Archive for the ‘ Entrepreneurialism ’ Category

How to negotiate a raise

Asking for a raise can be a nerve-wracking experience. Since my professional career began in 2003, I have been successful in applying Moore’s law to my income. For the non-technies, that means that I my income has doubled roughly every 18 months for the past 10 years. A large majority of this time was spent working for someone else, so it follows that I’m pretty good at getting raises. As an employee of a number of firms that you can read about on my LinkedIn profile, I was regularly successful in negotiating raises of 50% or more.
As someone who has been both an employer and employee, I have negotiated both sides of the compensation coin. After explaining some of the techniques that I’ve used to negotiate raises, I’ll give you a sneak peek into the decision making process that I go through when determining whether to grant my employees’ requests for raises.

First you have to understand that asking for a raise comes with an implicit threat that “I will quit if you don’t give me what I want.” No seasoned employer is naive to this and they will do everything in their power to have their cake and eat it too by convincing you to take a sub-satisfactory raise and be happy about it. Further, as a self-respecting employee, you have an obligation to yourself to quit if you do not get what you want. Think that sounds like an impossible situation for both parties? It gets worse. A failed compensation discussion is the death of your career at that firm. If you don’t price yourself high enough, an employer won’t respect the work you do. You’ll find yourself succumbing to increasingly unreasonable demands from an employer after they know they’ve won. I don’t say this to dissuade you from asking for the raise in the first place, but rather to be very careful about the circumstances surrounding when you ask for the raise. Timing is everything.

That saying that “It’s easier to find a job when you already have one,” is the cornerstone of my raise strategy. Every employee places a valuation on themselves. Line employees, especially talented ones who have a track record of producing tend to feel undervalued while middle managers with underlings doing most of their work tend to feel overvalued and insecure in their positions. In either case, most employees valuations of themselves are completely irrelevant since they are only ever worth exactly what another employer is willing to pay them. I think you can see where I’m going here; STEP 1 IS TO GET ANOTHER JOB OFFER! Other guides will tell you to “research what others in your field make,” which will only give you a ballpark of what you might be making if you were someone else and working for another company. You can never be someone else, but you could be working for another company. When you get another offer, you’ve just secured your raise without having to make a single uncomfortable pitch to your boss. If your new job offer comes in at 15% more than what you’re currently making, then you can know with 100% confidence what number your current employer has to beat. What’s more, dusting off your interviewing skills will help to prepare you for the actual raise negotiation.

Step 2 is to build your case. People in Sales, Marketing, or any department that can be considered a profit-center will have an easier time doing this than those who are cost-centers. A profit center is anyone in a role that helps to bring new money into the firm. They’re judged by an employer purely in terms of return on investment. If you’re a profit center, your returns should be the main focus of your pitch. This gets trickier for employees who develop product, provide support, or even worse, and are on the operations side of things. I’ve molded my career by staying as close to the money, but it’s not impossible to ask for a raise as a cost center if the circumstances are right. People who work in financial risk management and compliance in this post Dodd-Frank world are in demand, for example. When recruiters start calling you, it’s time to build a case that you need to be “brought to a level consistent with the rest of the market.”

