“Hurray! I got selected in my dream company,”said an aspirant after his selection in one of the top firms. But, should he jump into accepting the offer or evaluate the salary that he’s being offered? The latter seems more promising and logical as he has worked hard to secure that dream job and needs to check that his pay is as per market standards, company size, and role offered. Also, after evaluating and finding that he can negotiate for that little extra pay, it’s important for not only him but also other candidates to note some important tips to help you negotiate better.
Before deep-diving into the salary negotiation tips, let’s first look at the overview of salary break-up and important terms that you can consider while negotiating for that little extra pay.
Understanding the CTC Break-up
It’s imperative for you to understand the salary components and the amount that you would be drawing in(annually) would not equal to your CTC(Cost to Company) as mentioned in the offer letter. CTC is the Cost to Company and it is the total cost incurred by the company for hiring one candidate including additional allowances, gratuity, etc. In broader terms;
CTC= Gross Salary + Provident Fund + Gratuity
Below are some of the important components ofCTCthat you should be cognizant of:
1. Basic Salary
This component is the fixed part of your CTC and is taken into consideration while computing your monthly in-hand salary. This component doesn’t include bonuses and other benefits.
2. Allowance
This component includes the amount given in excess of basic salary to meet the expenditure requirements. There are quite a few types of allowances that you would like to know.
- House Rent Allowance(HRA): HRA basically means that some amount is given to you to meet the housing rent expenses. If you are not living in a rented apartment, then this amount is taxable.
- Travelling Allowance(TA): This is the amount that you will receive for your expenditure on ticket prices, food costs while commuting, cab prices, etc. for work-related commutes.
- Dearness Allowance(DA): This is specific for public sector employees. This component includes the additional amount given to you due to rising prices or inflation.
3. Provident Fund(PF)
PF is a retirement savings scheme in which you can contribute a monthly amount from your basic pay. Usually,your contribution to PF is 12% of your basic salaryand an equal contribution is made by your employer.
4. Gratuity
Gratuity is the amount paid by the employer to his/her employees as a token of appreciation for their contribution to the growth of an organization. Make sure to note thatyou’re eligible for gratuity only after you complete 5 years with a particular firm.
5. Gross Salary
To arrive at the gross salary, you would need to add your basic salary and all the forms of allowances given to you. So, we can say that,
Gross Salary= Basic Salary + Other Allowances
How to negotiate your salary?
To negotiate for a salary hike, you would need to be confident in your skills, know your salary range as per market standards and be polite while negotiating. Additionally, the below guide provides you with an overview to help you fetch that little extra:
1. Know the market standards
Before negotiating for the salary, you should know how much salary are other companies paying to their employees for a similar role with equivalent experience. Even if you’re afresher,you can check online on websites like Glassdoor to know the expected range that you would like to get.
2. Give a salary range
Never mention the exact amount that you’re expecting. Always mention a range as per your research in Step 1. By mentioning a range, there’s scope for negotiation and this gives you flexibility in reaching closer towards your dream pay.
3. Showcase your skills and experience
For negotiating, you would need to show the employer that you’re worth the amount that you’re asking for.For working professionals, you can show your contributions towards your former organization and if asked about your previous salary, then make sure to point out that you had accepted that offer at lower pay as you wanted to explore and learn more in the industry. Now, you have gained a considerable amount of experience along with leadership skills, which puts you in a better situation to negotiate.
For freshers, you can highlight your skills, achievements, extra-curricular activities, academic profile, certificates, etc. that will benefit the organization in the long run. Showcase your learning abilities and consistency in academics to demonstrate your perseverance for better chances of higher pay.
4. Practice before the actual interview
You all must have prepared a lot for variousand non-technical aspects of an interview. But, it’s equally important to practice the pitch before you sit for the actual interview. For instance, you can have one of your friends as the interviewer and then, you can pitch for a salary hike. Tell your friend to objectively assess the pros and cons of the pitch with respect to the organization’s constraints.
5. Maintain your poise
We know negotiating can be a difficult and anxious task for you. But, it’s imperative to stay calm and confident in your negotiation skills. Believing in your skills and justification for that extra pay will reflect in your demeanour while speaking.
6. Try to negotiate different CTC components
For freshers and people with less experience, it’s better to negotiate for a higher basic pay. Higher basic pay would mean that you’ll draw more money monthly than the previous offer.
One of the examples that many of you would benefit from is that of Shreyansh Shukla, a software engineer.When he was in his final year, little he knew about CTC and assumed the in-hand salary as per the CTC. But, when he went for a job change, he had more knowledge about the CTC components and could negotiate better.
The variable component in his new CTC was as high as 20% of the basic salary. He negotiated with his new company to convert about 40% of the variable pay component into the joining bonus.“This (joining bonus) got added up with the contingency amount which I would have to pay the employer if I resigned within a year,"said Shukla.
Similarly, people can negotiate different allowances like Travelling allowance, HRA, Food expenses, etc. and ask for more in the basic component of the CTC.
Usually, it’s 40-50% of the CTC, if you are being offered a lower percentage, then you ask for more, closer towards the 50% mark.
7. Know when to give in
Even after a lot of convincing and negotiation, you might not be able to get that extra pay. It’s imperative not to stretch the conversation further. If they have decided on a particular figure and aren’t willing to negotiate, then see if the job profile would be exciting for you and current options that you have. Then, take the decision accordingly as your salary would increase when you learn and grow in a healthy environment.
The final piece of advice
Overall, we can say that when you thoroughly understand varioussalarycomponents and the negotiation tips coupled with your self-confidence and belief, then you can negotiate better. Additionally, note that these tips improve your chances of getting that little extra pay but every firm is different and unique, so the success rate will differ from company to company.
