The process of negotiating salary starts when the company decides to hire the candidate. The purpose of this negotiation is to strike a balance between the candidate’s salary expectations and the company’s offer. The candidate is generally looking at getting a higher salary than the previous job (unless she is a fresher), and the company is trying to control its own manpower cost as well as existing internal salary levels. Giving a higher salary to a newcomer may raise the expectations of the existing employees, which, if not satisfied, will create dissatisfaction among them.
On the other hand, generally, a candidate will not join at a salary which is less than his current salary (except if he is removed from the company). A successful salary negotiation keeps the interests of both the parties fairly intact.
So, salary negotiation has to be done very tactfully for creating a Win-Win situation both for the company as well as the candidate. While negotiating salary, one should take care of the following:
Explain the complete break-up of the salary to the candidate, i.e. what is his Basic salary, what will be the other components like HRA (House Rent Allowance), DA (Dearness Allowance) etc.
Also explain various other allowances, which she will be getting, e.g. Conveyance, Medical, Food, Fuel, Mobile expenses etc.
Different companies use different methods and terms to finalize salaries of employees. However, annual gross salary, salary breakup, deductions and withholdings, monthly take home, bonus etc. are part of this negotiation.
Some companies treat Cost to Company (CTC) as the final package for negotiation. The CTC includes various benefits and allowances (like mobile bill reimbursement, conveyance allowance, food allowance etc.) in addition to the regular components (Basic, HRA, DA etc.) of salary. Every company has its own formula of calculating the CTC.
Whatever the method, we must clarify everything that is negotiated to avoid confusion later.
For some employees (e.g. Sales staff), some part of the total package may be variable in the form of incentives or commission. The terms of calculating such a variable pay and other conditions related to the same must be clearly explained. (E.g. how and on what basis will the incentives be calculated? What if the target is not achieved? When will such incentives be paid?)
For senior positions, other benefits and perks are also a part of this negotiation process along with salary and allowances. Some top level executives may get company owned car, driver, fuel, accommodation, paid holidays etc. All such benefits and perks must be clarified.
In some companies, employees are also given the company’s shares through Employee Stock Options (ESOP). The process, timing and proportion of allotting and using this ESOP must also be a part of the salary negotiation process.
We must clarify the conditions applicable for employees and the company while terminating the employment. (E.g. minimum notice period, severance pay, proper handover etc.)
At the end of the negotiation, the candidate must get a clear idea about
- How much minimum money (take home salary) will he get in hand every month?
- How much money will he get at the end of the year (i.e. disbursed once a year, e.g. bonus, incentives etc.)?
- How much minimum total money will he get in hand in one full year? (I.e. what will be his total annual income in hand?)
- Is there any variable part in the payment? How will that be calculated?
- How much will be deposited to his Provident Fund/Insurance etc. accounts?
- How much will be the deductions other than PF/Insurance etc. (e.g. Professional Tax etc.)?
- What will be the perks and benefits given to him, if any?
We must put various numbers on paper and get the confirmation of the candidate in writing.
Market rates of prevailing salaries keep changing (generally rising). So, we must keep a watch over the existing market rates and maintain our own salary bands accordingly.
Sometimes, if some new employee joins at a higher salary than the other existing employees in that grade or position, we may have to increase the salaries of the existing employees (subject to their qualification for the criteria) either immediately or at the time of next appraisal. This is called Salary Band Correction.
(Expert advice to GROW your business wherever you are, whenever you want.
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