Gain an understanding of your worth to market based on compensation policies of employers by examining internal, external, and individual equity.
- How can you protect yourself from being underpaid? First, understand your worth to the market. This requires some understanding of how salary ranges are determined and then where you fit within this range. Many organizations have a compensation policy. This policy sets rules for how employees are paid, how salary reviews are handled, as well as how the company calculates bonuses. Employers determine this policy based on three considerations.
Your individual equity, external equity, and internal equity. Let's look at individual equity. This equity or fair value is based on your unique talents and potential as an individual. What's more, individual equity is where your advantage lies in the negotiation process. If for example, you're an instructional designer and you've developed content using the universal design for learning techniques and no one else in the company has this knowledge, this would be a reason to pay you more.
You have to remember though, it's not what you think you're worth but what the employer believes the job is worth. This is why we need to look at two other considerations. The second consideration is external equity. This equity is based on looking outside of the company at what other organizations are paying for the same role. Competitive compensation packages are essential for attracting the best candidates. So employers will generally compare their compensation packages to their competitors.
So if company A is paying an instructional designer $60,000 then company B is probably going to pay something close to $60,000 for the same role. 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. The third consideration is internal equity. This equity is based on fair pay within the organization.
Most companies want to ensure fair pay internally and will compare salary offers to similar co-workers within the organization. This equity is essential for companies. Employees must perceive that they're paid fairly compared to their co-workers. Otherwise, they may feel less valued and leave. Fair pay also contributes to consistent performance standards and collaboration in teams. Based on all three equities, human resources will generally make an offer to candidates from their low range to their mid-range.
The offer at this level gives them room to provide raises and allows you to grow as an employee. Knowing these equity considerations will help you in researching potential salaries and determining strategies to increase your base pay.
- Recall what percentage of total compensations is through a benefits package.
- Explain which approach to begin within during a negotiation process.
- Recognize characteristics of a host-based approach.
- Identify the purpose of an equity review.
- Determine which steps to take when leaving a job for another.