Industry Watch: When we Talk about Salary
January 2007

Q&A with Chris Fusco, Compensation Expert with Salary.com

Q: When we talk about salary, what all should we include?
Discuss total cash compensation (TCC) when exploring employee pay. TCC is the cumulative value of base salary plus any other annual cash payments, such as a bonus or incentive.

Base salary is paid to compensate employees for the performance of their job responsibilities and for fulfilling their obligations to customers. Performance incentives enable managers to reward their employees for accomplishing critical business goals. An effective incentive plan establishes those goals that are critical to sustaining business success or gaining competitive advantage. An effective incentive plan also requires company managers to communicate frequently with their employees to monitor progress toward those goals.

The majority of employers are keeping the growth in fixed salary expense at the rate of about 4% and providing employees with the opportunity for greater rewards through an incentive program. With a larger number of employees participating in incentive plans, employers are able to mobilize a broader segment of the workforce by providing additional cash payments that are coincident with successful business performance.

Q. Do you see a difference in salary for the same position depending on the geographical location of the job? If yes, where are the best places to work in terms of salary?
We do see differences in compensation levels by geography. The differentials are as you would expect. Typically, dense urban areas such as New York City or Los Angeles pay higher levels for a given job than more rural areas. The geographic differences are greatest for lower paying jobs since the recruiting markets are local. In contrast, executive-level jobs have a national recruiting market and are less influenced by geographic differences.

Q. Why do prospective employers often ask for salary history in job applications?
Prospective employers ask job seeking candidates for their salary history to determine the starting salary offer. The employer can analyze the information to determine the rate at which the candidate's salary increased upon job changes. That rate may be factored into the candidate's current salary to determine the starting salary that will be attractive for the new job.

Q. How should I as a job seeker approach that question? For instance, is it okay to fudge a little?
We recommend that job seekers postpone discussions about starting compensation arrangements until the employer and candidate have both decided that they want to work together. The candidate may reply to the request for their salary history that they will negotiate for a fair salary once they fully understand the responsibilities for the job and the employer knows all of the qualifications of the candidate. Ideally, the candidate doesn't discuss starting compensation arrangements until the employer has made an offer. The candidate must remain very positive about working with employer even if the offer is less than expected. It is not unacceptable for the chosen candidate to make a counter offer. In fact, the manner in which a candidate negotiates the starting compensation arrangements is a good indication of how they will perform on the job. Upon receiving the initial offer the candidate may reply:

"Thank you for your offer of $40,000 for the Accounting job. Based on my qualifications that include a CPA designation, I believe that I am worth $50,000."

This gives the employer the opportunity to make a counter offer and the candidate may settle somewhere in the middle.

Q. If a salary range is given, how would you determine where you might find yourself on that range? Also, if you really want a job, but you feel you should make more than the higher end of the range, would you apply for the job, hoping that there might be some flexibility?
Make use of the full salary range when one is given. Candidates may move toward the upper end of the range as they learn about the job's responsibilities and how their qualifications apply.

There may be opportunities for a salary greater than the range maximum if the employer is impressed that the candidate would not be underemployed in the lower-level job.

Q: How do I go about determining my salary worth?
First, take inventory of yourself: education, career experience, accomplishments, and professional certifications. Next, determine the market total cash compensation ranges for jobs that are comparable to your qualifications. Salary.com's Personal Salary Report can provide you with this information. Establish goals with your manager at the beginning of the employer's performance period and ask "what will be the reward for achievement of these goals." Finally, negotiate for the highest salary increase and incentive award possible by demonstrating your accomplishments and qualifications for continued success. The result of this process will be your worth in the talent market. Repeat this process annually to increase your worth.

Q: When changing to a new job in the same profession, is there a thumbnail rule of percent change in salary that the new employee can expect?
Most employers provide a substantial salary increase upon promotion to a new job. This increase is between 5% to 15%, depending on the employer's policy. A promotion may also come with a greater incentive opportunity.

Similarly, a new employer is willing to pay a premium to recruit employees from another employer. This premium is typically 10% to 20%, depending on the demand for talent and compensates the employee for the risk of starting over with a new employer.

Q: What do you think is harder, negotiating a salary or asking for a raise?
Asking for a raise is generally easier. Employers review employee salaries once per year, and this provides a framework to ask for a raise. On the other hand, negotiating starting compensation arrangements is more difficult because the employer and employee lack the experience of working together that indicates what the other is willing to negotiate.

In either case, the challenge is to maximize the starting salary or raise. Do this by demonstrating your accomplishments and qualifications for continued success.

Q: Lastly, what hints can you give about how to ask for a raise?
There are five tips to consider when asking for a raise that have the theme of building your portfolio:

• Document your accomplishments in terms of the problems that you faced and solutions that you put in place.
• Quantify the impact of your accomplishments on the bottom line.
• Save thank you notes from internal and external customers and present them to your boss from time to time.
• Obtain performance feedback from other managers at your boss's level.
• Carefully choose the single most important aspect of your employment arrangement that you want to negotiate. For example, it may not be prudent to ask for a salary increase because of your recent promotion, so you might choose to ask for a larger incentive award or extra vacation time.