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Understanding how employers determine salary

From: Negotiating Your Salary

Video: Understanding how employers determine salary

You know understanding your worth to the market is the first step to successful negotiations. Knowing how salary ranges are determined will help you to understand how to best negotiate. Many organizations have a compensation policy that sets rules for how employees will be paid, how salary reviews are handled, as well as how the company will calculate bonuses. Employers determine this policy based on three considerations. The first consideration you may think of is individual equity.

Understanding how employers determine salary

You know understanding your worth to the market is the first step to successful negotiations. Knowing how salary ranges are determined will help you to understand how to best negotiate. Many organizations have a compensation policy that sets rules for how employees will be paid, how salary reviews are handled, as well as how the company will calculate bonuses. Employers determine this policy based on three considerations. The first consideration you may think of is individual equity.

This is based on your unique talents and potential as an individual. Individual equity is where your advantage lies in the negotiation process, which we will cover later in this course. You have to remember though, it is not what you think you're worth, but what the employer thinks the job position is worth. Which is why we need to look at two other considerations. The second consideration is internal equity, which looks inside the company. It is a measure of how your salary compares to others within the same company.

So someone else in the company is making $50,000 for the job you want, then the company expects to pay you something close to $50,000. Likewise, a company will pay a senior level person more than a junior level person. Internal equity is important as you will need to understand where you fit into the organization's hierarchy. Third, external equity looks outside of the company. So if company A is paying graphic designer $60,000, then company B is probably going to pay something close to $60,000 for graphic designers.

However an organization can choose to pay higher or lower for various reasons including their geographic region, industry, or how attractive they wish to be to potential employees. Based on all three equities, human resources will generally make an offer from their low range to their mid range for potential employees. This gives them room to offer raises and allows you to grow as an employee. The first place to start your research is with external equity, since companies will be benchmarking against this.

In the next video, we'll discuss the methods for determining the salary range for your role and industry.

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Negotiating Your Salary

16 video lessons · 11504 viewers

Valerie Sutton
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