The most significant impact a person can have on their long term career earnings is to engage in salary negotiation early in their career. This will have a direct impact on the amount of earning potential they have in their future.

This might be considered whether it is your first job out of university or if it’s a mid-life job change. Further, there are financial impacts when you are in your career working for an employer that you are very happy with, of not negotiating your salary with the best timing.

Throughout your career, you may earn pay raises and promotions within the company that you work for, but for example, when the company offers scheduled raises, as many companies do, the impact of the starting salary with that company is huge.

This not only applies to your first salary and subsequent incremental raises but also to salary market differentials when you changes roles within a company. You may move into a job requiring significantly more responsibility or effort, but the salary you had beforehand can influence the starting salary of the new job.

As an example, imagine a person starting a new job as a QA analyst in a high tech company somewhere in America. Suppose that person begins with a starting salary of $45,000. Most likely that person will have to put in 6 months to a full year before they are offered their first pay raise. Suppose it is a 10% raise which would be HUGE at many employers. The employee would gain an additional $4500 per annum based on that increase.

Now imagine that same employee started at $55,000 or even higher. That same pay raise of 10% would provide the same person $5500 additional salary per year. With the first salary, the employee would still be under the $50,000 level after one full year of work and after a 10% pay raise, while in the second scenario the employee would be at over $60,000 per year after a 10% raise.

Now consider the compound effect of these two starting salaries on the employees earning potential. First let’s examine a 4 year horizon all things being equal (that is, suggesting no pay raises and no promotions). The person earning $45,000 will have earned $180,000 in gross salary in four years. The person earning $55,000 will have earned $220K in 4 years. That is a $40,000 differential just based on where the person starts in terms of salary.

Introduce the 10% raise after year one and consider the impact as the person continues through their career. The person with a better salary in the beginning will always be ahead of the person with the lower starting salary, ceteris parabis (i.e. same job, same performance). The person with the higher salary negotiation will be inching ahead faster than the person starting with the lower salary. This impact accelerates with each passing year assuming the same % annual pay raise for each.

When negotiating a pay raise, if an employee earning $50,000 earns a 5% raise without negotiating anything extra, that might acceptable. Now consider the impact if the person gets a 15% pay raise because they have been a superstar in the job and they have all the supporting market facts and a performance record to justify it. That employee will have negotiated compensation – $7,500 in an increase versus just accepting $2500. Project that 10 years into the future, and there is a blatant $50,000 impact on the person’s earnings.

Experts feel it goes without saying that it is better to try negotiating a raise or an improvement to one’s total compensation package than to simply accept what is offered. The first offer is often the lowest offer and can be negotiated higher. This salary negotiation must be done with tact and must be well founded with a supporting case for the pay increase.

It must also consider factors such as market, company guidelines, and professional performance. However when done well, it can really pay off. Remember to consider the value of all factors of compensation when asking for an increase. Some people truly value time and quality of life, while others are willing to venture out and accept stock options in lieu of extra salary.

However, when it comes to salary negotiation, don’t be afraid to consider asking for more salary.