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Home > India > Business > Special


How best to negotiate your salary

Divakar Kaza, Outlook Money | June 11, 2008

The celebratory mood in which you join a much-coveted job wanes off soon. What you see in the offer letter is not what you have got! The huge sign-on bonus, the stock option program to die for, the bonuses and the over-the-top benefits come with so many 'Ifs and Buts' and preconditions that you feel that you have been done in.

Do not blame the new company; it is their job to present their offer in the most attractive manner. It is your responsibility to decode the fine print in compensation by asking the right questions. Before you evaluate the offer, understand and monetise your current package or CTC (cost to company). List out all guaranteed elements that appear on your pay slip - the basic salary, housing, conveyance and other components.

Add up annual benefits like allowances for leave travel, education, medical treatment and car next. Then go to bonuses. Take the average of what you earned for the last two years. Last are deferred benefits like PF, gratuity and superannuation.

Then bells and whistles (Diwali gifts of silver from the chairman's office, spouse travel abroad ostensibly for team-building during conferences). You now have a complete picture of what you cost your company. Classify the components as fixed, 'Ifs and Buts' and deferred benefits. Calculate your current tax liability. Now you are ready to stack up the new offer against what you get currently.

When you get the new offer, ask questions. What are the fixed elements, perquisites, 'Ifs and Buts' and deferred benefits? Compare the guaranteed element of the current salary with that of the one offered. Is it higher? Then come to perquisites.

No point getting a petrol allowance of Rs 100,000 per year when you stay within walking distance from the office and would use only a tenth of it. Be practical with the LTA too - do you need to avail it or can you get cash value as taxable salary if not used? Clarify on medical programs and insurance covers. Is the coverage only for immediate family or for parents too?

The biggest culprits are sign-on and retention bonuses. Understand the strings attached to them. Is the sign-on bonus yours on joining or do you need to work for a defined period to get it? Ditto with the retention bonus. How does it play out? Will it be paid on a pro rata basis if you resign midway? Is the retention bonus tied to performance?

The performance bonus is the next big area. "This is a performance-driven company and bonuses are unlimited based on results" is what you hear during the interview. This is a manner of speaking and not to be taken literally. Ask how the bonus program works. Is there a cap on what you can earn? How much do 80 per cent of the employees at similar levels make?

How is performance measured? Is the bonus paid quarterly or annually? What happens if you leave mid-year? Will you be paid bonus for the period worked and results delivered?

Stock option programs can create grief if not comprehended fully. What is the basis of its allotment? Is it allotted on joining or is it linked to meeting some performance criteria? If the company is listed, check the vesting period and the percentage vesting per year. More questions if it is an MNC and the stock is listed abroad.

Pre-IPO options are the trickiest. When is it going to be listed? At what price do you get it and what is the basis for the strike price? What will be the fate of the options if the company gets acquired before the IPO, what happens if the listing is postponed?

New jobs often throw up of surprises in terms of things like role, culture and autonomy. Surprises on the compensation front can be avoided. It may be too late once you join. Too may queries on compensation immediately after joining also create a poor impression. Being forewarned is forearmed.


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