Economic downturn forces everyone to take stock, to review both their current situation and future plans. You may be doing exactly that sort of re-assessment for your company given current conditions – but now is also good time to do it for yourself. If you have been made redundant, this is potential opportunity to re-orient your career. At the very least you need to be prepared to face the usual round of recruitment agencies and interviews.
Even if your own position is fairly secure with your current employer, you may well be called upon to take up new responsibilities or re-focus your role. It will do no harm to think ahead, beyond the next year or so, and the key element in preparing your package negotiation stance is basic research.
Here is checklist to start you off:
Getting the Facts
Your first reaction to an impending change will be to scan the newspaper ads and browse the internet in order to get an idea of what jobs are out there and how much they might pay. My advice is to postpone that sort of research until you have an accurate idea of your current situation.
The initial question is the most obvious, but one you will probably not be able to answer straight away: what is the value of your most recent remuneration deal? No, not what you are paid, but the total cost to your employer of the whole package? Unless you are paid totally in cash, you need to know the full value of the benefits and perks you have received.
Your employer may provide Total Remuneration Statement, but check how the items have been calculated. Does it reflect the actual cost to the employer of the benefit – including hefty discount on the retail price which you may not be able to negotiate as an individual customer? For instance, how much will it cost to keep up your health insurance, or your car? Remember also that you have to allow for the income tax you will pay if the FBT component has not been computed.
Secondly, examine your remuneration history over the past few years.
• How did your salary progress, and what benefits did you add during that period? What percentage of the increment was related to cost-of-living adjustments, and what amount was attributable to changes in your job or increases in your personal accountability (budgets, staff etc)?
• How much did you receive in variable pay, both short-term and long-term.
• What was your average annual bonus or incentive payment over the past few years, and on what basis was it calculated? Do you know how much, for instance, was related to the company’s overall profitability and how much to your individual performance rating (or your target earnings if you were in sales)? How much variation was there, year on year?
• What long-term incentive schemes were in place? What was the annualised value to you, and the average payout after however many years? Did the scheme involve share ownership – either distribution of shares or share options? What was the risk involved? – that includes not only within the scheme itself (eg, options being much more risky than distribution of actual shares) but also the environment in your industry. In other words, were long-term incentive payments realistically achievable on fairly consistent basis, or was the distribution likely to be irregular as result of volatile profitability?
• Is it likely that your total remuneration package was higher than the market median (your company’s policy, or you have been with the same employer for long time)? If so, do you need to revise your expectations regarding what is achievable in the current market?
Analyse Your Situation
Once you have gone through these questions, you can establish your own “value statement” with both the fixed and variable remuneration components.
Fixed remuneration covers not only the salary-in-the-bank but the cost of the benefits you need to continue your lifestyle (car, health insurance, etc). It also covers any amount of “bonus” pay which you received consistently over time. In other words, if you got certain percentage of your salary regularly each year as “bonus”, that amount was effectively deferred salary.
Variable pay is whatever was truly “at risk”, both short-term and long-term. The variable pay may have been major component of your earnings averaged over the past five years, but you have to ask yourself if that is likely to continue in the current economic climate, and adjust your expectations accordingly.
Now that you have done all this analysis, you are in much better position to:
• Make reasonable, realistic assessment of your “bottom line” requirements and expectations, the amount you need to maintain certain lifestyle.
• Assess how your current package was positioned against the market.
• Compare accurately your previous package with the one on offer, and negotiate any new remuneration deal in detail.
Now it is time to see what you can glean from the market.
Getting Market Information
It is sometimes quite difficult to know what your own remuneration level should be. Many employers do not divulge relevant market information to executives themselves, only that which relates to their subordinates, which is not necessarily good guide to the manager’s pay.
Obviously, published sources are useful, especially if you are in senior management and targeting listed companies. The total remuneration of top executives now has to be disclosed in annual reports, both here and in Australia. Companies are required to list the number of executives who are paid over $100,000, disclosed in brackets of $10,000.
Even though this information is not specific, it does give you an indication of the total remuneration levels at the top of the organisation, and it may not be too difficult to work out where approximately on that list the position you are targeting will fall. Just be aware that variable pay can sometimes skew the data (especially when lucrative long-term incentive programme has come to an end, paying out in one year the proceeds earned over several years). If you suspect that has happened, look at the company’s annual reports over several years, rather than just the latest one.
Magazines or websites, particularly those specialising in professional discipline or function such as IT, can provide information. Some industry or professional associations actually run their own surveys. However, the quality of the data can vary enormously, so do not rely on them unless you are confident of the accuracy. key element is sample size, but even large samples do not necessarily provide worthwhile information if there is little definition of the role except job title. Additionally, survey participants are usually self-selected, so there may be inconsistencies in the sample year-on-year, as not everyone will participate in every survey. quick sense-check will indicate how much credibility to ascribe to the data:
• Are very wide ranges cited – such as “$55,000 to $120,000”? They are effectively too broad to be of any help at all.
• Is there significant disparity between results year-on-year – for example, “the average salary has gone up 23 percent since last year”?
Looking Externally
So what can you do? If you are actively searching for another job, do as much desk research as you can, but also seek guidance from recruitment consultants. They will ask initially what your expectations are, and should be able to tell you whether that is in the ballpark as far as particular job is concerned. In some cases, especially if the job is newly created one, the client may simply not know how much to pay. Later in the recruitment process you should get an indication of the exact terms and conditions. Keep log of your findings, and the particulars of the pay package on offer so as to be able to compare it in detail with your own.
Staying On
Now is probably not the right time to broach the subject of pay rise with your employer, even if you have taken up more responsibilities recently. Alternat
