Business: Insider’s Guide to Compensation & Negotiation
November 7, 2021 – Upcoming Events, Opportunities & Resources
Several students have asked 3 critical questions when thinking about or negotiating job offers:
1. When can you negotiate a job offer’s compensation package?
2. How do you know if you’re being offered fair compensation by the company?
3. What is your real discretionary pay? (i.e., income after paying for rent and other necessities)
1. When can you negotiate a job offer’s compensation package?
This is a complex challenge (see here (new window) for specific negotiating tips from the Career Center) but one in which it’s important to recognize how the company’s perspective is different from your perspective as an applicant/future employee.
Some general precepts of compensation and negotiation in the for-profit sphere regardless of sector (with further details following)The company is incentivized to give you the lowest possible compensation while still having you accept the offer
The larger the company, the less willing it is to negotiate compensation for entry-level positions, for which there are many applicants. And the reverse is also generally true, the smaller the company (i.e., the fewer applicants) the more willing they will be to negotiate.
Large companies with large numbers of applicants will see qualified candidates as generally interchangeable. The traditional supply-demand roles of the labor market are reversed: the company provides a limited ‘supply’ of entry level positions; you, the worker, are competing with many other similar workers to provide the ‘demand’ for the positions. This further increases the power imbalance between you and the company
Large companies often set their entry-level compensation offers division- or location-wide. Thus, recruiters at large companies often have minimal flexibility in granting higher compensation than the value prescribed by their bosses.
Negotiating for entry-level positions is different than negotiating after a few years in the post-graduation workforce (many of the offer-negotiating tips you’ll find online focus on the latter). Most companies view entry-level applicants and employees as having very little leverage in any sort of salary/benefits negotiation.
The leverage you may have as an applicant is, in order of importance:Higher competing offer from a similar companyHigh market-value technical skills (e.g., knowledge of a high demand programming language)A very compelling personal reason that you will need to share with the company in order to justify the amount of effort the recruiter will have to do in order to get an offer-raise approved by the company’s leadership. 2. How do you know if you’re being offered fair compensation by the company?
This comes down to assessing the company’s perception of the market value of your position and the company’s return on investment by hiring you.Market Value of Your Position
This is a very subjective value that most for-profit companies portray as an objective one. The market value of the position is generally determined by how much employees in analogous roles are paid at the company’s closest talent competition. This can between competing companies in the same sub-sector (e.g., Deloitte vs. PWC vs. Accenture) or sub-sectors that pull from similar talent pools (e.g., Big Tech vs. Tech Consulting). However, companies can also use the nebulous ‘market value’ calculation to reinforce systematic discrimination and socio-economic inequality by offering lower pay for equal work.
What You Can Do: Research what others at the same company are being paid for the same entry level role as well as what similar companies are paying for similar entry level roles using resources like Glassdoor (new window), Salary.com (new window), Zip Recruiter (new window), or NACE (new window) to assess whether your offer is at or below the market value for similar work. You can also chat with the Industry Advisors at the Career Center (new window)to discuss current market value trends. If you decide to negotiate with the company (new window), come prepared with the data showing the difference between the market value and their offer. The same applies if you get multiple job offers and compare between them.
Return on Investment
(Revenue from Employee’s Work > Company’s Expenses for Employee)
Companies are incentivized to maximize the return on investment with all employees, but especially with entry level positions. The earlier you are in your career, the more money the company has to spend to train you in order to build core company-specific skills. Depending on the size/scope of the company’s training program, this may amount to tens-of-thousands of dollars-worth of training per employee within the 1-2 years–in addition to the salary and benefits the employee will receive more directly. The company views this as it’s investment in you as an entry-level employee. The company will only recoup its investment if you stay long enough at the firm to help directly or indirectly improve their revenues: by you producing work that is more valuable than their investment (Revenue from Employee’s Work > [Salary + Benefits + Amortized Training Expense]). This places downward pressure on offered salaries, since many companies expect many entry level employees to leave the company before they become profitable to the company.
