People nearing retirement are among the highest earners in the workforce, usually because of their years of experience. Often, these senior-level workers find themselves stuck at a salary cap and unable to negotiate a pay raise despite a good performance. Other times, the pay raise is offered, but the worker is behind on retirement savings. If you find yourself in either of these instances, it might be a good time to renegotiate your benefits package.
A benefits package can account for as much as 30% of an employee’s overall salary, with retirement benefits making up a significant portion of that value.1 Later in your career is often when you are in the ideal position to begin negotiating these benefits because, in many cases, the outcome of a negotiation can create a win-win scenario for the company and the employee. So the next time you’re up for a performance review, consider the possibility of negotiating for the future by reexamining your retirement package.
Negotiating a Higher Match or Employer Contribution to a 401(k)
If your retirement savings is in a company-sponsored 401(k), you might think that the contributions are set in stone, but it’s possible there is room to move. About 47% of companies who sponsor 401(k)s offer a matching program and that matching can add up.2 If you’re up for a raise, see if your employer is willing to raise its match in your 401(k) account, rather than increase your take-home pay. This gives you the benefit of making that raise worth more in the long run. If your employer works off a vesting schedule, this negotiation could be even more appealing to your employer because the increased match comes with a guarantee, so you’ll want to stay with the company long enough to meet the vesting requirement. It’s a way for the employer and the employee to commit to a future.
Of course, negotiating an employer’s match in your 401(k) isn’t always a possibility. Sometimes, your match might be set by industry or company policy. In that case, see about the possibility of having bonuses contributed to your 401(k) account. An increasing number of companies are doing this, so it’s likely that your employer would be willing to accommodate your request. A lot of companies have more flexibility in their retirement options than employees think, but because many employees don’t know that, this benefit is often overlooked.
There are cases in which this benefit isn’t always an option, however. What if you’re already maxed out on retirement savings contributions or your company can’t offer these options? In that case, you may want to look to stock options.
Asking About Stock Option Offerings
While many hear the term “stock options” and think they sound a bit too risky, they can be an excellent choice if your employer is a financially-sound company without a lot of liquid assets. Stock options are an extremely popular way for companies to recognize workers. In fact, the term “equity compensation” was created for it. Equity compensation means that employees are given a portion of ownership in the company.3 Some employees even trade off salary for this. Equity compensation can be used to reward your performance while also investing in your employer, which creates another win-win scenario for the employer and the employee.
Keep in mind that stock options are not a risk-free move. You’ll want to look into the company holdings carefully to see the company’s current and potential valuation, as well as how many shares of stock are already outstanding. Equity compensation is particularly popular with start-up companies, so it can be a big risk if your company has an uncertain financial future. In this instance, you’ll likely want to discuss the possibility with a financial expert to see if it is a suitable option for you to consider.
Negotiating for the Benefit of the Company
When you’re negotiating for enhanced retirement benefits, make sure that you keep the benefit to the employer in mind. Company stock can be a good option when the company’s assets aren’t liquid while a 401(k) match increase could keep you with a company longer. And, while company policy might cover some of these things and there isn’t as much wiggle room for negotiation, it never hurts to ask.
But before you even walk into the room to start negotiating those benefits, make sure you have your numbers right, and you know exactly what you want. Can you afford to go without, at least, a cost-of-living raise if your employer match takes the place of your raise? Is your company an investment that you feel safe enough with to trade off some of those salary dollars for stock options? These are questions you’ll want to know the answers to before you negotiate them. The advice of a financial professional or retirement specialist can help you find the path toward potentially increasing your retirement savings. Come up with a plan before you negotiate by working with one of the professionals in Retirement HQ’s extensive network.
By contacting RetirementHQ, you may be offered information regarding the purchase of insurance products. All of our financial professionals are licensed insurance agents. Additionally, some individuals may also be registered with a broker/dealer or as an investment adviser.
- “Employer Costs for Employee Compensation News Release Text,” U.S. Bureau of Labor Statistics, December 9, 2015, http://www.bls.gov/news.release/ecec.nr0.htm. ↩
- “Benchmark Your 401k Plan,” 401khelpcenter.com, accessed February 8, 2016, http://www.401khelpcenter.com/benchmarking.html#.VrJ15lgrLIU. ↩
- Andy Rachleff, “How to Trade Salary for Equity,” Wealthfront Knowledge Center, September 9, 2014, https://blog.wealthfront.com/trade-salary-for-equity/. ↩