The amount of salary one makes throughout their career and their lifestyle and quality of life as a result of that total income earned depends significantly on the amount of salary a person negotiates before day one of the job.  This should be considered whether it is a first job out of college or a mid-life career change.  Further, there are impacts when you are in a career working for a company that you are very happy with, of not negotiating more salary at the right time.

Throughout one’s career, a person can earn raises and promotions within the company they work for, but for example, when the company gives scheduled raises, as many companies do, of 2,3,4% even 10%, the impact of the starting salary with that company is huge.  This not only applies to the first salary and incremental raises but also to salary differentials when a person changes roles within a company.  They may move into a role of significantly more effort and responsibility, but their position beforehand in terms of salary and benefits can influence the starting salary of the new role.

Take for example a person starting a new job as a QA Analyst in a high tech company somewhere in mid-USA.  Say for example that person begins with a starting salary of $45,000.  Most likely that person will have to put in 6 months to a full year before they are offered their first pay increase.  Suppose it is a 10% raise which would be HUGE in many companies.  The employee would gain an additional $4500 per year based on that raise.

Now suppose that person started at $55,000 or even higher.  That same raise of 10% would provide the same employee $5500 additional salary per year.   With the first salary, the employee would still be under the $50,000 level after a year of work and after a 10% raise, while in the second scenario the person would be at over $60,000 per year after a 10% raise. 

Now consider the compound effect of these two starting salaries on the employees earning potential.  First let’s examine a four year horizon, all things being equal (that is, assuming no pay raises and no promotions).  The person earning $45,000 will have earned $180,000 in gross salary in 4 years.  The person earning $55,000 will have earned $220,000 in 4 years.  That is a $40,000 difference just based on where the person starts in terms of salary.

Second, introduce the 10% raise after year one and consider the impact as the person progresses through their career.   The person with a higher salary in the beginning will always be ahead of the person with the lower starting salary, all things being equal (e.g. same job, same performance).  The person with the higher salary will be inching ahead faster than the person starting with the lower salary.  This impact accelerates with each passing year assuming the same % annual pay raise for each.

When requesting a pay raise, if a person earning $50,000 earns a 5% raise without negotiating anything more, that’s “not bad”.  But consider the impact if the person negotiates a 15% raise because they have outperformed in the job and they have all the supporting research and a track record to justify it.  That employee will have negotiated $7,500 in a raise versus just accepting $2500.  Multiply that by 10 years, and there is a $50,000 impact on the person’s earning potential.

Many experts feel it goes without saying that it is better to try negotiating a raise or an improvement to the compensation package than to simply accept what is offered.  The first offer is often the lowest offer and can be improved upon.  This negotiation must be done with tact and must be well founded with a supporting case for the increase.  It must also consider factors such as market, company guidelines, and professional performance.  However when done well, it can really pay off.  Remember to consider the value of all factors of compensation when asking for a raise.  Some people truly value time and quality of life, while others are willing to venture out and accept stock options in lieu of pay.  However, when it comes to negotiating, don’t be afraid to consider asking for more.