Salary and Compensation Demystified
The most common question asked by candidates when they are considering a new position is “What does the compensation look like?” They are often very surprised to learn the position is not paying what they were expecting, despite the big title and the size of the organization.
Most organizations have a defined compensation philosophy that determines where they will target compensation elements such as base pay, cash bonuses, long-term incentives and employee benefits. They typically have a process they use to level the position within this system. Understanding this methodology as used by your organization is extremely useful both for your own position and for those reporting to you.
A solid compensation strategy will align with and support an organization’s objectives. It can also be adjusted based on business needs, goals, changing talent markets and available resources. It is used to:
Recruit and retain talent,
Increase or maintain morale and satisfaction,
Reward and encourage performance,
Achieve internal and external equity, and
Minimize turnover and encourage organization loyalty.
The general components used in compensation development are:
Job Evaluations – These relate to a formalized system used to determine an appropriate compensation level for a specific job. The four techniques frequently used are Ranking, Classification, Factor Comparison and Point Method. Each approach has its pros and cons, and ultimately the process involves a certain amount of subjectivity.
Job Descriptions – Rather than a detailed list of job duties, this is an internal document that describes purpose, key responsibilities, geographic oversight, scope of influence, accountabilities, reporting structure, staff and budget.
Job Analysis – Usually done by a compensation department, this involves analyzing the key components of the job description in comparison to other roles, review of questionnaires, observations and interviews of internal stake holders.
Salary Ranges and Structures – This involves setting a range of pay grades positions are leveled to. A position may be assigned to more than one grade, allowing for growth without compressing an individual in their existing grade. Each grade represents a wide salary range with the assumption of 50 percent of the range being the mid-point market value. It is common that grades overlap. This approach provides flexibility in managing hiring, promotions and annual salary reviews without having to modify the entire structure due to changes in market or business conditions.
Salary Surveys – Basically this is a collection of market data for the position(s) being evaluated. To be accurate and effective, it is a comparative analysis of the key elements of a role based on a match to a well-constructed job description. It is also likely to involve comparisons within industry sectors and geographic regions. Some organizations conduct their own using in-house staff while others purchase results from well-established third-party vendors who follow a specific set of standard practices and can meet Federal Trade Commission (FTC) Safe Harbor Guidelines.
Professional organizations and trade publications routinely publish results of data collected online via self-reporting. Generally, in these cases data and/or sources cannot be validated, are loosely based on job titles, cannot be used by HR, and have the potential to be more damaging to the profession than useful. It is disappointing that these are still being marketed and/or offered for sale.
If you are looking a new job, keep in mind that many organizations have policy standards that dictate base salary offers made to external candidates should not exceed 10-15 percent over the candidate’s current base salary. Variables to this (higher or lower) may relate to geography (cost of living), unique factors in existing total compensation (bonus percentages, stock, other cash compensation); candidates coming from government, privately held, non-profits and other NGOs; and other truly unique circumstances that may even require board-level approval of an offer.
As a rule of thumb, companies like to bring in new hires at or near the mid-point. Salary bands have significantly wide ranges, but that does not mean the hiring range for your role can press the upper ranges. Consider an organization’s published salaries for their leadership team when considering senior-level roles. You can also use this to estimate other tiers. Be realistic in both your expectations, evaluate “total compensation,” and take a long view in your assessment.