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Higher Base Salary Or Bonus: Which Is Better And Why?

Salary negotiations offer you multiple opportunities to change your payment structure. 

For example, you can choose to have a higher base salary or get a high bonus. 

Either way, you’ll have an overall salary increment. 

But the question with this is, should you focus on a higher base salary or a bonus when initiating a salary negotiation with your employer?

In this article, I’ll walk you through the higher base salary or bonus discourse so you know what to strive for during the subsequent time you negotiate for salary.

Higher Base Salary Or Bonus: Which Is Better?

In any salary negotiation, a compensation’s long-term importance and value should count. 

For example, a higher base salary doesn’t change even when the company is experiencing a dip in performance. 

On the other hand, bonuses can be scraped off easily.

With this, there is a need to go for a higher base salary first. 

This is because the base salary will remain unchanged even in the long-term, while bonuses can fluctuate depending on the company’s performance over a specified period.

Meanwhile, if you are negotiating for a base salary increase and you get a rejection, a bonus would not be a bad thing to settle for. 

After all, something extra is better than nothing at all. 

Also, a bonus is a good start and can pave the way for a base salary increase in the future, especially if you leave the door open for renegotiation.

Below are other reasons why a higher base salary is better than a bonus.

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1. Generally, Bonuses Are Based On A Percentage Of One’s Base Salary.

This means that in most organizations, having a higher base salary will improve your bonuses. 

Negotiating for a higher bonus, on the other hand, has no effect on your base salary now or in the future.

We’ll talk about the future more later because when we examine your future earnings potential, we’ll discover a couple of even more compelling reasons to prioritize base salary over bonuses.

2. A Base Salary Implies Seniority And Higher Value To Prospective Employers.

Job titles vary slightly from one company to another. 

As a recruiter, I’ve seen people earn $160,000 per year with the title of a Project Manager and $120,000 as a Senior Director.

It is dependent on the size of the company, the industry, and other indicators.

Because job titles vary so much, recruiters and hiring managers frequently use base salary to determine your true seniority.

As a recruiter, I’ve seen applicants pass up interviews because they were presumed too junior for a position based on their current starting salary. 

This is usually discovered during a phone call or Interview, we inquired about their current salary and forwarded it to the hiring manager.

So, It will be to your advantage to reveal that you have negotiated for high base salaries throughout your career. 

It becomes a negotiation tool or piece of leverage when asking for a high salary from your next employer rather than something you’re concerned about hiding.

You can use it to make a deal for higher pay in future roles.

The bottom line is that when you talk to a new company, instead of the hiring manager spending hours figuring out the intricate details and differences between your current compensation package and his/her company’s compensation package, they’ll simply look at

a) Your base salary 

b) Your total compensation 

So having a high base salary in your recent roles is the quickest way to imply a high value to future employers.

3. Bonuses Are Less Likely To Be Carried Over Into Future Opportunities For Employment.

While companies will have a general salary range budgeted for a given role, there is usually some wiggle room.

To accommodate an excellent applicant, they can relax the rules slightly or increase the base salary.

However, in my perception as a recruiter, many companies are much stricter on cash bonuses. 

So, if you negotiated a 20% or 30% cash bonus in your previous position and you accept a new position in a new firm, your earnings will drop to 10%.

A base salary, on the other hand, is more likely to carry over; you’ll be able to continue building it throughout your career and negotiate to ensure you’re always taking a step forward in base salary.

And, as previously stated, your base salary does have an impact on your bonus in most companies. 

The typical company provides annual cash bonuses as a percentage of your base salary.

Assuming for instance, your cash bonus is fixed at 10% and cannot be altered.

If you earn $100,000, your cash bonus will be $10,000.

But what if you could raise your starting salary to $115,000?

While you are doing nothing with your cash bonus. 

That same 10% bonus is suddenly worth $11,500. 

You receive a $1,500 bonus on top of your higher base salary. 

That is why I recommend negotiating the base salary first.

What Is A Good Bonus Percentage?

For an office job, a good bonus percentage is 10-20% of the base salary. 

Some Manager and Executive positions may include a larger cash bonus, but this is uncommon. 

Some employers will not provide a cash bonus in lieu of a higher salary or other compensation, such as stock options.

Companies are frequently strict and inflexible when it comes to these bonuses.

So, don’t be discouraged if your employer refuses to budge or allow you to negotiate your bonus percentage.

Instead, focus on your salary base pay more than a bonus.

FAQs

1. What Happens To Your Bonus When You Change Jobs?

You’re going down to 10% if you take this new position. 
Whereas, a base salary is more likely to carry over; you’ll be able to continue building that throughout your career and negotiate to make sure you’re always taking a step forward in base salary. 
As mentioned earlier, your base salary does impact your bonus in most companies.

2. What Is A Good Bonus Percentage?

For an office job, a good bonus percentage is 10-20% of the base salary. 
Some Manager and Executive positions may include a larger cash bonus, but this is uncommon. 
Some employers will not provide a cash bonus in lieu of a higher salary or other compensation, such as stock options.
Companies are frequently strict and inflexible when it comes to these bonuses.
So, don’t be discouraged if your employer refuses to budge or allow you to negotiate your bonus percentage.
Instead, focus on your salary base pay more than a bonus.

3. Do Bonuses Count As Income For Taxes?

Usually in the U.S, your bonus, salary raise, etc is the percentage of your base which has a compounding effect every year. 
The bonus is taxed at a much higher rate than your total income. 
Usually, you end up paying 40% tax on your bonus.

Conclusion

Every job change can result in incremental increases to your base salary.

If you negotiate a base salary, you can continue to build on it with each new job offer. 

This will help boost your bonus if your bonus is a percentage of your base salary.

However, if you focus on negotiating bonuses, you run the risk of all your hard work negotiating a better bonus at your current company not translating into anything in future jobs. 

As a result, I recommend negotiating the base salary first and using bonuses and other benefits as a secondary piece to go after once you’re satisfied with the base salary or have reached a stalemate in the base salary discussion.

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