8 factors companies take into account when deciding your compensation (beyond market data)


Written by: Jillian Climie.


One of the most common mistakes I see people make when asking for a pay increase is they frame their entire ask around market data (or what others are being paid). Market data is an important input into compensation recommendations – if a company has access to solid market data, they will almost always reference it when determining pay for a new hire, promotion or role change. However, there are limitations to its use as each company pays their people differently based on their unique strategy, which translates into their unique compensation philosophy.


While it’s important to understand what the market is paying, there are many other factors that influence compensation recommendations. Understanding these can help you show up powerfully when you’re asking for more money. Read below for eight key factors companies take into consideration when determining compensation.


1. Experience. Experience in both the role itself and the industry will likely impact the compensation you’re offered. Depending on what job you’re in, the role or the industry may be more important. For example, if you’re a Senior Accountant, your experience in the role may outweigh your experience in the industry – meaning many years as a Senior Accountant may be seen as more valuable to an employer than many years in the given industry. However, if you’re a Vice President of Operations, experience in the industry might outweigh experience in the role – meaning many years in the Retail industry (for example) might outweigh many years in operations in a different industry. Think about what may be most important in your own job and to your employer, and leverage that in negotiations.


2. Role scarcity. Are there ten people in the company who can do your job, or are you the only one? If you’re the only one, you’re more likely to be paid at a premium because it would be much harder to replace you. This also translates to a broader scale – are there 15,000 people in North America who can do your role, or 150?


3. Level. The level of the role will impact how much you're paid. For example, a Senior Vice President will very likely make more than a Manager at the same company. However, know that level is not always equal across different companies. A Director level at a smaller company may equate to a Manager level at a larger company. Make sure you’re thinking about level in the context of the company’s size and scope.


4. Location. Where the role is based can impact how much you’re paid. If you’re working out of New York you might be paid at a premium compared to someone working out of Calgary. That being said, during the pandemic, many company’s compensation strategies around location became more complex. With so many employees working remotely, location-based pay seemed less relevant. We’re now seeing select companies choose to pay their employees the same no matter where they are located within a country (see Airbnb’s approach here), but this is not yet the norm. Most companies still have differences based on the cost of living and talent market of the specific area you live in.


5. Importance of the function to the business strategy. Every company has a unique business strategy, and based on that strategy, they will have a unique compensation philosophy which governs how they pay their people. Within this philosophy, there may be certain roles they pay at a premium because they are essential to that company's core strategy. For example, a Software Engineer at Microsoft will likely be paid a premium because that role is essential to Microsoft’s core strategy, and they want the best talent for it. However, a Software Engineer at a big bank may not be paid that same premium, and instead an Investment Banking Associate will be paid a premium since that role is essential to the bank’s core strategy. Think about what your company’s strategy is, and how your role fits into that.


6. Performance and your unique skill-set. How you perform within a company and your unique skill-set will very likely impact your pay. This is one piece that I often see under-focused on in negotiations, but in my opinion can have the most substantial impact. Confidently and concisely articulating your strengths and what you can do that no one else can is so powerful. When we focus on external factors, they often impact all employees (e.g., inflation, company performance, etc.), so you're negotiating for all employees in your company. When you talk about yourself and your achievements, it’s specific to you and much more persuasive.


7. Company performance. Many compensation programs are in some way tied to company performance. Some have more direct links, for example, bonus payouts are based on company performance or annual salary increases are funded by company operating profit. Some are more subtle, for example, overall compensation budgets are set after evaluating company performance. Know that it does impact how you might be paid year-over-year.


8. External factors. External factors out of your control can impact your pay – things like inflation, economic booms or busts, and global events. It’s important to be aware of these, but don’t let them dissuade you from asking for more money. When market pressures are tough, talent attraction and retention can become even more important to companies.


 

Remember that bias comes into play as well. While more companies are beginning to focus on mitigating bias to pay their people equitably, there is still much room to grow. Women still make 84 cents to every $1 a man makes, and this gap widens for racialized women, women who are newcomers, women with disabilities, and trans women. Understanding what the biases are and addressing them head on can help you in negotiations. If you need support in negotiating, or leveraging any other of the eight factors above, please don’t hesitate to reach out to us at contact@thethoughtfulco.net.