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How to transform capability growth into compensation

A friend of mine joined startup that later started going through rapid growth. His responsibilities went up, and he got the chance to increase his capabilities and contribution rapidly. He wanted his compensation to grow as well, whether he stayed at the same company or not. This is what I told him…

Caveat: All of these things are easier said than done!

As an employee, there are 3 ways to get paid more:

  1. Negotiate a better package when you join
  2. Be awarded (or negotiate) a better package (or more equity) after you join
  3. Get a compensation bump/surprise due to your already-awarded equity (e.g. your employer’s stock goes up in price) or beating some sales compensation formula target

#3 is either about picking a company whose share price is going to rise (if you can reliably do this, become a full time investor!), or applies mainly to sales-related jobs [not relevant to my friend’s situation].

#2 is common at large tech companies if you land in a good team and are able to grow your scope and role. Obviously this doesn’t work out for everyone. But somewhere like Google, they have salary bands for each role at each level, and try to have a fair promotion process. So if you get promoted (not necessary a role change) then your salary won’t be below the lower bound for that level.

#1 is the time you have most ability to influence, because:

  • You’re considering more than one company. So, assuming all companies don’t value you equally, one of them might value you higher. (compared with when you’re already in a job, your current employer might not happen to be the one that values you highest)
  • You’re not fighting any internal HR policies about how much of a % raise they can give in a certain period. These are not universal, but many companies have these policies. (Some companies have a policy of how much they can offer above previous salary, but that’s much less common. Normally it’s just a data point to estimate your market value.)
  • The company may need someone with your skill set immediately, and it may be harder to find than you think. So their alternative isn’t not giving you the right compensation, and having a risk that you leave in 6 months. It’s not hiring you now, and missing out on what you would contribute to the bottom line now.

Practically, this means your chances of a good outcome are maximised if you can:

  • Get multiple offers
    Get offers from multiple companies at around the same time. Then you can gently but confidently discuss your situation with the recruiter (or whoever is negotiating).
  • Find a role that fits like a glove
    Find a role for which you’re the perfect fit, or at least a very close one. The fastest job offer I got was for a role where, I found out later, no other applicant came even close to meeting the requirements. To me it was an attractive role, and I really enjoyed the interview process (maybe because they were testing things I was strong on!), but I still felt they could find someone else. But it turned out it had been really hard.
  • Use time to your advantage
    If you’re in a hurry to get a new job, then that makes it harder to follow the first two pieces of advice. But It also goes the other way: if the company is in a rush, then they should be willing to pay more to close. An extra 10% salary can be a lot to an individual, but it’s much less than the cost of paying a 25% fee to an external recruiter every year or two.
  • Don’t forget the small things
    Itemize as best you can the cash value of benefits you get from your existing employer, e.g. free food or gym membership or whatever. If moving cities, ask for relocation allowance if not already offered. See if they can give you a signing bonus or similar, to make up (partly) for the unvested equity you’re giving up.
  • Appeal to fairness
    Give objective comparable information, and appeal to fairness. This is most useful if the company just has unrealistic ideas about compensation for certain roles/levels. Smaller companies may not do external benchmarks so might need educating.
  • Align incentives
    At a smaller company, or for a senior role, you can also try to negotiate some very specific and challenging performance-based bonus, making it low risk for them. But that’s really tricky even if they agree, because it’s unlikely you have 100% control over the output, so you could miss it even if your performance is awesome.

The advice above doesn’t apply as much to companies that care a lot about fairness. Those companies try not to penalize you for having a low salary in the past; they will evaluate your level as best they can, and pay according to that. So going to work for a ‘fair’ company like this can be a good thing if you’ve been underpaid in the past and don’t want to fight to get what you’re worth.

This all assumes you’ve done your best to find a role that’s a good fit, and wowed the team with what a good fit you are, got them excited to work with you etc. If they really want *you* rather than just another similar person, then it makes it easier for them to pay more than they were initially expecting.

Your point about new employers initially anchoring on past salary is absolutely true. But they generally look mostly at the most recent salary, so a low salary at one job doesn’t follow someone around forever, so long as they can convince one employer at some point of their value. Then the next employer will look at that one.