It happens all the time.
An employee marches into her boss's office demanding a raise. A college graduate looks forward to a high starting salary because he "deserves" one. A job seeker researches the average salary for a position she's interested in, expecting to automatically be offered something in the same arena.
Although salary information is one of the most important aspects of finding a new job, it's also the most under-researched. Unfortunately, with so many salary resources out there, there is always conflicting information and people who always disagree with, or don't understand, the information presented.
What you, the job seeker, must understand is that the information provided to you via salary information sites should merely be a starting point in your research. What you find as the average salary for a position doesn't guarantee that is what you will earn; there are too many other factors that come into play.
To help understand how you can analyze the salary information you find online and apply it to your situation, we've brought in compensation expert Jim Brennan, senior associate with the ERI Economic Research Institute, to help.
Q: How do starting salaries compare to median or average salaries?
Starting salaries are usually the lowest amount employers will pay for work, Brennan says. Companies expect new hires to know less about a new position, so they typically start them lower than someone with an established track record.
"Employers generally take care to assure that entry starting rates match the hiring-market requirement and that new folks will start at a lower salary than veteran job peers," he says.
Median salaries are the amount in the center between the lowest and highest compensation. If workers in an organization are paid $30,000, $45,000 and $50,000, the median salary at that company would be $45,000.
Average salaries are the product of the sum total of all the salaries, divided by the number of observations. With the above figures, for example, the average salary would be $41,666.
"Median salaries are better measures of 'normal' pay, being central values. Averages can swing wildly with the addition of extremely high or low values to the group," Brennan says. "No matter how high the high, or how low the low, the median is still the middle."
Q: How does my experience play a role in my compensation?
All else being equal, people with more years of experience at a company generally make more. Experience at the company where you currently work generally trumps experience elsewhere, Brennan says.
If you're new in a position, expect to be paid near the bottom of the scale; if you're a seasoned veteran who can hit the ground running, you'll warrant a salary that exceeds the entry rate.
Q: What exactly is cost of living and how will it affect my salary?
Cost of living is what you spend; a salary is what you earn. Your cost of living influences how much your salary will buy. Many workers assume that their employer is required to compensate for their cost of living. If you live in an expensive city, you'll be paid accordingly, right?
"Employers are too smart to base your pay on your expenses; if they did, everyone's pay would be different and we'd all spend like crazy and watch our salaries increase accordingly," Brennan says. "Employers don't care what you spend or how much it costs, as long as you are willing to work for the salary they offer."
Brennan says that companies pay what they do because the open market requires a competitive rate. Their "market" for workers is usually defined as commuting distance. Since many people don't live within walking distance of their workplaces, the cost of living where they work is different from where they live.
Ideally, we work where salaries are high and live where prices are low.
Q: How does education play a role in my salary?
"The role that education level plays in your salary depends on the nature of the job and the relevance of your education," Brennan says. "More formal education or advanced credentials in the specific field of work or occupational area will carry some weight in starting-salary offers."
A telemarketing candidate with a degree in communications, for example, would justify a higher starting salary because she would be productive immediately versus an applicant who would need training. If the same candidate applied as a suicide-prevention-line counselor, her communications degree might only meet the minimum requirements and therefore, she would probably earn less than an applicant with a master's degree in clinical psychology, Brennan says.
Q: How are wages and salaries set and how do they vary by organization?
Wages and salaries are set according to a unique blend of external market competitiveness and internal equity considerations at each employer, Brennan says. Every organization has its own way of paying people, and many variables -- such as organization revenue size, number of employees, profitability, pay history, corporate culture, geographic location, competitive labor analysis, benefits and perks, and ease of commute -- are factors.*
"Every enterprise has to compete in an open market for human talent. They all have to pay enough to attract, retain and motivate competent workers," Brennan says. "Those who pay too low fail to attract or retain decent workers and must either raise their entry salary or do without new hires. Those who pay too high will have long lines of applicants for every opening, but they better be much more profitable or more efficient than their competition or they may spend themselves out of business.
"Despite the basic truth that everyone pays according to what the market requires, no two entities pay exactly the same. Beyond the minimum starting rate, employers all vary in their practices, even for similar organizations of the same size within the same city and in the same industry," Brennan says. "No two will agree on exactly what their 'competitive market' is for all jobs, how it is defined or what their target pay should be. Once an employer has paid enough to hire someone, the cash paid above that amount is totally up to the entity. Pay always reflects a particular employer policy on the intended role of salary within their mix of total compensation elements, of which base salary is merely one."
Q: What is total compensation?
Compensation is more than base pay. If a high-paying job comes with miserable duties, no benefits or unsafe working conditions, you're probably better off in a job you like, getting paid less, with generous benefits, Brennan says.
Elements of your total compensation include*:
• Base pay (quoted in hourly, weekly, monthly or annual figures)
• Bonus pay (including individual performance programs, profit sharing, etc.)
• Premium pay (including hazard pay, geographic differential pay, holiday pay, shift differentials, etc.)
• Benefits (medical, dental, life insurance, payment for time not worked, tuition reimbursement, retirement plans, etc.)
Remember that compensation is only one part of the package when determining whether or not to accept a job. Hopefully, this will give you a starting point on knowing what you're worth.
"People don't work for bread alone, but the bread still better be right,"
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