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How to negotiate for a bigger take-home salary
Job interviews can be gruelling. But the worst part is whether to say yes or no to the salary being offered. The most common reaction to an offer is -- "I shall get back to you."
During bad times, it has to be a 'yes'. In better times, well, one can play on the company's desperation and one's own comfort with the existing company.
Of course, a lot depends on one's financial condition and the job market. Like 27-year-old Abhishek Sadekar who entered the market in 2009, when the job market was just reviving. He had been warned against negotiating too hard. He accepted the very first offer.
But, Bhawartha Darwatkar, a hospitality professional, confesses that he got what he wanted. "With an international work experience of over three years and many offers in hand, I had set my mind on the package that I wanted," says Darwatkar, who is now happy with the salary he earns.
But, not everyone is as lucky as Darwatkar. Either, one does not know how to strike a deal or cannot justify one's expectations to the prospective employer. However, a little bit of tweaking can be done by just reworking the components to ensure a better deal.
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How to negotiate for a bigger take-home salary
A typical salary can comprise of following components:
Fixed: Basic, house rent allowance, conveyance, leave travel allowance;
Variables: Incentives or bonus;
Benefits: Superannuation, pension, medical, club membership, employee stock options, restricted stock units.
Of the above mentioned components, the last two can be negotiated. The other fixed components, other than the basic, are flexible.
Here's how you can use this to your benefit:
Rebalance your salary: The salary structure in most sectors, such as the manufacturing sector, is 70-80 per cent fixed and the rest, variable and/or benefits.
According to Varda Pendse, director, Cerebrus Consultants, "Mostly employers are rigid about the variable pay. But they might agree to an alternative structure for first one-two years at least."
For instance, if your salary structure is 70 per cent fixed, 30 per cent variable. You can increase the fixed component to 80 per cent and keep the variable at 20 per cent (if you are uncomfortable with the variable part being too high). In this case, the cost-to-company (CTC) will continue to remain the same.
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How to negotiate for a bigger take-home salary
Negotiate the fixed portion: You cannot make changes to your basic pay. But, a hike in the same is always welcome as it increases your employer's contributions towards the employee provident fund and gratuity pay.
However according to E Balaji, executive director -- Staffing Solutions, Ma Foi, "If your company has an additional superannuation fund to which you have to contribute, you can opt out of it and increase your take-home instead."
The flexible components in a salary package get tax benefits up to a certain limit as below:
- Medical reimbursement = Rs 15,000 a year
- LTA = Reimbursed on actuals, if you travel within India
- Meal coupons = Rs 13,200 a year
- Gift vouchers = Rs 5,000 a year
- Telephone reimbursement = Fully exempt
Negotiate for variables: This portion is largely performance-linked. "Variable part of a salary is just a promise. The employer has the discretion to change the policy related to it," says Das.
Many companies offer a joining bonus in cash or in kind (a car too in some cases) or a year-end guaranteed bonus, also called retention bonus. It could be in cash or as restrictive stock units.
"These, however, cannot be encashed immediately. Depending on company policies, they can be encashed after two or three years," says Verma. Then, there are employee stock option plans (ESOPs).
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How to negotiate for a bigger take-home salary
Structure the hike: Ideally, you can expect for 25-30 per cent hike in total compensation while switching jobs. Anything less may not justify the change, unless you are desperate. The existing job itself is quite likely to fetch you 10-15 per cent jump annually.
But if the new employer is unwilling to give this hike, you could structure the salary in a way that will increase your take-home pay.
"One way to do it is to convert the value of all your current benefits in monetary terms," says Manish Verma, head - human resources, Principal Mutual Fund.
Here's an example: If your current package is Rs 10 lakh (Rs 1 million), the annual benefits could include components like car allowance and club membership adding up to Rs 3 lakh (Rs 300,000). Say the new employer is offering your Rs 12 lakh (Rs 1.2 million) with similar benefits. This means that you are getting a 20 per cent hike.
In such a situation, convert the benefits of Rs 3 lakh into a part of your salary. Ask the new employer to convert the benefits into cash component or make it a part of the monthly special allowance. The monthly salary, as a result of this rejigging, will go up substantially.
In performance-based jobs such as sales and marketing, information technology, where the variable component is often in excess of 60 per cent, you can ask for a hike in the fixed pay. This will help to have a stable take-home salary.
To a great extent, salary negotiations depend on your position. Higher your salary, higher the flexibility. At junior or middle management, it's often a function of demand and supply. And then, there's luck.
