Corporate Compensation Guide for the Job Seeker

A popular topic of discussion among job seekers is how to negotiate salary when the day comes that an offer is forthcoming. It is also a popular topic on websites, blog posts, Twitter chats and around Starbucks…just about anywhere that is a forum for such a conversation. Family and friends will help with advice along with the professionals, but the result is a confusing array of conflicting ideas. Some advice is just blatantly bad. A lot of information from those who should know is based on their personal experience and there is probably nobody who has seen it all. How does the concerned applicant know which tactic will work and which will fail? Misinformation about how companies determine pay can lead to unnecessary anxiety and bad decision making during a job search.

Every Company is Different

This is where good advice becomes bad advice when taken out of context. When taking advice from any expert on salary negotiations it is always important to consider the source. Recruiters are an excellent source of information on the value of a position because they must keep in contact with the marketplace through candidates and company resources. It is important to keep in perspective the fact that their view may be limited to their company or clients and is anecdotal at best. There are also career counselors and coaches who stay in touch with the job market and their services are worth the time and expense to get expert advice. Here again there is a limited perspective of the whole marketplace since generally speaking their clientele will most likely be in the upper end of the salary spectrum. These and other professionals provide data that is always useful in making personal decisions as long as each piece of information fits into the current situation.

A Few Words of Caution

There are also self-professed experts who have never worked a day in recruiting or HR and are simply winging it when they make best guesses about salary negotiations. They may be smart and offer good advice but understand that it is serving their interests to brand themselves as knowledgeable people. Worst of all is the disgruntled job seeker who has become so bruised in their job search that they are total negaholics about everything in the process. Heed their advice but remember that you really don’t know if they failed or the company they were interviewing failed. If five people interview for a job and one person is hired, there is a possibility that up to 80% of those candidates could broadcast a negative image of the company to save face. It is also possible that they really did fall into a black hole and were not dealt with fairly. Make your own decisions and avoid drawing conclusions and making life decisions on unproven facts.

Market Value of a Job

Small and medium companies may not have a compensation professional in-house so they may rely on outside consultant expertise or low cost/no cost survey data such as salary.com or payscale.com. These tools are getting better as more data is collected, however large corporations will usually participate in same-industry salary surveys that measures benchmarked company jobs to similar jobs in other companies. Since there is a blind data feed into these surveys, these companies know the market average base salary to a high degree of precision but not what the competitors are actually paying. These services are not cheap but do provide the most accurate compensation survey data, geographical differentials and cost of living indicators. Towers Watson (merger of Towers Perrin and Watson Wyatt in 2009), Mercer (acquired ORC in 2010), Aon Hewitt (Aon acquired Hewitt Associates in 2010) are all multi-billion dollar global consulting firms that provide world-class salary data and prove that the business of managing business is big business. For new graduates, the National Association of Colleges and Employers is probably the gold standard for salary surveys informing employers of the going rate for entry level talent.

Company Compensation Policy

The dynamics of salary offers is much more complex than knowing the overall market value of a job. Every company must decide what their compensation policy will be relative to the market. Some will choose to set their internal salary structure above market in order to attract and keep the best talent. Others may choose to benchmark their jobs in some percentile lower than market value due to economic conditions or as part of an overall expansion or growth need. The real experts on these decisions are generally hidden from public view and the job seeker is never really aware of a company’s philosophy on pay. Additional information that is usually proprietary to the company is the money that is available to offer a candidate. Most market data is converted to some range of salaries and company budgets are set based on that range. Employees who have proven their abilities through their contributions will usually gravitate to the upper end of that range. New hires balance that budget by joining at the lower end of the range. How rigid this budgetary constraint will be is determined by company management and those presenting offers on behalf of the company are responsible for compliance with this doctrine.

Internal Equity is Critical

Medium to small companies usually have more freedom to wiggle on a salary offer, but it would be totally irresponsible for any company to disregard the total employee population when hiring. Salary compression occurs when there is only a small difference in pay between employees regardless of their skills or experience. Rising tides raise all ships. There is usually no flat rate paid to employees outside of union wages or the military. Where skills matter, it is not an issue of rank and time-in-grade when determining pay. Unfortunately, even large corporations usually have clumsy pay-for-performance systems that make this a difficult factor to consider while engaged in a job search. Through the fog there is one paramount principle that is universal: The new kid on the block will probably be paid less than those who have already paid their dues. To do otherwise creates a nightmare for HR in calibrating the entire workforce at some future time. Hiring practices take place in the same environment that is looking to promote employee retention and this requires constantly examining the equity of pay for all employees.

Total Compensation

A lot has been said about base salary negotiations but in reality this is only a part of the issue. To blindly demand higher salary without considering other benefits is not an intelligent decision. The fringe rate for some companies is 150% of base pay or higher and cannot be discounted in the total worth of an offer of employment. Even if offered the salary that was determined to be a goal at the outset of the job search, exploring other aspects of the job can be revealing. Paid time off, retirement contributions, 401K matching funds and other such items are an integral part of the company’s compensation package. Bonuses are also a part of total compensation, but this doesn’t always mean the same thing to all people. Annual bonus targets involving cash or stock are not give-away programs but are used to incent improved performance: ergo the term incentive. SOB’s (a useful analogous term for sign-on-bonuses) can be misleading. A valid signing bonus to compensate the candidate for losses of bonus, stock, retirement or other items is one way to insure the timely signing of a critical new hire. As a freebie, it generally means that it is a feeble attempt to offer a low-ball base salary by giving a part of future earnings up front. Nothing is free. It may also be a method of keeping company costs down since future bonuses and other benefits such as insurance coverage is determined by base pay.

Even the information discussed here does not include all the possible alternatives. That is why it is important for every job seeker to know the general facts about overall company compensation and apply that knowledge in making personal decisions that will come up during salary negotiations. The best advice is to listen to all advice and make rational rather than emotional decisions. It is always useful to back off and look at which organs are making the decision: the brain or the glands. Emotional decisions can be disastrous to any life event. A partial list of rules to keep this on track is:

1. All expert advice is not expert and some is from uninformed or misinformed sources.
2. Asking questions to gather data to make an informed decision is important.
3. It is almost never just about the isolated situation of the candidate and the person presenting an offer.
4. A shoot-the-messenger mentality by not understanding the perspective of the company’s representatives is counterproductive.
5. External candidates will never really know and understand the big picture until they are inside, but trying to find this perspective is important.
6. Joining a company that ignores responsible pay practices leads to a future of dissatisfaction.

And the bottom line is this: Pay is not (or should not be) the most important aspect of a job anyway.

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