How to ask for a salary increment
Get Ahead reader Nikhil Karandikar wrote to us from Pune asking for tips on how to request a salary increment. We decided to help Nikhil by highlighting some aspects that come into play when preparing to ask for a raise.
There comes a point in your career when you realise you deserve a raise. However, asking for one is often uncomfortable and intimidating. Usually, you get a raise of no more than five per cent when you stay at the same company. Most people fall in the bracket of two to three per cent but, with some smart planning, you really can get what you deserve.
Schedule an appointment
Don’t storm into the boss’ room with an ad-hoc request for a raise. Plan an appointment and have a strategy. Speak to trusted colleagues, friends and people from the industry and get some information on what a normal raise is for someone with your profile and experience. Also take your boss’s mood into account.
Write a note to your boss without stating the precise reason for the meeting. Say it is to discuss a personal matter, to discuss your development or present an idea. If you say you want to ask for an increment, your boss is likely to say ‘No’ on the spot. Here is a sample note you could send to fix an appointment:
Could we meet for 30 minutes anytime this week to discuss my role and development? I would appreciate your advice. Please give me a time and date that suits you.
Make a list of accomplishments
Create a list of accomplishments that are quantifiable and specific. For instance: ‘Achieved 110 per cent of the sales target, managed the largest customer base of 130 high net worth customers in the sales region, supervised a team of 15 with a retention rate of 100 per cent.’ Use words such as ‘first’, ‘best in class’, ‘highest’ and ‘excellent’. Bring some supporting documents to the meeting, like an excel sheet that highlights your key accomplishments. Bosses like results, so be specific and detailed.
No boss will entertain a request of paying you more for doing the same job. A smart way is to ask for increased responsibilities and tasks and link this to a salary raise either right away or in the long term. You can also create a ‘pay for performance’ system with your boss, where you get rewarded for the extra value you bring to the company over and above your main responsibilities.
Don’t walk out with an empty plate
Give your boss/management a choice. The choice has to be between something and something else, not between something and nothing. If the company is in cost-cutting mode, consider other perks that you may be able to negotiate for in the short-term to compensate for the lack of money.
There’s more to a job offer than just money!
Going by the encouraging feedback to our earlier feature How to get the salary you want, several readers have pointed out that money is not always a priority when it comes to picking a job. For that reason, many choose to settle for a lower monetary package in favour of non-financial rewards. We give you a list of options you must consider apart from the salary when taking up a job offer.
Did you accept a job offer for non-monetary reasons? Share your experiences
Training and development opportunities
Get details about the company’s approach to training its executives. For a young professional, it pays to join a company that is training intensive and offers learning opportunities. A compromise on the salary front may land you at a two weeks sales seminar at the company headquarters in America — not a bad trade off. At the start of your career, what you learn is often more important than what you earn.
Fine, you didn’t get the 35 per cent hike you wanted, but maybe your span of control is increasing. It’s worth it if you are getting to manage a bigger team or becoming responsible for a larger sales territory. For an ambitious employee, responsibility and recognition of talent is an enormous reward. If taken advantage of, it can mean a quick promotion or further compensation down the road.
“Going back from ITES to the hospitality industry meant a cut in my salary, but I was getting an opportunity to become a store manager at an early stage in my career,” says Noida based Abhishek Singh, store manager at Barnie’s coffee shop.
If you always wanted to work on a high impact project, it’s worth it to compromise on the monetary front to earn a seat on that coveted task force. If you develop new business for the company as a result, the ultimate reward down the road could include a promotion and more money.
Employee stock options (ESOPs)
Most people believe the stock market is a risky proposition. However, they can be a great replacement for monetary benefits. If your company does well, you will benefit from the rewards. This is a great option, especially if you are joining a company in sunrise industries like retail, ITES, biotechnology, etc. Employees of companies like Infosys and Wipro are testament to this as they saw their wealth rise due to stock options. As long as the company’s balance sheet does not take a hard hit, stock grants can be a win-win proposition for all.
oining a firm where part of the package is the lucrative employee stock options?
This is a common bait dangled at those joining software companies.
Here’s what an ESOP is and the tax implications of it.
1. What are ESOPs?
An Employee Stock Option Plan is when the company offers its shares to the employees.
An ESOP is nothing but an option to buy the company’s share at a certain price. This could either be at the market price (price of the share currently listed on the stock exchange), or at a preferential price (price lower than the current market price).
