Here's How Companies Should Be Determining Your Salary

How to determine a salary—or often many salaries—is a process that should be done carefully and thoughtfully. There are several factors to consider, to ensure fair and competitive pay for the work being done. Salary is not just a number; it's a reflection of the value you bring to a company, influenced by both internal and external factors. In this blog, we’ll explore how companies determine your salary, what factors come into play, and why it’s crucial to get it right. 

What is Salary?

Salary refers to the fixed amount of money that an employee is paid by an employer in exchange for their work. It's typically expressed as an annual figure and is paid out in regular intervals, such as monthly or bi-weekly. Salary is a key component of total compensation, which may also include bonuses, benefits, and other perks.

External Factors in Determining Salary

When companies determine salaries, they must consider external factors to stay competitive in the market. Here are some of the key external influences:

• Benchmarking Data: Benchmarking is crucial in understanding what the market pays for similar roles. Companies analyze data from industry surveys and compensation databases to ensure their salaries are in line with the market. This process answers the question of how to determine salary in a way that aligns with industry standards.
• Competition: It’s important to know (or at least have an idea of) what your direct competitors are paying. This isn’t just about companies at the same stage as yours; it’s about understanding the broader landscape. Startups, for instance, often make the mistake of only looking at companies of a similar size or stage. However, they should also consider what larger or more established companies are offering, as they are often competing for the same talent pool.
• Geographical Location: The location of the employee can significantly impact salary. For example, salaries in major cities like New York or San Francisco tend to be higher due to the cost of living, while companies in different countries must consider local economic conditions and wage standards.

Internal Factors in Determining Salary

In addition to external influences, companies must weigh several internal factors when determining salary:

• Company KPIs and Values: Every company has key performance indicators (KPIs) and values that guide their compensation philosophy. Some companies may choose to pay above market to attract top talent, while others might focus on offering a balanced mix of short-term and long-term incentives.
• Skills and Competencies: The specific skills and competencies required for a role are critical in determining salary. Highly specialized or in-demand skills can command a premium, while more general skills may align with average market rates.
• Experience and Tenure: An employee's experience and tenure with the company are also significant factors. Companies must balance rewarding loyalty and experience with staying competitive in the market. A common mistake, especially among startups, is overpaying new hires while underpaying long-tenured employees during merit cycles.
• Company Budget and Total Rewards: Beyond salary, companies must consider their overall budget and the other total rewards levers at their disposal. Benefits, bonuses, equity, and other non-cash incentives can be leveraged to create a compelling compensation package without putting undue strain on cash flow.
• Pay Fairness and Equity: Ensuring that pay is fair and equitable across the organization is vital. Companies must regularly review salaries to prevent disparities, particularly as new hires come on board. Pay fairness also includes maintaining consistency in merit increases to reward long-term employees adequately.

Other Considerations

• Collaboration is Key: Setting salaries shouldn’t be a solo task. It’s essential to involve various stakeholders, including HR, Finance, managers, and for new hires, the recruiting team. Collaboration ensures that all perspectives are considered and that the final decision aligns with the company’s overall strategy.
• Regular Salary Reviews: Once salaries are set, it’s important to conduct reviews once or twice a year to ensure they remain aligned with your pay strategy. This helps the organization stay competitive and address any internal inequities that may have arisen.
• Ad Hoc Salary Determination: Sometimes, companies will need to determine salaries for new roles on the fly. This is normal, especially in fast-growing organizations, but it’s important to approach these decisions with the same rigor as more established roles.

How CandorIQ Can Help

Determining and managing salaries over time can be challenging, but CandorIQ is here to help. Our platform not only assists in equitably determining pay and salary strategies but also enables you to manage these processes over time. With features like benchmarking data integration, internal equity analysis, and collaboration tools, CandorIQ ensures that your compensation strategy remains aligned with your company’s goals and the competitive landscape. If you’d like to learn more about how CandorIQ can help, schedule a demo!