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How important is a "Basic" of a monthly/yearly salary component.

I have received an offer which seems to be very attractive in terms of the total package, but there seems to be a 30% reduction in the component of fixed Basic salary from my previous earnings. I would like to know the long term impact of this component in particular.

It is believed that the "Basic" component is what summarizes the Bonus (i.e X% of Basic = Bonus). So would a 30% reduction like in my present case, allow me to see a subsequent decrease in the amount of the Bonus as well.

Please enlighten on these components. Would it be worth negotiating the offer purely for sake of increasing this chunk of the salary?

  • Mortgages are often based on basic salary; also the next job will often make an offer based on your current basic salary. – Ian Mar 26 '14 at 17:32
  • Well, aren't such security owings based on the net in-hand salary (or the net amount that actually gets credited) in that case rather than just the Basic. – learning_fly Mar 26 '14 at 17:35
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    @learning_fly, in the UK a lot of lenders will not take a bonus into account, only what your employer has to pay you. – Ian Mar 26 '14 at 17:40
  • @IanRingrose - You can give them your yearly salary as well. Because there are some highly paid people (like insurance agents) that make a low base pay but make quite a bit of money on commissions and bonuses. In fact when I got my mortgage the bank asked about any side income, expected bonuses, etc. – IDrinkandIKnowThings Mar 26 '14 at 18:12
  • @Clad, the law has just change in the UK so the bank will have prove that they check your income, maybe they will start to ask you to prove 3 years commission. – Ian Mar 26 '14 at 20:31
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There are at least a couple of potential problems with a lower basic pay:

  • Pay increases are usually a percentage of the base pay, so a lower base pay means a slower increase, even with the same percentage raise.
  • Bonuses are optional, and can be completely non-existant if the company has financial issues, even if the company is confident of providing them right now. They can also vary quite a bit, even when they do occur.
  • Negotiating for the job after this should have nothing to do with what you're being paid now, but in reality, it often does. They will consider base pay, even if you explain total compensation (because cheaper is better for them).

So yes, a higher base pay, even with a lower bonus, would be a better starting position. Whether that is something the company will negotiate is something only they know.

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    Not to mention most bonus structure is factored as a percent of base pay. So if you take a 20% cut but expect a 20% bonus then your total compensation = .8*1.2 = .96 – IDrinkandIKnowThings Mar 26 '14 at 18:09
  • Frankly I never consider a bonus as part of my compensation at all in planning what salary I want. If I get one fine, but I would NEVER reduce my base salary for the potential of a bonus. Too often you don't get them becasue the company is trouble or they pay less than you think (people forget that they are taxed) or you leave for another job before they are paid or the CEO changes and changes the bonus rules or stops them altogether. Bonuses are shakey, I would never bet my living expenses on getting one. – HLGEM Mar 27 '14 at 17:20

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