In business school, we’re drilled about the benefits of negotiating in our careers. A series of short conversations can yield more pay and better benefits for those willing to try. For a variety of reasons, many people fail to negotiate when the opportunities present themselves. The whole process is inherently awkward. Initiating a salary discussion implies that the current offer or situation is insufficient, and many people are unwilling to appear ungrateful in the face of a job offer. Others avoid negotiation due to simple ignorance. It can be difficult to recognize when there’s an opportunity to negotiate, especially when pithy business-isms aren’t easily applied to your situation.
In public accounting, recognizing when you have an opportunity to negotiate is key because there are so few opportunities early in your career.
Recognizing When You Have Leverage
At its core, successfully negotiating depends on having leverage. You have to provide something to your firm that is difficult or expensive to acquire elsewhere. It’s for this reason that first-year associates and interns don’t have the ability to negotiate their initial job offers. Inexperienced associates are fungible; when they start, they all have roughly the same amount of public accounting experience (read: zero), and their benefits to the firm are purely hypothetical. If the associate is smart and capable, and if they stick around long enough, and if they get along with their teammates, then their skills become more difficult and expensive to acquire. Until that point though, each associate is just as valuable as any entry level employee. As someone who has worked with dozens of associates, I know that’s not actually true. Some associates truly are better than others. But as we mentioned in How to Corporate – Knowing Your Place, the difference between a good associate and a bad associate is largely negligible. For better or worse, associates almost never have negotiation leverage.
Logically, the more experience you have and the more valuable your skillset is, the greater your negotiating leverage. Let’s consider the following scenarios to identify instances of leverage:
- You are a senior associate in a national public accounting firm. You are one of two seniors on your 25-person team, and your fellow senior just put in their two-week notice. There has been a significant amount of attrition on your team over the past year. You’ve been told that by taking on the other senior’s client portfolio, you will have a learning opportunity* that could put you on the fast-track towards an early manager promotion.
- You are a manager, and your regional public accounting firm is going through a merger with another regional accounting firm. Leadership has announced that there will be plenty of work for all existing employees. In fact, they are anticipating growing your team by 25% over the next year. Your experience with existing processes and training associates is valued by your partner. You have the opportunity to lead a transition team creating training materials for these changes.
- You are a senior associate, and you received a job offer for a 20% raise from a competitor public accounting firm. You don’t hate your current firm, but you’re disgruntled enough to go through an interview with a competitor.
Scenario 1: Attrition
The vast majority of public accounting firms rely on an antiquated business process called the Leverage Model. To oversimplify, the Leverage Model dictates that as much work as possible should be pushed down to the associates and senior associates, who are cheaper, while the client is charged as though managers and partners performed the work. This results in greater profit margins for the firm, if you ignore some odd internal accounting practices.**
Significant attrition gums up the leverage model. If you don’t have enough seniors and associates to push work down to, managers and above have to perform the work themselves, lowering the profit margins. If you are one of the last remaining senior associates on your team, scarcity has rendered your skillset valuable. Even though managers have more experience than senior associates, according to the Leverage Model, seniors are often more profitable per chargeable hour than managers. Congratulations, you have leverage!
In Scenario 1, there was another indication that you have leverage. When the firm indicated that you’re on a fast track towards promotion, you can assume that they value your contributions and want you to stick around. Offering you a path to an early promotion achieves two goals for the firm:
- Indicates that they value you, making you more likely to stay.
- It costs the firm nothing.
The firm is under no obligation to follow through on promoting you early. Nevertheless, you hold the leverage in this situation. If you were to leave, they would need to find a replacement or spread your work among an already-thin team. They would either promote a current associate who probably isn’t ready for the increased responsibility, or they would launch an expensive and lengthy interview process for an outside candidate.
In Scenario 1, you want to move quickly. Attrition is considered a serious issue by firm leadership, and they will move quickly to shore up internal support and backfill empty positions. Your leverage diminishes as soon as your level is fully staffed.
Scenario 2: Mergers and Acquisitions
Your firm has announced that they’re merging with another regional firm. They are confident in growing the business rapidly post-merger, and leadership is confident that no client-serving professionals will be laid off due to redundancy. As a client-serving manager, you feel confident that your job is safe, but you also recognize the opportunity that’s just been gifted to you.
Mergers are typically messy processes that take years to fully resolve. Managers with reputations for understanding company processes and teaching associates become even more valuable when two firms are trying to figure out how to work together. Congratulations, you have leverage!
Another overlooked aspect of mergers and acquisitions involves cash flow. In most cases, when a merger closes, there is a ton of cash freed up. Some firms see this extra cash as an opportunity to reward firm leadership and loyal employees; others will see this as an opportunity to invest in technology and processes. In most cases, the firm will do a bit of both. Your goal is to negotiate for yourself when this freed up cash is still circulating through the ecosystem.
Scenario 3: Competitor’s Job Offer
A competing firm reached out to you to fill a senior associate position on their team. They have offered you a 20% raise to take the role; otherwise the two roles are effectively identical. Congratulations, you have leverage!
This is the simplest of the three scenarios, because you have an offer you can present directly to your team leader. There’s no need to contrive a reason to initiate a negotiation: you either negotiate with your firm on a counteroffer to stay, or you leave.
Putting It All Together
There are many other scenarios in which an employee can gain negotiation leverage, and it’s important to recognize when you’re in a position to initiate discussions. In one of my more successful negotiations, I had several things going for me:
- My firm had announced a merger with a peer firm, ultimately freeing up a lot of cash.
- There was a lot of turnover on my team specifically, and I was the only senior associate on the entire team.
- The team’s attrition was unbalanced. We maintained a fleet of managers but had heavy turnover at the partner/senior manager level and at the senior associate/associate level. You can do a lot with a fleet of managers, but it won’t happen quickly and it won’t be cheap.
- I had an offer from a competitor in hand for a 15% raise.
- I had a mentor on my team who was willing to advocate for me.
Any one of these situations on its own would not be significant enough to justify a salary discussion with my employer. In this case, I was dealt the negotiation equivalent of a full house and felt compelled to bet on myself. Ultimately, my firm offered to match the salary raise of 15% from the competitor. I politely turned down the competitor’s offer and asked them to keep me in mind for future opportunities. My teammates were none the wiser. My annual review was three months after the negotiation, and my post-negotiation salary would be the foundation for bonus consideration. In a future article, I’ll walk through the specifics of this negotiation, but for today I simply want to point out the benefits of recognizing when you’re in a strong position to negotiate. If you find the courage to act, you’ll want to act quickly. I recommend knowing in advance what you would ask for from your firm, and having a friend in leadership who is willing to vouch for your work ethic and value to the business.
* “Learning opportunity” is accountant speak for “miserable job that no one with any agency would agree to take on.”
** Most of public accounting firms’ costs are fixed (e.g. salaries, most benefits, rent, overhead, etc.) rather than variable (e.g. overtime pay, certain bonuses, certain benefits, etc.), meaning that they can accurately estimate their expenses for the upcoming fiscal year before it begins. Additionally, many public accounting firms are beginning to prioritize fixed fee engagements over traditional time and expense engagements. When most of your revenues and most of your costs are fixed, it doesn’t matter if you spend 100 hours on an engagement or 10. You’re receiving the same amount of money from the client, and you’re paying your employees the same amount. Firms will argue that there’s inherently an opportunity cost to working too long on a single engagement, which is true to an extent, but when have you ever heard of a firm turning down more work?