Which 7 Critical Factors Contribute to Your Compensation Offer?

Which 7 Critical Factors Contribute to Your Compensation Offer?

Perhaps you’re waiting to receive a job offer and salary package. Or maybe you already have and are puzzling over what the company offered you. It’s helpful to understand the drivers behind what goes into a compensation package.

Putting some parameters around how companies evaluate candidates and structure their compensation strategies is useful in assessing whether the company is paying you what you’re worth. So, what are the critical factors?

1. Your role  

Data from Hired’s 2022 State of Tech Salaries report shows the average salary continues to rise globally across almost all tech roles. We found Engineering Management roles rank as the highest-paid positions with an average local salary in the US of $196K and an average remote salary of $198K.

US Software Engineers and Product Managers with averages also made the list of top highest-paid roles. Their respective average salaries are $160,469 and $157,602. Because salary expectation gaps and wage gaps strongly correlate, be sure to consult recent industry data as well as your personal financial situation when setting your target salary. This helps avoid settling for subpar compensation.

Whether you’re a new developer or industry veteran, staying on top of market trends is a  must. Data from our 2023 State of Software Engineers report shows Ruby on Rails is the most in-demand engineering skill, followed by Ruby, Scala, Go, and React Native.

Proficiency in hot languages can increase your earning potential—the more specialized and in-demand your skill set, the higher your salary may be.  To this end, it can be useful to gain familiarity on your own time through resources like Pathrise, General Assembly, or Educative.

3. Your location

When analyzing tech salary offers across our markets, we found the San Francisco Bay Area still boasts the highest pay, with an average salary of $174,063.  

To see how other cities fare in a cost of living comparison, we asked, “If every city had the  same cost of living as San Francisco, how much would tech workers’ salaries be worth?” Atlanta tops the list at an adjusted salary of $224K, meaning Atlanta tech workers would need a $47,527 raise to maintain their current standard of living if they moved to San Francisco. Austin is in second place at $216K, with Dallas and Seattle close behind at $211K and $210K, respectively. 

To calculate cost of living, consider a number of factors, including housing costs, utilities,  groceries, local taxes, and transportation costs. Add these expenses up to see how much money is needed for comfortable living in your chosen city. Then build on that number to determine your target compensation. (If that sounds overwhelming, consider resourcing an online tool like Numbeo, which easily calculates and compares costs of living.) 

Digging deeper into industry data, Hired’s annual report on wage inequality reveals certain markets have more work to do than others to narrow the gender wage gap. Outside the US, London showed the widest wage gap with women offered £0.91 for every £1 offered to men in 2021. Within the US, New York held the widest wage gap with women earning $0.93 for every dollar men earn. 

On the other hand, Denver showed the narrowest gap with women earning $0.98 for every dollar men are offered. This may be due to salary transparency legislation, which has been in effect in Colorado significantly longer than the recent changes in New York, California, and elsewhere. Overall, these figures indicate an industry-wide imperative for wage equality—and are important to keep in mind as you advocate for fair compensation during the salary negotiation.

4. Cost of labor

Pathrise’s Alex Immel chimes in, with this alternate, or additional consideration. “The cost of labor refers to how much it takes to hire and retain employees with the qualifications to do a job in a certain industry and place. It is tied to market rates and typically varies based on supply and demand.” 

It is basically, “the going rate for that talent, in that particular geographic area.” According to Alex, the cost of living matters more when working for the government, but profit-conscious private or public companies often lean more toward metrics such as cost of labor.

This considers how much specific roles cost to employ evaluating both: 

  • Direct – areas that generate profit, such as sales or the people who build or create the product or service sold
  • Indirect – areas that support the company, are a pure expense, but necessary to operate, such as janitorial, finance, HR, administrative, etc. 

5. Your level and seniority in the organization

Many companies organize themselves through a series of leveling in order to objectively assign value to different roles as a means of standardizing compensation. 

Before receiving an offer, ask the hiring manager to clearly communicate the organization’s leveling system to understand where you’d enter relative to other employees. 

Inquire how often the company re-levels employees, which criteria they use to make these decisions, and how compensation and promotions apply to these levels. 

6. Your past work experience

Companies have a limited amount of data with which to evaluate candidates and potential hires, so their offers will often be informed by past experiences—and how well you recount them. 

When negotiating an offer, focus on specific skills you’ve gained as a result of your experiences, connecting them to industry benchmarks for the role you’re considering. By helping the hiring manager understand why you’re uniquely qualified for the job, you’ll put them in a better place to offer an attractive compensation package. 

Importantly, never let imposter syndrome stop you from negotiating for a higher salary. If you’re struggling with self-doubt, remember that age, alma mater, and past employment do not predict success—skills do. 

You received an offer letter for a reason—so speak up to get the compensation you deserve.

7. Your management responsibilities

In general, compensation tends to increase as you manage larger and more strategic teams. Whether you’ll be managing a team, how big it will be, and how much management experience you have can all impact salary offers—so it’s important to adjust your expectations accordingly. 

Keep in mind strategic leadership positions with more accountability generally command higher salaries and larger equity packages than individual contributor (IC) roles or those with small teams under them. 

However, it’s important to note some highly talented ICs (particularly within engineering organizations) receive salaries that rival those of their peers in management—just don’t count on this always being the case. 

Related: Engineering Manager or IC? Which Tech Career is Best for Me? (Video) 

If you don’t occupy a management role but want to gain relevant leadership experience,  seek out opportunities to showcase your abilities. Within the workplace, ask to lead a cross-functional project, propose hiring an intern direct report, or take on leadership in an ERG. 

So, how do you position yourself to land the salary you deserve? Our Ultimate Guide to Salary Negotiation has everything you need.

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