What You Can Do: Focus on developing one or more high-value technical skills, then emphasize them in your resume and subsequent interviews with companies. These especially include programming languages such as R, Python, Java, C#, C++, or others. Even having basic experience in one of these languages is valuable, and can increase the company’s anticipated Return on Investment in hiring you. This puts an upward pressure on the offered salary and improves your negotiating position. 3. What is your real discretionary pay? (i.e. income after paying for rent and other necessities)
In addition to after-tax income, there are several major factors that are easy to miss:Expected ‘Lifestyle’ Costs (a.k.a. Gaining Access to the ‘In Crowd’)
Even at entry levels, some firms will indirectly (or even explicitly) expect you to spend more of your salary to fit in with the company’s culture: on fancier clothes, more lavish restaurants or clubs, more frequent and higher price alcohol purchases (regardless of whether you actually drink), etc. This is another factor that reinforces discrimination and inequality. These expectations vary between sub-sectors (e.g., Commercial or Government Consulting has higher expected lifestyle costs than Technology Consulting; Investment Banking has higher expected lifestyle costs than Equity Research; etc.). Even if the company does not directly require these purchases, the firm’s ‘culture’ may put heavy pressure on you to conform to these expectations in order to be competitive for internal promotions and career progression. These costs can be so high that they consume overall higher salaries–resulting in much lower real discretionary pay in your first few years in the workforce.
What You Can Do: Talk with the Industry Advisors at the Career Center (new window) or Alumni on Hoya Gateway (new window) about the expected lifestyle costs in various sectors or firms that you are interested in. Sector-specific messaging boards on Reddit or other forums can be a source of helpful information from current or recent employees, though should be taken with a grain of salt. Assess your comfortability with participating in, and paying for the expected lifestyle costs and, if so, incorporate them into your planned expenses as you consider offers. If not, develop a plan of potential alternatives in terms of how to progress in the firm without partaking in the lifestyle and/or to find analogous roles, firms, or sub-sector with fewer lifestyle costs. The Career Center or Alumni can also assist here.
Cost-of-Living By Geography
Since cost-of-living varies so widely by geography, offered salaries may look very different depending on your main office. The shift to long-term hybrid or remote work over the course of the Pandemic has added further opportunities for companies to offer lower salaries in return for more flexible work locations. However, from your perspective as the worker, more flexibility or placement in a lower cost-of-living geography can result in more savings and a better standard of living even if at a lower total salary.
What You Can Do: Research the comparable cost-of-living across multiple cities/regions using various websites (e.g., here (new window), here (new window), here (new window), here (new window)) and compare to your expected expenses over the first few years out of school and any planned-for future education (e.g., saving for grad school). Consider applying for positions at the company or similar sector in less high-demand geographies (e.g., NYC vs. Chicago; San Francisco vs. Phoenix; etc.) This has the added advantage of scoping down the number of applicants you’re competing with for the same position.
Benefits and “Total Compensation”
In recent years, some companies have taken to referencing “total compensation” as a byword for your salary plus the value of any benefits the company grants you access to. This can be a way for the company to display its various benefits packages (e.g., health insurance, retirement, child care, etc.). Some companies will also offer programs to pay off student loans or pay for future education, but only if you commit to working for the company for X years into the future. These benefits can also be a way for the company to justify lower salaries while offering benefits that few employees will use (e.g., corporate discounts) or value that will only be realized in the distant future (e.g., stock options for a newly-listed or pre-IPO company). For example, many startups do not offer equitable health insurance packages, resulting in higher expenses if you have to purchase insurance by yourself.
What You Can Do: Research the company’s benefits packages and see how they align with your expected needs (especially healthcare). These can often be found on a company’s website. You can also ask the recruiter about the company’s benefits, including specifics about the areas that may be most relevant to you (e.g., elder care, parental leave, etc.) Sites like Glassdoor (new window) often include evaluations of employers’ benefits packages. If you cannot find any information, that in itself can be a red flag.
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