This is the second chronicle in our series on compensation. Let's dive deeper into the different ways people are compensated and what factors influence that compensation.
First, what is compensation? It's important to understand that compensation is a lot more than base salary or hourly wage that is paid to you in exchange for your services as an employee. Compensation also includes signing bonuses, incentive bonus structures, stock options, and more. I've been fortunate enough to make it through the recruitment process with several companies and have received four job offers. I was surprised by all that a job offer letter includes. When a job offer is extended more information is included in the letter than just base salary and bonuses. Details outlining benefits packages, company 401k matching, paid time off (vacation days!!), and observed company holidays are all important factors to consider in the decision making process. On the company side though, it is important to know the value of these and other informal forms of compensation in the eyes of potential colleagues. Things like free coffee and snacks, or an outstanding company culture are all things that can sway top talent to choosing one company over another.
Next, let's look at the factors that influence compensation. At my current company, we look at four major factors when creating a salary recommendation:
- Market demand for the position in the industry and location (we will call this external equity or market value)
- Level of educational attainment
- Years of related experience
- Internal equity, this is how valuable a candidate is relative to other colleagues in the position currently or in the recent past
As this series continues we will look more in-depth at resources for determining market value and internal equity. Stay tuned!
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