I am being seriously considered for a position with a large Washington, DC-area IT consulting company. They have told me I will get the job, but are waiting to open a location closer to my home. We briefly discussed salary and I was told they would only be able to offer me 10 percent over my current salary. I confirmed that this was not due to their budget, but to their contracts with the U.S. government. The recruiter told me the government limited them to offering no more than 10 percent over someone's existing salary regardless of their previous salary. I have never heard of this and have reason to doubt it, as I have talked to some employees who said they received raises significantly larger than 10 percent. I am looking for an increase in pay in the range of 20 percent as this job would be taking advantage of the master's degree I recently completed and has significantly more responsibility than my current job.
Several things may be going on here: salary compression (or avoidance of it); frequency or infrequency of market pricing; impact of your degree; and the prospective employer's relationship with the government. Let's look at each in turn.
Some companies have policies prohibiting salary compression, that is, paying new employees salaries higher than what current employees make. This practice is typically put in place to avoid underpaying current employees who have experience, skills, and responsibilities similar to those of new hires. The practice also helps employers retain talent by ensuring that current employees are not penalized financially for staying with the company.
But if the company typically looks internally, rather than externally, the market may be moving faster than the company. I recommend that you find out how frequently your future employer conducts market analysis on its jobs - that is, how often it compares its jobs against the market to ensure its salaries are competitive. You should also ask the company what the average percentage market adjustment is when it does market analysis. If the company has to adjust its salaries by large amounts, the salaries in the organization probably are not competitive or won't remain competitive very long.
Third, you asked about the impact of your degree. A master's degree would only guarantee you an additional increase in pay if the company requires it as part of your job, or if the degree gives you additional skills that are required for the job.
Finally, the fact that this employer wants to pay you 10 percent above your current base pay could mean the company already thinks your salary is competitive with the external market and its internal pay structure. I would advise you to research your pay using the Salary Wizard. Then, negotiate your salary based on the expectations of the job and where your current salary falls within the range.
Your employer may also have obligations to the federal government because it does work for and is paid by the government. However, your market value is based on what the private sector will pay for your skills, so don't get caught up in your prospective employer's relationship with the government. Most companies have government contracts. But they determine salaries according to what goes on in the external marketplace - not in the public sector.
- Erisa Ojimba, Certified Compensation Consultant