NEVER threaten to go find another job. That threat is already is implicit in the compensation discussion to start out with, but bringing it out into the open can make an employer turn openly hostile in a hurry. You also need to be careful to never compare yourself to what coworkers are making. Everyone likes to think that they run a meritocracy, so bringing that up might quickly expose you to the risk of being told that “you’d be paid like your coworkers if you performed like them.” Lastly, don’t pad your requests. Asking for a $15,000 raise hoping to get $10,000 will often make the employer balk at your request. I’ve said things in the past like “I’m not asking for $10k hoping to get $8K, I’m asking for $10k because $10k is what I need to be happy here.”
Now that we’ve covered what to do as an Employee, I’m going to give you a sneak peek of some of the things that go on in my head as an employer. First I would like to explain how things go in my company. I like to take a proactive approach and have compensation discussions with my employees at the end of every calendar year. I do this because losing a key employee (or even having him job hunting) because he doesn’t have the stones to approach me with a raise proposal is often more disruptive than having to pony up once a year. So with that said, I do my best to answer a few key questions whenever a compensation discussion with an employee takes place. Namely:
How much do I like this employee? For employees who are a lot to manage, upset corporate culture, or are otherwise difficult to deal with, I view this raise conversation as an opportunity to drive out someone that might have been problematic to begin with. This might be the opportunity to let them talk themselves into quitting and saving me the expense of firing them.
What is my total cost to replace this employee? I break this down by answering 3 more questions:
How long will it take me to find a replacement for them? Downtime is expensive.
After I find a replacement, how long will it take me to get the new hire up to the previous employee’s level of proficiency? Paying someone to learn is expensive.
How much will the replacement employee cost me? If the current employee is performing well and asking me to adjust their salary to something that is commensurate with the market, I will give them the raise they asked for and thank my lucky stars that I got away with paying them so little for as long as I did. I’ll usually hesitate heavily, and say something to the effect of “Well, that’s a lot more than what I really had in mind but you’ve been kicking ass lately and I want to see more of that.” This makes them feel like they won a huge victory and I’ll get at least 3-5 months of even higher performance out of them.
How big of a raise is this person asking for? I’m going to use whatever this number comes out to, compare it to my “cost-to-replace,” and then use every negotiation tactic in my playbook to talk their request down. And guess what, I’m better at it than 95% of unprepared employees unless they bring real leverage to the table.
I have a few tactics in my playbook that leave the employee coming out feeling like a winner but often agreeing to marginal raises. I’m good at mental math, so with line employees and non-engineers I’ll break down compensation package using unfair comparisons. People aren’t very good at understanding the effect of an annual compensation change on their lives but it’s very easy on a monthly basis. Rather than offering someone a $3,000 raise, I’ll offer them a raise of $250/month, for example.
Another favorite of mine is back loading compensation into bonuses. I’ll use arguments like “We want team players in this company, not just people looking to make a buck. If the team does well, you’ll do well, so how about I give you the exact dollar amount of raise that you’re looking for, but 80% of that raise is going into your bonus potential.” It’s great for me from a cashflow standpoint and I only really have to pay out if my firm does well. Win/Win. If the firm is doing well, any smart employer will spread the wealth around because inconsistent rewards will make an employee work WAY harder during bad times.

Ladies and Gentlemen, Many blogs have been written…. and this is one of them.

On the ICE floor

This is my first attempt at a “Big Kids” blog. It’s likely to be filled with dumb writings about team management, dealing with work/life balance, some new development tricks I’ve learned, how to automate various trading strategies and my take on various new technologies.

For those of you who know me socially, this will not be a good place to read about my latest antics and mishaps however you can probably still rely on my candid (and rarely politically or otherwise correct) take on various happenings and situations.

In case you were wondering, this is definitely the social marketing 101 blog for CEO’s. I can pretty much guarantee you that after one or two postings this will degrade to farting about how awesome I am. You can read about my professional background on my About page.

To kick off this posting, I thought I’d share a bit about what I’ve been up to in the past year. As I’m sure many of you are aware, I am now the proud owner of my very own software startup and I’m spending about half of my time residing in Phoenix, Arizona refining and production testing my Gatekeeper front end for Gressel Produce & Commodities. We’ve already become members of TT’s Partner Program and we’re a few finishing touches away (read: about 2 months) from making our product available to the options-trading masses.

I wish I could say that the adjustment from the nine-to-five corporate world to the unceasing locomotion that typifies self-funded startups was a natural one that I’d planned for thoroughly however that’s simply not true. The core concept for Scaled Dynamics was born within hours of deciding that I didn’t want to work for another employer. Back then I had no job, $7.79 in my checking account, owed money all over town, and had just made some major living cost increases. Not to be deterred by such practicalities, I set out to change the world and I thought it would be easy.

In a given day it’s a good bet that I’m doing more than half of the following: hiring, firing, planning, consulting, managing, selling, marketing, networking, programming. And learning. Time isn’t measured in hours and days tend to blend together. It’s been a wild ride thus far and I’m slightly less than one year in. Updates to come.