Pay Is Personal

Pay is personal. To most of us, it reflects value of ourselves, not the position. This is one of the reasons why the process that employers use to determine pay is so difficult for us as employees to understand and accept.

As job seekers, we can better prepare ourselves by being informed of the basics of compensation. The obvious time this is most helpful is at the time of an offer. However, understanding how pay is determined may help you choose which openings to pursue, craft and revise your resume and help minimize frustration and disappointment.

This article shares a lot of information and can be overwhelming at first read. I encourage the reader, to read, and then re-read to truly understand how pay is generally determined. It will benefit you in the end.

There is not one method an employer has to follow or choose to follow outside of the standard labor laws for employers in the United States. There is however, a general common approach to pay determination. It is best explained by explaining the most common five components of most employer's approach to pay determination-- compensation philosophy, job analysis, market research, pay structure, and the employer's financial health and budget practices.

Compensation Philsophy: the philsophy generally consists of the overall program objectives, such as establishing the marketplace position the organization can and desires to pay at, internal vs. external equity practices, steps to establish compliance with regulatory guidelines and laws, the inclusion and frequency of merit pay increases (performance related), market increase/adjustments (market survey data), budget implications, and the steps they will follow in administering the other components of the management of the compensation process.

Job Analysis: a method established to determine the content and what skills, knowledge (this is where education is factored) and abilities it takes to perform the job. This will assist in selecting, training, and comparing the job to other jobs within the organization and other employers. Done well, this can be expanded to determine "ladders" in certain jobs, junior vs. senior for example. It is also helpful to distinguish between the use of the terms job and position. A job title is what a indvidual does in that job. Job titles may help organize the structure in the organization and the possible career paths. A position is the budgeted "spot" for a job title and indicates the specifics that the individual who is in that role performs. For example, a company could have a customer service representative job description--all possessing the same requirements for skills, knowledge and abilities (SKAs), however in varying departments or varying roles within the same department they may have different responsibilities in how they use those SKAs. So the employees may have the same job title, but hold different positions as far as the compensation program is concerned.

Market Research: An employer who is trying to establish a fair and competitive compensation program has to have an idea of what ranges others in the marketplace are paying in order to place the results of their job analysis work effectively. It is illegal to share exact amounts as that is considered collusion. This is to protect against employers agreeing to "fix" pay rates so they don't have to worry about raising salaries. The comparison should be made to those organizations and locations where your candidate pool comes from and where your competitors for staff are as well. So, an accountant in a non-profit hospital can be compared to non-profit hospitals and other non-profits, but if the employer finds they have to go outside of that arena, they may be comparing themselves to large accounting firms, making the need to be competitive with a higher salary.

Market research is generally done by participating in compensation surveys, some include benefits as well,where you are comparing your job titles, descriptions and SKAs with other employers. More and more employers have added compensation platforms as part of their tools that allow them to stay abreast of market activity even on a daily basis if necessary. This technology and information has come a long way with improving the comparing apples to apples --job description to job description as opposed to just comparing job titles. Market research comparisons can include size and type of the organization by numbers of employees, annual revenues, location, and the pay rates are impacted by the current supply and demand for specific SKA's.

Pay Structure: Equipped with current market information of the job they have identified and analyzed, the employer can now develop their pay structure. These structures are generally organized in groups of jobs and salary ranges. This is often done with first establishing job families/job grades (think categories of grouping similar jobs in SKA and value in the external job market and/or to the internal value to the organization. Once valued, they are placed in the appropriate pay range.

A pay range is the spread of the salary for a specific position. Each pay range has a minimum starting rate (entry level, least experience) and a maximum rate (most experienced) . There is a formula, the sum of the range's minimum and maximum and divide that sum by 2, to get to the mindpoint of the range. This is important because this is then used to format the salary range's progression--how long it takes an individual to get to the midpoint pay and then on to the maximum. It is important to keep in mind, the range looks at pay rate--so no matter if the employee got there with merit pay increases or market pay increases, progression still continues in the range. Consequently, most employers like to bring an employee in under the midpoint, so they have years of growth and pay increases to enjoy.

