Salary, meaning what you get paid by a company every two weeks, comes down to two main influencing factors.
- One factor is the value you are able to give to your own company, which is the largest influencing factor, since your company hires you for your value.
- The other main factor is what others in your area of location and area of expertise are being paid for similar jobs.
Value you provide to your company
Those who contribute more clearly to a company’s growth and revenue such as people in sales and marketing positions, are often able to articulate their value more clearly and can find it easier to get a raise or be paid more.
The value you provide to your company, and more importantly, the value you can show you provide, and that the company recognizes you provide, is the number one factor in determining your compensation.
A company wants employees that contribute to the growth and stability of the company.
If you are in a job role that only contributes to the stability of a company, such as customer service or administrative work, you will have to rely more on the competitive landscape to determine your salary, since a company can hire any number of similar people to work in your position for the going rate without altering company results or revenue.
The exception to the stability role rule is if your job role is more specialized, in the sense there are very few people who have the knowledge or skillset to do what you are able to do every day, you have a lot more leverage since you provide unique value to the company. This includes high level IT or technology jobs. The reason you have salary leverage in a high level IT position, is there are not many others who can do what you do, and you keep the company running, so they are willing to pay you more as long as they perceive you as being critical to their stability.
If you are in a job role that actively fosters growth, particularly in the revenue area, you can use this as leverage when asking for a raise or even when going to a new company. Roles that are in this position include sales, marketing, hiring, and strategy roles such as CEO, COO, CTO, etc.
If you are in a position that contributes to growth, then you should make sure you are able to document exactly how much growth you are adding each day and month to the company. Once you are tracking and documenting this, you can wait until it becomes clear the growth you are providing is much higher than the salary you are receiving, and you can use this in your next salary negotiation with your boss. As long as the growth you are providing is unique and trackable, they will see you are adding a lot more value than you are getting, and will be likely to award you a raise in proportion with what you are giving the company.
Sales roles see this the most obviously when they receive commission based bonuses, meaning they get a percent or cash bonus based on how many sales they bring in for the company.
Quotas and commission based sales are sensitive, and not everyone agrees on how much sales people should be paid. Some think there should be caps or high quotas, while others say those are just ways to punish high performers and hurt the company’s overall performance.
Companies benefit from paying those more who bring in more business, and this has been shown in many real-life examples including the following:
Sanjong Misra of UCLA published a study of a Fortune 500 optical company’s salary plan and here is what he found:
Misra and Nair estimated that if this firm removed the cap on sales reps’ earnings and eliminated quotas, sales would increase by 8%. The company implemented those recommendations, and the next year companywide revenue rose by 9%.
It is seen less obviously in marketing or other growth based roles, but when new business is tracked correctly, this can be used as a salary negotiating tool in any growth-based position.
Not only can growth based or commission based salary be used as a salary negotiation tool – it also benefits the employee and the company at the same time; this makes it not just a negotiation tactic, but a solid way to help a company to continue to grow while compensating its employees fairly at the same time.
Competitive landscape in your field
Employers rely on what others with your same skills are making when determining your salary, because it determines who else they will be able to hire with the same skillset.
It also shows them that other companies are successfully growing while paying X amount to people doing your same job. It is a great way for them to start looking at salary, especially when they are not sure what to do in a given situation.
The reason competitive landscape of your salary in your location influences what you will likely be paid so much, because, it means your employer can hire someone with your same skillset for the same price in half a second if you turn their offer down.
This is also influenced by how many others with your expertise there are in your area, since a shortage of any skill in any given area will give you more leverage to negotiate your compensation.
You can leverage the competitive landscape to your advantage by doing the research using sites such as Glassdoor, Payscale, and Salary.com, to figure out what the salary landscape is for your skills, experience level and job.
Presenting your research in this area will be a huge advantage and allow you to command a much higher salary if your current or proposed salary is much lower than the average for your job and location.
When Competitive Landscape Doesn’t Matter
However, if your salary is actually higher than the averages, then you may want to look more closely to see if you are looking at the correct experience levels and specific job type. If you are, then it is best not to bring up the competitive landscape in your discussions, and instead focus on point #1, which is what you have brought the company or other companies in the past, and what you can do to help the company you are at or want to work at in the future.
If your salary is much higher than those who work in similar jobs in your location, then there is likely a reason for that. You may have so much experience that you know things others do not, and you may have some way of adding unique value that others are unable to.
Regardless, if you can show a company you add 10 or 100X to their bottom line, while they pay you a fraction of that, you will be able to command a much higher salary regardless of the competitive landscape, since companies are looking for employees that contribute to growth, and if you can do that and document it at the same time, you have more leverage then you need to command a higher salary.