The key factors employers use to determine your compensation
Being paid what you’re worth is a hot topic.
Five anecdotal examples of how employers assess a job’s worth:
- A Vancouver-based software company pays $180,000 for a senior developer role, citing the high cost of living and intense competition for talent.
- A nationwide retail chain compensates its store associates according to regional minimum wage laws rather than their skills and experience.
- Even though the ideal candidate must have extensive fundraising expertise, a non-profit organization lowers the salary range for a grant writer position to accommodate the decline in donations.
- A rural manufacturing plant pays its production workers less than their urban counterparts, citing the lower cost of living.
- A consulting firm’s compensation packages for junior analysts include a base salary, bonuses, and stock options designed to attract top graduates.
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In the same way, the price of milk, housing, or dog food varies from store to store and region to region; a position’s worth isn’t universal. What’s universal when determining the value of a position is to consider the expected return on investment (ROI) for the employee’s salary:
- Productivity: For production roles, employers estimate the candidate’s potential output, efficiency, and contribution to revenue or cost savings based on their skills, experience, and track record.
- Revenue Generation: For revenue-generating roles, employers predict how the candidate will increase sales, secure new clients, or expand the business.
- Cost Savings: For operational roles, employers estimate the employee’s potential to improve processes, reduce errors, or streamline workflows, quantifying the expected cost savings the candidate will deliver.
- Market Rates: Companies research salary benchmarks for similar roles in their industry and region.
- Affordability (cash flow): How much can the company spend on payroll? (Companies closely monitor their payroll, their largest expense, to keep it from being a “profit distraction.”)
These factors help employers determine what compensation will make the position worthwhile; in other words, the employee adds more value than their salary will cost.
Three key takeaways:
- Employers seek to maximize the ROI on their human capital.
- Candidates are more valuable when they’re seen as synonymous with profits.
- Worth (read: value) in the business world isn’t subjective; it must be proven.
Internet talking heads, trying to appeal to today’s prevalent sense of entitlement, advise job seekers to “demand their worth.” This advice is the cause of the dilemma many job seekers struggle with: Should I base my compensation expectation on what I think I’m worth or what the job market says the job is worth?
Wrong question!
Job seekers should ask themselves, “Should I base my compensation expectation on what I can prove I’m worth or what the job market says the job is worth?”
Always strive to prove what you’re worth, especially during an interview, while considering the following:
Evaluate the job responsibilities
Higher compensation is paid for expertise-intensive, decision-making-intensive, complex, or business-critical roles. For instance, senior data scientists earn more than entry-level data analysts.
Additionally, there’s the scope and scale of the role. Directors and managers overseeing multimillion-dollar budgets or large teams are valued more highly than those in minor managerial roles.
Know the industry standard
Platforms like Glassdoor, PayScale, and Salary.com, as well as government labour statistics and industry association surveys, provide crowdsourced salary data you can use as a starting point. Even though the objective of proving your worth is to obtain the highest compensation possible, you don’t want to ask for compensation that’s excessively outside the ballpark.
Supply and demand (a critical factor)
ECON 101: Supply and demand influence price; hence, roles with a limited talent pool and high demand will naturally command a higher salary.
The shortage of certain specialized technical skills, such as cybersecurity or data engineering, increases the cost of hiring those candidates. Conversely, recruiters and talent acquisition specialists are abundant, so employers can be more selective and offer lower salaries.
The employer’s budget (the most significant determining factor)
Employers aren’t a bottomless pit of money. As much as 70 percent of a business’s expenses can be attributed to labour costs (wages, benefits, payroll tax). Much like we’re constrained by financial realities when shopping for “whatever,” employers are similarly constrained when hiring.
Organizational size, revenue, profitability, investor and shareholder demands, and strategic priorities are considered when determining a position’s wage. Generally, companies allocate higher compensation budgets to roles essential to achieving their key objectives.
Never base your expectations solely on your own sense of worth. Research industry benchmarks, regional pay trends, and the specific demands of the role. Then, be prepared to discuss and justify the measurable value (key) you can bring to the employer. Highlight your unique skills, experience, and, most importantly, the results you’ve delivered.
- Grew email subscriber list from 300 to 2,000 in eight months with no budget increase.
- Managed 500+ customer accounts for five years without a complaint and got a 98 percent rating on reviews online.
- Wrote 400+ informative articles, increasing organic website traffic by 21 percent.
The job market is the primary determinant of a role’s worth – not your personal assessment. (Why should employers be responsible for the lifestyle you created?) A successful job search comes down to convincing an employer that your compensation request will result in a positive ROI.
Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers advice on searching for a job.
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The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.
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Troy Media is an editorial content provider to media outlets and its own hosted community news outlets across Canada.
