Friday, October 8, 2010

Should I ask for a better pay package?

From a reader:

I recently stumbled upon your blog. You have an interesting and informative blog. Keep up the good work!

I want your opinion on a situation that my friend is currently in.

My friend has about 7 years of IT experience and has worked with the same services based MNC companies for this entire period. He is hard working and very good at his work. He has always been a good performer and has always got a great rating in his appraisals. The delayed hike has finally come through this month and his salary has undergone a change too.

He has recently cleared technical interviews in another services based MNC company, and during salary negotiation in the HR round, he quoted a percentage hike when asked for his comp expectations. The HR said it was too high for what he was already currently getting. They asked him what was it that would get him to join them. He quoted a percentage lesser than the initial comp expectation. They again asked him if he would not be ready to take up an offer lesser than this and he said no. They said if he was ready for an offer lesser than the already reduced expectation, they would call him on the phone and discuss the offer before issuing the offer letter. They also asked him if he had any other offers etc, and kind of kept on giving him the feeling that he was expecting too much.

Now, what should he do in a position like this? We feel that his expectations were only reasonable, while taking into account his years experience, as we know that the industry standards are clearly above this.

I work for a product company and clearly the salary levels in our company are way above.

So what are we missing here? Why do companies, try to close the deal because they get them cheap? Why is there no policy to bring them up to the industry standard band? Or is there one?

Please provide you inputs. Your time is much appreciated.

Interesting question! This question comes up ever so frequently in my interactions with friends. Here’s my take on this one.

First, compensation planning works almost similar to the market. Really. Hear me out on this one. In any industry/domain, there will be a significant set of players (Read: Employers) who will dictate the compensation guidelines, so as to not create an indifference in parity in the talent pool (and make it harder for themselves) nor make it an uneven playing field. That’s typically one of the reasons to conduct annual salary surveys among competitors. Now, those are guidelines and not necessary written in stone. Some companies choose to follow them and some just plain don’t. So, typically the industry standard is a variable. It’s becomes even more skewed when you have data from only a few people (or friends) with varied backgrounds. To maintain sanity, there's also the salary survey that maps competitors on an annual basis.

Second, it works differently at a product based company and for a services based firm. In a product based set-up, it’s a lot easier to link one’s skill-set, technology, experience, performance, etc. and their impact on a product that’s getting built and it’s earning potential in the market. This in turn helps companies to give a higher incentive to the best performing individual. Although, the top performer could have the same skill-set and years of experience, competency levels are a big differentiator.

This works almost the same in the services based firm. The only change is the fact that the services companies are dependent on the money they make from servicing their client’s needs. So, effectively they would pay for skills, based on the billable amount with the client and the availability of that skill in the talent pool. Net-net, their salary bands are effectively then dictated by the amount of money they make from their clients. So, if ‘Company A’ & ‘Company B’ are catering to the same client, it boils down to which company is ready to let go of their profit margins to hire talent. And then again, there are guidelines, so the difference in pay between them wouldn’t be drastically different. You get it?

Now, let’s get to your friend’s situation.

Though the company is unwilling to give him a hike that he’s asking, are there other benefits that could make up for low comp? Other benefits could be either onsite/client visits opportunities, flexible salary structure, benefits & perks, work from home options, etc. Understandably compensation does play a significant role; but it shouldn’t necessarily become the single-most important factor to determine a job offer.

Finally, when it comes to salary/comp, there are 2 types of companies: one that chooses to give a hike based on the current salary/compensation and the second type that chooses to give a compensation package based purely on competency and the way it fits within the existing group/organization. It’s ok to ask them for their stand. And obviously, your best bet would be to go with the second type.

As for the industry standard, I’m not really sure if this helps, but you can try this website to get a better understanding of the industry standards in salary. Hope it’s helpful. (Note: I’m not getting paid to promote the website. Though I wish I would get paid!)

Good luck to your friend!