If the firm has not yet gone public (shares are not listed on any stock exchange), it could be at whatever price the management fixes it at.
5 things you must know before buying shares
2. Why would a company offer an ESOP?
Let’s first explain what owning a share entails.
When you invest in shares, you do not invest in the market. You invest in the equity shares of a company. That makes you a shareholder or part owner in the company.
Owning an equity share means owning a share in the company business.
Companies offer their employees shares because it is considered that having a stake in the company would increase loyalty and motivation substantially.
3. When are they given?
It depends on company policy and your designation.
There are time limits for availing this scheme. For instance, you can acquire the shares after you complete a particular period of employment. This could be a year, even longer.
This is known as the vesting period, and generally ranges from one to five years.
If you quit your job before this period is complete, the stock options lapse.
Sometimes, the ESOPs are given in a phased out fashion — 20% in the second year, another 20% in the third year, etc.
4. When are they taxed?
The ESOP is not taxed on acquiring the shares.
You are taxed on the profit you make when you sell the shares or transfer them.
Transfer here refers to when you gift it to someone or transfer it to someone else under an irrevocable deed (they now own it, not you).
All about gift tax
5. How are they taxed?
When you sell any asset you own (house, land, shares, mutual fund units, gold, debentures, bonds), and you make a profit on the sale, it is known as capital gain.
The tax you pay on this profit is called the capital gains tax.
Capital gains tax is computed on the difference between the sale price and the issue price (the price at which shares are offered to you).
If you sell the shares within a year of allotment (within 12 months of acquiring them), it is a short-term capital gain.
If you sell the shares after a year of allotment (after 12 months of acquiring them), it is a long -term capital gain.
All you want to know about capital gain
6. What if they are listed abroad and sold abroad?
This depends on whether you are a resident or non-resident Indian.
If you are a non-resident, it will not be taxable, as the gains occur outside India, unless the money is received in India.
If you are a resident in India, then you will be taxed on the gains.
Long-term capital gain is taxed at 20%.
Short-term capital gain is added to your overall income and taxed according to your slab rate.
7. What if they are listed and sold in India?
The taxability depends on the nature of gain at the time of sale.
If you have a short-term capital gain, you have to pay tax at the rate of 10% (plus surcharge if applicable).
Long-term gains are exempt from tax.
8. Do I have to pay a security transaction tax if sold in India or abroad?
If you sell your shares on or after October 1, 2004, you need to pay the Securities Transaction Tax in India.
Also the STT is leviable in abroad as per their rules.
9. Can I avail of indexation?
You use indexation when you calculate tax taking into account the inflation. This is good because it reduces the amount of capital gain and the amount you end up paying as tax. To read more about indexation, read All about capital gains.
Indexation is available only for long-term capital gains. Since the long-term capital gains on shares and options are not taxable now, it is not required.
10. Can I invest the profit to avoid tax?
Long-term capital gain on shares are exempt, so this does not arise.
There is no provision to invest the short-term capital gains to avoid tax.
friend of mine recently landed her first job.
She spent her first few paychecks on a new cell phone, and a new wardrobe to go with it. Then, her parents began pressurise her to save.
Her question to me was: which shares can I invest in?
When I proceeded to tell her that shares were the riskiest of all investments (bonds, fixed deposits, post office schemes, gold etc), she shrugged.
When I asked her if she even knew what a share was, she confessed she did not.
I could not blame her.
Over the last year or so, the stock market has been hogging the limelight. Companies have been coming out with Intial Public Offerings (which is when the company first makes its shares available to the public by getting them listed on the stock exchange). Everyone wants to join the party and make money.
If you identify with her, here is a tutorial to help you get your basics right. Before you invest in the stock market, you must understand what it entails.
How to invest in an IPO
1. You own a part of the business
When you invest in stocks, you do not invest in the market (despite what you think). You invest in the equity shares of a company. That makes you a shareholder; you now own a small part of that business without having to go to work there.
The good news is, since you own part of the company, you are entitled to a share in its profits.
The bad news is that you are also expected to bear the losses, if any.
That is why investing in shares is risky. If the company does well, you benefit. If it does not, you lose. There are no guarantees whatsoever.
Read this before you buy an IPO
2. In the short-run, the price of the share can wildly fluctuate
Let’s say the company fixes the price of each share at Rs 10. This is called the face value of the share.
When the share is traded in the stock market, this value may go up or down depending on supply of and demand for the stock.
