5 essential factors for determining compensation

Matt Tarpey


Determining the “right” compensation can be tricky. Not only is money a touchy subject, but so many factors play into determining compensation rates that are both fair and competitive. Here, Silva discusses the factors that influence compensation rates the most:

1. Years of experience and education level
It probably goes without saying, but the more experience and education a candidate has, the higher their expected compensation. So, if you’re hoping to attract job seekers with master’s degrees or more than 5 years’ experience, you need be ready and willing to compensate accordingly.

2. Industry
Workers with similar, or even the same job title can expect vastly different wages depending on what industry they’re in. There are many reasons for this discrepancy – in some cases their job function may be critical to a particular industry, or it may simply be a matter of one industry being considerably larger than the others.

3. Location
Cost of living, a major factor to consider when determining compensation, is largely dependent on location and, more specifically, the cost of housing. This is at least partially why salaries in large urban areas are generally higher than salaries for similar positions in more rural locations.  

4. In-demand skill sets
When it comes to determining compensation, key skills may be an even more reliable metric to compare against than job title. After all, different companies may have very different definitions of the same job title. On top of that, many skill sets can apply to a wide variety of roles – all of which are effectively competing for the same talent. That’s why it’s important for employers to consider the value of key skills when determining compensation.

5. Supply and demand
It’s crucial to be aware of the availability of relevant talent in the geographic region where you’re recruiting. If you’re recruiting in an area where the demand for a certain skill sets and experience outweighs the supply, you should expect to pay more in order to attract talent.

The cost of not offering competitive pay
You may think you’re saving money by keeping compensation rates low; however, it’s important to consider what it’s costing you in other areas. For instance, many employers overlook the costs associated with having unfilled positions for extended periods of time. Similarly, keep in mind the burden an unfilled position can put on your current employees, who may be taking on extra work to fill the gaps – not to mention what that can do to morale.

What happens if you can’t pay market value?
Luckily, it is possible to attract top talent even if you can’t offer the most competitive salary. Supplementing your compensation package with low- or no-cost perks, such as development opportunities, more vacation time and flexible hours can go a long way in retaining your current workforce. Another option is to recruit from areas where compensation rates are lower, and let employees work remotely from home or from another office closer to where the employee lives.

Take the guesswork out of determining compensation
Unless you’re an amazing guesser, it’s important to do a little recon when it comes to determining competitive pay rates. Competitive intelligence is your best friend when it comes to determining compensation. CareerBuilder’s Supply & Demand Portal provides up-to-date and relevant compensation rates for even the most specific of positions. You should also be able to see where compensation rates may be lower or higher (if you’re considering recruiting in other location), and – perhaps even more intriguingly – get a peek at what your competitors are paying.


Compensation is far from the only factor candidates consider when applying to jobs. To attract more talent, check out what candidates want in today’s job market.

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