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When negotiating salary, I've found that the presence of a big performance bonus (for ex. between 0 and 30% of the salary) further complicates the process. Even more so in fields where performance can only be quantified with peer reviews and is perceived by the employer as a measure of "how well you work" or "how hard you try", thus completely under your control.

It is obvious that everybody's goal is to work so well to achieve the maximum allowed bonus, but in reality we all know this does not happen all the time despite the effort (otherwise the bonus would make no sense).

How can you make it clear to the potential employer that you are totally committed to work so well to grant the maximum bonus, but cannot accept an offer that reaches your minimum salary goal only when you achieve it?

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    Given recent well publicised research, I would be very leery of a job outside of sales which has a significant bonus component. With the state of the world economy and my experience of performance reviews (which seem far from objective) I wouldn't want to rely on a unquantifiable bonus to maintain my minimum standard of living. – Mark Booth May 22 '12 at 12:57
  • @MarkBooth without any way of estimating my bonus I'd consider that true, but some places are predictable...where I work it's 10% bonus unless you're crazy exceptional or mess up significantly. But yeah, if a particularly significant % depended on undefined factors...I'd be wary. – Rarity May 22 '12 at 13:29
  • I have a friend who was 2 years ago not very happy at his job. He indicated to me at the time he got what amounts to a 2% raise and he had been with the company a year and half was moving into a more important role. A few years later after the company started to lose people because of such a poor standard of living raise, he got something like a 15% increase in pay, of course this has a great deal to do with the fact he is now a team leader at the same company. This is more or less a response to Mark Booth's comment. The point is don't count on these performance bonus payments. – Donald May 22 '12 at 16:24
  • What field is this in? Personally I hate carrots like bonuses (I don't like any part of my salary or career progression to be in anyone else's hands), but in some fields I gather it's the norm. I'm also curious to hear what a successful strategy is.... – Steve Bennett May 30 '12 at 7:46
  • I work for a company that hired me with a base salary at the median for my starting position. The benefits included health insurance, 401k matching, profit sharing, and semi annual bonuses. Being a S Corp company, my company zeros out the company money on hand at the end of the year to limit the amount of taxable income. 4 years ago, when the market dropped, salaries were frozen and remain frozen. Bonuses and 401k matching was dismissed. Health insurance coverage is the last thing I have. So, negotiate the fixed salary. That is the only thing you can control. Bonuses are for the birds. – jzahner Jul 10 '13 at 5:12
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My recommendation would be to make sure that discussions involving compensation clearly delineate between benefits that are part of the status quo and bonuses that may or may not be given each year. For example, you probably do want to consider non-salary benefits - like 401K matching, health care, life insurance, etc.

The best bet would be to have a clear concept of the market rate for your skills and negotiate for a salary that is relative to that market rate. Let the bonus be a perk and an incentive, but don't allow your future employer to get you thinking of it as a "given", particularly since the rules for how the bonus is acheived may well change from year to year and across job levels.

Avoid dicussions where your bonus is lumped into your salary - continue to refer to the baseline salary in all discussions. And be ready to walk away if the salary isn't appropriate.

I would say in a salary negotiation like this, that spending a lot of time on your commitment or capability is not necessarily productive. Presumably they have already judged you a good fit for the job, and any assurance you can give about your commitment is hard to verify until you back up your words with actions. Instead, focus on market rate and whether your salary range is fair for your skills.

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    +1 for lumping bonus into salary. That seems to be the "normal" way a lot of recruiters and HR people operate, and it's not fair. Maximum theoretical remuneration != salary. – pap May 22 '12 at 14:31
  • I agree with this answer. It is very important to understand what your base pay is, this allows you to figure out if you can actual live on said pay, or if you need to say go do freelancing on the side. The additional non-salary benefits should be taken into account to offset the costs, although with the changes at least in the states, I would not count on any of those benefits. – Donald May 22 '12 at 16:35
  • Oh! that raises another good point - it's good to also know what the expectations/requirements are in terms of freelancing! :) Different types of jobs have different expecations, and even within a field, different types of businesses or different companies may have different expectations. – bethlakshmi May 30 '12 at 15:43
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I would be very leery of taking any reduction in take-home pay in anticipation of a future bonus. To compensate for the risk, my expected earnings would have to be significantly above my market salary. To take a salary that is X below market, I would want at least a 50% chance to receive a bonus of 7X. By 50% chance, I mean that bonuses were paid in over half of the past several years. If the bonus is based on some sort of profit sharing, then I would want to know exactly what percentage of the profits I would receive, and the size of the profit sharing pool for the past few years.

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I would treat the possibility of a bonus as irrelevant to the salary I want to negotiate. I have seen too many cases where the promised bonuses were cut out completely or reduced significantly at the end of the year due to factors outside the employee's control. It's an easy line item to cut if the company needs to free up some money (except somehow for senior management bonuses). I would under no circumstances take a cut in basic pay for the possibility of a large bonus. And most especially not if the company was a start-up (the majority of those fail).

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