Here is the most challenging part of pay to accept--at some point, each job "tops" out--meaning once it hits the maximum as established by all of the components of the compensation program, no more raises are incurred for the individual in the position, unless the market research indicates an adjustment is warranted and the employer has an established practice to make market adjustments. This can be very dissatisfying to the long term experienced employee making them feel that they are no longer valued.

Another important feature to understand--how fast does the progression in the range go? On the average, the low end, the midpoint is achieved in 5 to 7 years; on the high end, it can take 10 to 15 years. This is factored by the complexity of the job and how long it takes to be proficient, industry standards (which is largely dictated by supply and demand of those SKAs) and what the organization can afford.

One more important point is the philosophy of equity. The goal is to place individuals in an equitable manner across the range therefore not paying someone with less relatable SKAs more than someone with greater relatable SKAs or not paying a new employee more than someone in the organization with the same SKAs more. Sometimes, the market shifts mid-year and if an individual is greatly needed, the employer that is serious about maintaining equity, will make an adjustment--some time for the entire pay range and pay grade or just the individuals impacted the most significantly to maintain equity and fairness.

Employer's Financial Health and Budget Practices: Most employers account 15% to 30% of their expenses is employee pay--this is not including benefits, bonuses, etc. only pay. An employer who is financially successful and has adopted a philosophy to share in that success is going to be able and willing to pay more. An employer experiencing expense drain or revenue decreases, is going to consider options, including freezing or reducing salaries and benefits. Another factor is the amount they budget for pay and increases, allow for unplanned pay adjustments due to demand or market competition and maintain equity.

So, what to do with this information? As a career coach now and a Human Resources professional for over 20 years, I think knowing and accepting that these are generally the pay practices most employers practice can equip you with better understanding your negotiating power.

1. Understand where you are in your current or past job's pay range. Every organization varies in how transparent they are, but it does not hurt to ask your manager or HR department, where you are in your job's pay range? This will give you a reference point. You should also try and learn more about your organization's pay program and philosophy if you aren't presently.
2. Do your own research for pay. It will not be exact and is only an estimate, but it can guide you in better knowing what types of jobs and industries you want to target if pay is a driving factor.
3. Read job postings/descriptions closely, but still apply. Jobs are factored for pay (see Job Analyis above) for what it takes to perform that job. If you hold a Master's Degree and the job you are applying for only calls for a Bachelor's, you holding a Master's degree is not necessarily going to get you more pay than the the individual with only a Bachelor's degree. This doesn't mean it couldn't happen, but for most organization's with an established program they will not. Same for experience. You may have been working for 10 years, and if they are requiring someone to have 10 years experience in leadership and you only have had that in the last two years, you may not be their top candidate. Again, you might be called for an interview, but it will depend on the candidate pool you are in competition in. Don't let these factors cause you to not apply if you are confident you want and can do the job. Just understand it might take more time depending on your competition.
4. Don't feel pressured to share your current salary. Develop and practice how you will respond to compensation questions like "what do you make now?" an example response might be, "I think it might be more helpful for our discusson to share the range I am not interested in or able to go below" or "how much are you expecting?" if you do your research you can say, "in my research in the industry I have seen what the average pay range is. Can you share your organizations' range with me?" Bottom line, don't be afraid to negotiate, but make sure it is the right time and not too soon into the process. Do your homework.
5. Ask them to explain their compensation philosophy and program. Every employee should understand how their potential employer and definitely if they accept the position, how their new employer manages pay. Do they do market surveys, do they have merit and market pay adjustments, how do they manage internal transfer and promotions, especially how it impacts pay. This is particularly accepatable at offer. Give yourself time to process the offer, do some research, then come back with any further requests.