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Company compensation philosophy and how it effects your desired salary

Compensation philosophy

A compensation philosophy isn’t just about the Benjamins

The interview question of questions

I don’t think a week goes by where I am asked how to answer the standard interview question “What is your desired salary?”  Truthfully, I don’t hear about it this topic in the form of a question, I hear about it in the form of an accusation. If you have ever asked yourself any of the following, this post and the next post (how to answer the “desired salary” interview question”) will be for you.

  • Why doesn’t the company tell me what the salary is for this position?
  • Who does the company think they are. If they want transparency from a candidate, why don’t they give us transparency on the budget for the position?
  • Am I leaving money on the table or pricing myself out of the position when I give my number?

Before we go into how we answer the “desired salary” interview question, I want to provide some background on compensation philosophies. To give guidance on the “desired salary” interview question without an explanation of a compensation philosophy would be like serving a chocolate chip cookie without chocolate chips. It’s not a complete story.  

Compensation Philosophy

A compensation philosophy is a statement documenting the company’s position on employee compensation. It explains the “why” behind employee pay and creates a framework for consistency across the enterprise. Every company will have a different compensation philosophy and employees need to understand this before they provide their “desired salary”.

The desired salary is just that. It is “desired” and there will be accommodations for and against your number depending on the overall compensation package.

Companies want to be consistent in how they compensate their employees. There is nothing worse than having two employees being managed by two different managers and each employee is paid a vastly different amount for the same job. A consistent philosophy creates parity amongst employees and managers. This gives the employees trust that they are getting a fair shake and ensures that no manager will go rogue and play favorites or hater. Well, it doesn’t ensure, but it provides guidelines. 

More than just salary

Compensation philosophies take more than just salary into consideration. Hiring companies consider their benefits, company culture, training opportunities, growth opportunities, stock, stock options, etc to be part of the compensation philosophy. A company may not be profitable, so their salaries may be a little lower. If the company is in a hot industry like Artificial Intelligence or Cloud computing, the opportunity to work with cool tech may be attractive to some. A few other examples:

  • Non-profits may not pay the most, but part of their offering is the opportunity to work for a cause the employee believes in. 
  • Government and civic employees may not receive the best pay, but again, the opportunity to contribute to society will mean something to some.
  • Tech companies offer equity. As much as I like equity and have been fortunate enough to reap the rewards, what I really like about equity is that everyone has a reason to be motivated to work for the success of the company. We are all on a common mission. 

It’s not always just about the money

I work for a tech company in Seattle. This is with a company that has employees I like and enjoy spending time with. They took me to Disneyland for a day because I had never met Mickey. That is worth something. This is a smaller company where HR reports directly to the CEO and I could practice my looser HR. I wouldn’t have to worry about censoring this blog.  I knew the team and the CEO and that counted for a lot. It meant I would be coming into the position with some established credibility and momentum. When you come into a company with as an HR guy with credibility, that is worth something. With this in mind, I didn’t feel like I needed to ask for top dollar. 

Believe it or not, companies know the value of skill sets and experience. They have 100’s of employees on their payroll that they can compare you too. We might have the 2 years of experience and the education that is required, but companies also take their compensation philosophy into consideration. 

Depending on what is important to you

  • We might give up a few duckets because we have medical insurance needs and the company has a great medical plan.
  • Some employees both early and late in their career want stability and a matching 401K and may be willing to give up a few peso’s for these benefits.
  • For others, money is everything. These candidates may be willing to go to a place that is known for grueling hours but pays top dollar.

So, when you are thinking about your desired salary, think about the overall package and what is important to you. Your desired salary may be $50K, but if the commute is easy and the company pays for parking, you may be willing to give up a few bucks.

If the company doesn’t have a matching 401K or a great medical plan, the job can still be attractive, but you may need a few extra dollars so you can adjust your expenses.

It’s not just a single number

Before you give your “desired salary” number, consider the following:

  • The financial status of the company
  • Is the company in a hot sector or industry?
  • How much will it cost you to make it into work every day
  • How meaningful is the work and company culture?

Let’s say that in your city, an analyst with 3 years of experience earns between $40K to $60K a year. That is a big swing.

Your desired number may be fixed, but your expectations between different companies should be different.

  • An analyst at a highly profitable tech company can hope for a number higher in the band, especially in a town where there is a shortage of analysts. Supply and demand baby. Supply and demand.
  • The government would probably pay low to medium and make up for it with a lot of stability and the opportunity to help society.
  • A Fortune 100 company may pay average or just above average, with the opportunity to grow an employees career with a foot in the door at a large company.
  • A non-profit will probably pay at the lower end of the range.

Everyone is different

So why not just go to the high-tech company? Google and Amazon are very picky. They are world-class employers and these are not easy companies to enter into. Why go to a non-profit? Often times, the candidates they are attracting maybe later in their career who have had success in the private sector. They want to give back to society and salary isn’t their number one concern.

Next time you are asked about your desired salary, consider the factors that affect your number. Feel free to have an open conversation with your recruiter or hiring manager. The company should want a good fit for what you are looking for and what they are offering.  If you and the company are not aligned on the compensation philosophy, neither of you are going to be happy.

Next week, we talk about how to answer this question of questions.

See you at the after party,

HRNasty

nasty: an unreal maneuver of incredible technique, something that is ridiculously good, tricky and manipulative but with a result that can’t help but be admired, a phrase used to describe someone who is good at something. “He has a nasty forkball”.

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