How to Negotiate a Pay Raise (and Why You Should)

Pay Raise Green Road Sign

What is a few thousand dollars in a pay raise worth to you? If you love your job, you may believe the monetary value isn’t worth the risk of alienating your boss.

The truth is that a one-time pay raise can alter your financial future and enable you to retire years earlier. Consider that a 1-time salary increase of $5,000 invested and compounded over 40 years can add up to a whopping $1,398,905! That’s likely more money than you currently have in your retirement accounts. It may even be more than you have earned to-date in your career, and that figure comes from negotiating just once for a $5,000 increase. You can imagine the results of negotiating once every three or four years for a well-earned pay raise.

If the quality of life that extra income can bring are important to you, then it is worthwhile to negotiate a pay raise. And if feeling fairly compensated for the hard work you do matters to your sense of achievement, then it is even more worthwhile. This is the course of action we recommend:

Maintain your own performance review file: The most comprehensive documentation being shown at an annual review should be your own. Throughout the year, document the projects you undertake, the additional work you take on, and the results of your work. Note how your efforts have contributed to customer acquisition, retention, revenues, and profits. Use as many numbers and facts as you can muster. Add notes about the problems you had to solve, obstacles you had to overcome, and the skills you used and developed in the process. Keeping this running list accomplishes three things:

  • Ongoing motivation to perform at your peak
  • A document to help you recall the reasons you deserve a raise.
  • Substantiation for your superior to get final approval.

Keep a professional development file: The credentials that make you more marketable to all employers make you more valuable to your present employer. If professional development is your priority, your employer will likely appreciate your investments. Keep track of all courses, training, mentoring, credentials, volunteer projects, and advanced degrees that you receive. A good company will value your ambition and pursuit of knowledge as much as the knowledge itself. Maintaining a professional development file will also help you to make the case for employer reimbursement for your training.

Identify needs, and propose how you can play a role in meeting them: Being a valuable employee means your employer sees the value in compensating you at your current salary. Part of that value is the future expectation of what you will achieve in your role. In other words, if your company is offering a two percent raise for the coming year, they expect you to perform your current duties at the same or slightly improved performance level over the next year. If you do that, you are valuable at your current salary plus two percent. On the other hand, if you want a salary that is eight percent higher, you need to demonstrate your new proposed value. Research what the company needs, how they might solve those needs through new hires or using existing human resources, and how you can more cost-effectively meet those needs. With this research, put together a written proposal that details the needs of your company and exactly what you can do to address them.

Research salary and compensation to come up with a figure: Use the following resources to track national and local salaries for your position and in your industry:

  • Salary.com
  • Payscale.com
  • Salarygenius.com
  • Glassdoor.com
  • Bureau of Labor Statistics

Some of these resources will be rich in information, while others will be lacking. You will likely find salary ranges differ widely from site to site. This depends on the data each site has collected. Salary.com collects more data for most positions than Payscale.com, in our experience. Of course, having multiple resources at your disposal enables you to show the most comprehensive data and the highest salaries for your position.

Time your pitch: In baseball, a slider may get a hitter out if the count is 0-2, but it may result in a hit if the count is 2-0. It’s not just your pitch for a raise that matters; it’s also the timing. If your annual review isn’t coming up for many months, you may want to make the case for a raise at some point in the near future. If you do this, approach your boss after a significant accomplishment, when your perceived value is at its highest.

During the course of your pitch, your boss may say that you are deserving, but your timing is unfortunate. Your company may have recently lost a major client, or revenues for the quarter may be short of expectations. If the timing is off, buy more time. Ask to revisit the issue in two to four months when business is likely to be stronger.

If you are a strong employee and you follow this plan and get turned down, it may be time to seek better opportunities where you can be compensated what you’re worth. In that case, tell us about your negotiation experience and let’s discuss your next great career opportunity.