How Employers Determine Your Salary
Ever wondered how employers determine your salary?
Perhaps, you have never figured out how employers determine your salary. You have a rough idea about salaries for certain jobs in certain market. Therefore, when a potential employer makes you an offer, you can decide whether a job offer is fair or not. That knowledge is derived from the overall market consensus. This article will, hopefully, enlighten you about how employers determine your salary.
Seriously, how do employers determine your salary?
Imam Ali Ibn Abi Talib said: The value of every person is found in what he is best at. So, to make a long story short, what you are best at determines your value. In other words, employers determine your salary (value) based on your value addition. Your experience, qualification, skills, connections, availability and other strengths all boil down to what you can offer. These factors are always instrumental in determining your salary. After all, employers count on them to derive your worth.
Your initial job offer and, later, promotion and salary increment depends on factors within you and other factors beyond you. The factors within you are listed in the previous section. The factors outside you mainly pertain to the employer and external market conditions. Combined, these factors help employers determine your salary.
Internal Factors that Determine Your Salary
Employers would value your experience only and only if it enables your to do your job efficiently and effectively. “A promising junior executive of IBM signed a risky venture for the company. He managed to lose over $10 million in the gamble. It was a disaster and the CEO, Thomas Watson called the nervous executive into his office. The young man blurted out, ‘I guess you want my resignation?’ Watson said, ‘You can’t be serious. We’ve just spent $10 million educating you!”.
There’s a cliché about deciding whether someone has 20 years’ experience or a single year’s experience multiplied by 20. Thus, your experience should bring value to the table. Otherwise, it is useless and your employer could do without.
Education & Qualification
Another cliché about education is when someone says: I have a PhD just to have people ask him: really, what other problems do you have?! Your certificate could have a lot of value. However, you have to sell it to the right buyer. In addition, you have to blend it with the right mix. For instance, many parent rush their children to go for a Masters degree right after graduating college. They believe that this enhances their market value. Whereas, employers do not share the same view. You can imagine the amount of confusion fresh graduates have to deal with when they discover the harsh truth.
For the employers, your experience has more value than your Masters degree. Of course, when deciding between two candidates with similar experience the one with a higher degree wins. In fact, they sometimes question whether a candidate with so many qualifications ever had the time to work and gain experience.
Professional qualifications, on the other hand, bring more value than academic qualifications. Yet again, nothing beats your experience. So, focus on acquiring the basic experience after completing the basic education. Then, look for professional and academic qualifications that blend well with your experience.
The most important skill employers use to determine your salary is your ability to persuade others. This skill is also known as communication skills. If you know how to understand others and make others understand you, you are in. Those who possess written and verbal communication skills pass interviews, get job offer and place themselves well on the fast-track. Speak and write articulately and always have something smart to say otherwise remain silent. Saying too much is probably number one reason why candidates fail interviews.
You can put several sub-skills under communication skills. Such sub-skills include: negotiations skills, good judgement, flexibility, learnability, keeping one’s composure in tough circumstances, leadership and the list goes on.
The other important skill in today’s world has to do with IT. Even the basic professions use computers software and applications to perform. Therefore, it is always wise to know the type of software and application you need to master in your domain. Most of the headhunting assignment our recruitment agency fulfills requires some sort of knowledge in relevant software and apps.
The third skill employers truly value is your ability to manage yourself. Although, this sound simple but managing ourselves is really what makes and/or breaks us. To manage yourself well means you demonstrate to your employer that you can work under the least amount of supervision. Companies expect their top guns to be human when dealing with others and be like robots when dealing with themselves. If we further explore this point we might go way beyond the scop of this article. We shall discuss this thought in details in several articles soon.
External Factors the Determine Your Salary
An interesting debate between an international port operator and their local representative once took place. The debate evolved around determining the salary for crane operator job. The local representative suggested that since the job entails operating machines the pay should be similar to what factories pay a typical machine operator. The person representing the port operator interfered by saying: our pay scale is determined by the value of containers the crane operators handle.
Companies pay their staff according to their set of responsibilities. That is why pilots and ship captains make much more than a chauffeur although both jobs are important.
Cost of Living
Many private as well as public organizations around the world offer annual salary adjustment to coup with cost of living. According to CEOWorld Magazine the average monthly salary in Switzerland in 2023 is $6,142. In contrast, the average salary in Sri Lanka in the same year is $143. No need to elaborate on this point as we can easily relate.
Supply and Demand
During the COVID-19 pandemic airline companies either laid off staff or offered them as little as 10% of their salary. On the other hand, employers do not hesitate to offer generous salary hikes during good times. For instance, countries recovering from severe economic downturns due to wars or natural disasters are likely to offer higher pay to civil engineers and construction workers. So, the next time you negotiate your salary with an employer verify the demand and supply within your field.
In general, administrative jobs receive lower pay than the technical ones. Most admin jobs can be filled easily and require less training and preparation. You can bread an excellent office assistant through a few months of training. However, to get a doctor in ten years from now you have to send a school graduate to medical college today.
Employer’s Reputation and Strength
Some employers would capitalize on their reputation to attract great talent with relatively lower pay scale. This forces employers with lower status to offer more to attract similar calibers. Others would ensure that they offer a salary structure that matches their reputation and status. Smaller companies might assume that because a candidate responded to a vacancy ad it means this candidate failed to attract the larger employers. So, they would have the upper hand when negotiating the salary. As you can see, it is never black or white and it always varies depending on several factors.
There are unlimited factors employers use to determine your salary. Some of the factors have to do with you. Others factors rest beyond your control. Your role is to have the strength to change what is within and have the patience to deal with and accept what is outside.
Companies pay you for the value you add and not to repay you for the money and the time you spent studying. They want your experience to either solve a problem or improve a situation. Otherwise, your experience has no value to them. Finally, your skills as a human being play a major role in setting your market value.
As for the factors that are beyond your control you can still steer your way around them. If the demand for your caliber is low in a country, you should consider looking elsewhere. You should also update your priorities when it comes to your career. Check your personal objectives against each job offer. Maximizing your pay slip might not be a wise objective all the way. You may need to make short-term sacrifices for long-term gains. Having learnt how employers determine your salary, are you ready to determine your salary?
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