How to Negotiate Salary as an Employer?

You're not alone! Negotiating salary increments can be overwhelming as a HR professional - especially if you aren't experienced at it.

If you're at a point where you'll have to balance between the employee's expectations as well as the organization's, then you'll need to learn to navigate this area effectively and build your negotiating skills. In this article, we'll go over what a salary increment is, and how employers can negotiate increments properly, ensuring it benefits both the company and its employees.

What Is a Salary Increment?

A salary increment is a percentage increase in an employee's base pay. Salary increments are typically calculated as a percentage increase of an employee's annual compensation.

Salary increments can take various forms, including:

• Merit increases based on performance and contributions.
• Cost-of-living adjustments to help offset inflation.
• Promotional increases tied to advancement into higher roles.
• Equity adjustments to ensure fair compensation compared to peers.

Salary increments play a crucial role in professional development. It also displays a sign that employees are valued.

For instance, a merit-based increase validates an employee's contributions, and also aligns them with organizational goals. Consequently, it can boost morale, motivation, and engagement, which fosters a stronger connection between employees and their work.

Organizations often use structured salary increment systems to ensure fairness and scalability.

For example, implementing an annual increase of 3-5% across the organization is more practical than applying ad hoc adjustments. This standardized approach promotes transparency and fairness in the compensation process.

From an organizational perspective, salary increments are not just rewards but also strategic tools. By offering competitive raises, companies can attract and retain top talent.

Additionally, these adjustments help employees maintain their purchasing power amid changing economic conditions, ensuring that compensation remains relevant to market trends.

Tips to Negotiate Salary Increments With Your Employees

Recent studies show that 73% of leaders don't feel very confident in their managers' ability to have tough conversations about compensation. Hence, negotiation is an important skill to learn, and to practice. But don't fret! With time, you'll get better at it. These tips will also help you negotiate better job offers with new candidates.

1. Know the Market Standards

Preparation is key to successful negotiations.

Before entering discussions, prepare well by gathering all relevant information about the role, the candidate’s experience, and the organization’s budget constraints. Anticipate potential questions or concerns the candidate might raise.

"The best negotiators are those who walk into discussions with a well-researched plan and a clear understanding of their boundaries," says HR expert Suzanne Lucas.

So, ask yourself a few questions.

1. What is the industry salary range for this role?
2. How much experience does the candidate/employee have?

And then research the pay standards at the Bureau of Labor Statistics, Payscale, Mercer, and on Salary.com. It will also help you justify your offers to the candidates, and get them convinced that it is a fair offer.

"Compensation transparency starts with accurate market data. Employers who understand market trends can better justify their offers and gain employee trust," says HR strategist Josh Bersin.

2. Decide on a Pay Range

Assess your company's financial situation and decide how much you want to allocate for this role.

As an employer, you should also consider a few other important factors when deciding on salary increments,

• Regional cost of living adjustments
• Industry standards
• Individual performance metrics
• Company financial outlook
• Current performance and contributions (applies to existing employees)

It's also important to maintain internal equity and ensure that increments align with the organization's budget and long-term goals.

3. Think Beyond Monetary Terms

Are there any other additional benefits that you can provide if the candidate asks for more? Ask the candidate what's important to them and create a baseline from there.

• Hybrid work options
• Wellness programs
• Family health benefits
• Signing bonus
• Additional vacation days

For example, if a candidate prioritizes work-life balance, consider offering flexible work arrangements as part of the negotiation.

At SurveySparrow, the benefits are outstanding. During my interview, I was offered options such as a company-sponsored health insurance plan, cab pickup and drop-off, and complimentary meals. While benefits like these can be subjective and vary from person to person, they made the job offer particularly appealing to me.

4. Be Transparent

A lot of companies expect a lot from the employee, but under-deliver in terms of compensation and other benefits.

Being upfront about what you can provide and can't is necessary, as candidates want to know how much pay you're comfortable providing.

5. Seek Mentorship and Feedback

Connect with experienced HR professionals who can offer insights into negotiation strategies. After each negotiation, reflect on what went well and what could be improved, as this feedback can serve as a powerful tool for your growth and in building your negotiation skills.

How to Calculate an Employee's Salary Increment?

Calculating your salary increment accurately helps understand compensation changes better.

For example, if your current salary is $50,000 and you decide to provide a 4% increment:

• $50,000 × 0.04 = $2,000 (increment amount)
• $50,000 + $2,000 = $52,000 (new salary)

Essentially, you can use this simplified formula: New Salary = Current Salary + (Current Salary × Increment Percentage)

In fact, most organizations typically offer annual increments ranging between 3-5% for standard raises. Particularly in high-demand industries, increments can reach 6-10% to remain competitive.

Good Luck With Your Hiring!

Negotiation is a skill like any other that can be improved with practice.

So take each negotiation as a learning opportunity, and don’t get discouraged by initial setbacks. Focus on continuous learning, and remember that even seasoned HR professionals were once beginners.

FAQs

Q1. What is a typical salary increment percentage?

A typical salary increment usually ranges between 3-5% annually for standard raises. However, in high-demand industries, increments can reach 6-10% to remain competitive. The actual percentage may vary based on factors such as industry standards, individual performance, and company financial outlook.

Q2. What factors should employers consider when deciding on salary increments?

Employers should consider several factors when deciding on salary increments, including the employee's performance and contributions, market rates for similar positions, the company's financial performance, regional cost of living adjustments, and the overall compensation strategy. It's also important to maintain internal equity and ensure that increments align with the organization's budget and long-term goals.