If everyone wants to buy the shares, the price will go up. If nobody wants to buy the shares, and many want to sell them, the price will fall.
The value of a share in the market at any point of time is called the ‘price of the share’ or the ‘market value of a stock’.
A share with a face value of Rs 10 may be quoted at Rs 55 (higher than the face value) or even Rs 9 (lower than the face value).
So you might have paid Rs 15 for a share which is now quoting at Rs 12. Don’t panic and sell. If it is a good company, the share price will eventually rise.
The prices will get influenced by the market sentiment and the general direction of the market. As a result, you may see short-term slumps.
What you should know about mutual fund IPOs
3. Always invest for the long-term
The best way to make money is to buy low and sell high. This means you should buy the share when the price is low and sell it when it is high.
That is why you must buy in a bear market. This is a term used to describe the sentiment of the stock market when it is low and the prices of shares have generally fallen. The best time to sell is in a bull market, when the sentiment is high and the prices of shares are rising.
But it is very difficult to time the market. In fact, no one can do it. If we could, we would all be millionaires, wouldn’t we?
That is why, when you invest in the market, it is best to invest for the long-term. Hold on to your shares for a few years before you think of selling them.
Companies increase their sales and book higher profits over the years. This will eventually reflect in the share price, so ignore the short-term slumps.
Once you decide that you are in for the long haul, you can ride over the bear and bull runs with no stress at all. Over time, the price of your shares will appreciate.
If you are getting a good price for your stock, keep selling small amounts at regular intervals. Keep booking profits.
Why you need a stock broker
4. Decide how much you want to invest
Always remember one basic rule in finance — if something gives you higher returns, that’s usually because it carries a greater risk.
That’s the reason why not-so-good companies will pay you a higher rate of interest for your deposits.
The same reasoning goes for stocks too — they give higher returns than, say, bank fixed deposits because they are more risky. So the amount of money you invest in the market depends on your capacity to bear the risk.
If you are young with a steady job, you can invest a larger proportion of your income in the stock market than, say your parents who are close to retirement. If you have a lot of debt to repay, avoid putting too much of your money in stocks.
It’s best to decide how much of your savings you will allocate to stocks, and stick to that plan. Don’t get swayed by how much your friend is investing.
How to get a broker
5. Don’t rely solely on ‘good advice’
A smart investor should never invest buy shares of companies he doesn’t know much about. Relying on ‘advice’ from friends is not always a great idea. Do some groundwork yourself.
It doesn’t matter who is buying the stock or who is recommending it. Steer clear of such ways of making a fast buck. These tips will land you in a soup.
When you hear of a ‘hot tip’, dig further.
Take a look at the company’s profit and loss statement, which would have been audited by chartered accountants. There is a wealth of information here. To understand the information in a Profit & Loss Account, read Want to buy a stock? Read this first.
Do some basic calculations on your own. The Earnings Per Share (net profit/ number of shares) and Price/Earnings ratio (market price/ EPS) should give you a fair understanding. Read How to spot a good stock to understand what these ratios mean and how to use them.
These tips should get you started. Tread cautiously though. If stocks intimidate you, consider a diversified equity fund.
A mutual fund manager will research many companies before investing in their shares. This way, you can participate in the stock market even as you leave the research to professionals.
5-day weeks and flexi time
We all want more time with our families and more leisure time to pursue other interests. So, company policy of 5-day weeks or a work from home system is a good trade off to consider. Make sure you reach out to your prospective employer and ask for more flexible time. “I wanted to get back to normal working hours and weekends off, so I decided to leave a big company and work for a smaller outfit,” says Kamlika Chandla, ex-employee of Convergys, a leading BPO company.
The company may be willing to pay the tuition fee for that MBA you always wanted to pursue or send you on an all-expense paid management development or leadership program offered by several business schools. You may even be able to put your new degree to work for a promotion or bigger responsibility in the future.
Props and freebies
Maybe the company is offering you a brand new laptop or the latest mobile device you have been eyeing for some time. It could also be willing to provide you a company-owned vehicle and house. These are potentially heavy-duty expenses that make for a great replacement for an outright cash component.
A practical option to consider if your parents and spouse are dependents. Hospital and medical bills can burn a hole in your pocket so, if a drop in the total salary package buys you free medical cover for self and family, it’s an option worth its weight.
If you are thinking of getting the salary you want along with all these benefits, you certainly are optimistic. Then again, there is no reason in demanding some of these benefits, especially when a hike during salary negotiations seems unlikely.