of $25,000 and approximately $25,000 worth of stock options, perks and other benefits. By describing his compensation in this way, Rick is communicating that he takes the fact that he will earn a bonus for granted and considers it to be part of his basic compensation package. Even better, he could have responded that his current compensation is between $150,000 and $175,000, depending on his bonus. Alternatively he could have simply stated that his salary was in the low six figures. Finally, Rick could have tried to deflect the question by asking what the company has budgeted for the position.

When describing your compensation, take into account raises and bonuses.
If you are asked specifically about salary and can't avoid the subject, be sure to describe your salary in its most favorable light. Because your bonus may vary from year to year, it can provide you with a certain amount of flexibility (without being dishonest) in the way you describe you compensation. Moreover, the inherent variability of bonuses allows you additional opportunities to create uncertainty with a prospective employer.

For example, if the bonus you earned last year was much larger than what you anticipate receiving this year, be sure that you state your compensation in terms of what you earned last year. If, on the other hand, you expect that this year's bonus will be larger than last year's, discuss what you expect to earn this year. Thus you could say that you are earning $50,000 in base salary and expect to receive a $15,000 bonus this year.

If the last time you received a large bonus was several years ago, when you were given $25,000 because of your extraordinary work on a particular deal, you can talk about earning bonuses of between $10,000 and $25,000. Even better, you could describe your bonus as "up to $25,000." You could also talk about the bonus program in general, describing your bonus potential, which is the maximum possible bonus you could earn. Be aware, however, that eventually someone will probably ask about the bonuses you have actually received.

Never lie.
When responding to questions about your compensation, bear in mind the fifth commandment of employment negotiations: "Never lie, but use the truth to your advantage." Not only is it wrong to lie about your salary; it is a tactical error as well. Your salary can easily be confirmed by your current employer. In fact, you may be asked to provide a copy of your last W-2 form after you are hired. On the other hand, as Rick learned the hard way, complete candor will work to your disadvantage.

Focus on market data if your salary is below the market rate.
A problem you may encounter if you have been with the same employer for a lengthy period of time is that your salary has not kept up with the market. If your current salary is used in setting the salary at a new job, you will continue to be paid less than you are worth. Under these circumstances it is critical to concentrate the discussion on the market rate for the position, and delay discussing your specific salary for as long as possible. Having information as to what other companies are paying for similar positions will help you highlight the value of the job, as opposed to your current salary. When the time comes to disclose your salary, not only should you make it clear that you know you are being underpaid, but you should also explain the reason without being defensive about it.

For example, you might state, "Companies are paying between $50,000 and $75,000 for graphic designers. Although I have been earning only $35,000 at Cheapo Graphics Company while I have been mastering CAD technology, now that I am fully proficient I expect to be paid the going rate." Whatever the reason for your below-market salary, be prepared to explain why you have been willing to accept it and to demonstrate what other companies are paying for people with your skills.