While many factors should be considered when choosing a new job, or remain in one, money is the most important and least understood. Let's dive into the specific components that collectively make up what we think of as “compensation.”To start, there is a distinction between “salary” and “compensation.” Salary is what your paid. Compensation is …
While many factors should be considered when choosing a new job, or remain in one, money is the most important and least understood. Let’s dive into the specific components that collectively make up what we think of as “compensation.”
To start, there is a distinction between “salary” and “compensation.” Salary is what your paid. Compensation is what your paid + what they pay for (e.g., insurance, paid time off, bonuses, perks, etc.). Every job includes a salary or a compensation package and that’s where the uniformity ends. Basic, right? Except salary also has multiple definitions and many people do not understand the legal differences and conflate their expectations with processes that may or may not exist.
This is the bottom line: Your worth is what employers are willing to pay you and what you are willing to accept. Beyond well-defined practices that are illegal such as discrimination, harassment, or wage theft, few rules govern compensation. In addition, there are varying minimum wage laws to which companies must adhere, but for the most part, employers can pay people however they want and can be as vague about how they manage compensation as they wish.
When there is a disconnect between employee expectations and employer compensation practices, the result can be disastrous for the employee and the company. A disgruntled employee contributes to a poor work environment that may impact the overall success of the business. Nobody wins, so it is in everybody’s best interests to be aligned on compensation.
A main issue is that many employee expectations are not based in reality, but a misunderstanding of how employers determine and budget for staff compensation.
For example, most people would agree that a typical career trajectory is a series of escalating roles and each step “up the ladder” brings a larger salary and more expansive compensation package – except it’s not true. A career may unfold like that, but there is no guarantee that it will. Nobody is entitled to more money and no company is obligated to match or exceed previous compensation. Believing that is a false expectation.
In an attempt to provide clarity and dispel false expectations, it’s best to review the basics. How do employers determine what and how they pay their employees? Employers may employ a compensation philosophy to guide their organization on recruitment, hiring, and retention. This is only a guide. Remember the bottom line. Even a very well defined compensation philosophy does not supersede the bottom line. An employer can and will abandon their philosophy in individual cases if it benefits them.
A compensation philosophy can be developed at any level of the company. If it’s public, the Board of Directors may sign off on it, or let the CEO set the rules. Human Resources may play a role, or it may be a collaboration between hiring managers and corporate leadership. Regardless of who creates and implements a compensation philosophy, the idea is simple. A company decides to offer new hires compensation that is above market, median, or below market.
If an employer wants to recruit that best of the best, they pay above market. If an employer wants to pay the median, they will recruit average employees. If an employer wants to pay below market, you get what you pay for and chances are there will be more turnover, which may cost more in the long run.
A compensation philosophy can be a company wide approach, or a business can be all over the scale depending on the role. It’s the Wild West and the relationship between the employer and employee is asymmetrical. The employer controls the purse strings and makes the rules. The job seeker’s only leverage is the choice to play by those rules or not. However, everything is negotiable until told otherwise, so there is some wriggle room though the power dynamic remains the same.
The onus is on the job seeker to fully understand the details of the job offer as well as how the company manages compensation for existing employees. If you believe you will get an annual salary increase and learn later that’s not the case, that is not the employer’s fault. Unfortunately, even if you ask the right questions at the right time and the answers align with your professional goals, an employer can change its policy any way it wants any time it wants. A compensation philosophy is not a contract. You can accept the changes or find somewhere else to work.
For existing employees, the philosophy will determine the regularity and criteria for compensation increases, performance bonuses, job scope, and any other changes that may affect employee compensation. Yet, the bottom line can’t be repeated enough. A compensation philosophy is a framework, not a mandate. Neither the employer nor the employee is bound by the philosophy. An employee can request more at any time and an employer can decide whether to not to honor that request.
To wrap up Part I, let’s return to the bottom line about compensation: Your worth is what employers are willing to pay you and what you are willing to accept. Beyond limited legal requirements, employers can determine what and how they pay their staff. Employees are responsible for understanding the details of any job offer and requesting a comprehensive breakdown of how compensation will be managed in the future once hired, knowing that it may change at any time.
Upcoming posts will detail compensation’s complexities. details. Topics will include:
1. Exempt vs. non-exempt employees
2. Performance bonuses
3. The math behind market pay scales
4. The pendulum of leverage
5. Job scope “creep”
6. What “cost of living increase” means
7. Inflation and the wage-price spiral
8. Compensation negotiations/self-advocacy vs. collective bargaining (unions)
9. Taxation
10. An overview of federal labor law that regulates compensation
Happy New Year!
Math behind pay scale
Pay scale.com. Research tool. All about economics. Supply & demand and where the curve meets. Fixed cost for a business. On the books. Does not change week to week. Long term deal. Loads of factors how you get paid.
Supply and demand for your skill set.
Low/high barrier to access (customer service rep vs software engineer)
Geography – where you live impacts where you fall on the scale. Cost of living in the city is higher than South Dakota. 2 different markets – attracting people locally but also need to fulfill skill sets which may mean relocating or playing with remote/hybrid/etc.
Urgency – how quickly does a job need to be filled, how quickly you need a job.
For example, cobalt. A dying language, but where there is demand for expertise for this old system small # of people who can do it, so higher on the scale. Coal miner!
If there is a labor shortage and you need people, regardless of skill sets, that will effect the scale. Special circumstances.
Experience vs experience of your peers. Equity.
Permanence and risk of job / short term consulting high temp job low
How much do they like/want the candidate.
Bidding war?
Larger companies will invest in learning these #s and pegging their compensation offers to very real data to ensure they are competitive (i.e. not under or over paying).
Philip Roufail contributed to this article.
Scott Singer is the President and Founder of Insider Career Strategies Resume Writing & Career Coaching, a firm dedicated to guiding job seekers and companies through the job search and hiring process. Insider Career Strategies provides resume writing, LinkedIn profile development, career coaching services, and outplacement services. You can email Scott Singer at scott.singer@insidercs.com, or via the website, www.insidercs.com.
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