How Important is Salary (And How Can You Improve Your Approach)?


October 28, 2019


X min


It’s an age-old question we’ve all pondered before but one for which we rarely arrive at a cohesive solution. “How important is salary?”

How Important is Salary (And How Can You Improve Your Approach)?
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It’s an age-old question we’ve all pondered before but one for which we rarely arrive at a cohesive solution.

“How important is salary?”

If you’re an employee or job seeker, this question is important to you for reasons that go beyond employment.

If you’re an HR professional, leader or recruiter, this question is important from a company success (and budget) perspective.

But regardless, the question itself is always a crucial one.

Salary will matter to people for a plethora of reasons, despite the fact that it may not always be the primary (nor even the secondary or tertiary) motivation for accepting a job offer or staying in a role.

Job security, benefits, company culture, travel, company reputation, career development and more all play a significant role in determining why people choose to remain with their organizations, and yet, salary is always a factor.

It’s fair to say, then, that the question of salary and its importance is certainly not black and white, but how far does its influence reach when you take a job or stay in your existing one?

And if salary can’t motivate employees to do their best work the way people assume it traditionally has, what’s the solution?

Let’s break this whole thing down further!

We know salary matters, but how much?

Ask anyone in your workplace how much they make, and you’ll likely be met with horrified stares.

You simply do not ask colleagues how much they make.

This rule of thumb is commonly known; few people in an office or company will openly discuss nor admit to their earnings, because it’s uncomfortable. What if you make more than the person sitting next to you, or earn less commission than your colleagues on a sales team?

Further, what if you’re ashamed of how much you make, not because it’s too little, but because it’s too much? Or vice versa?

There are treasure troves of reasons why we don’t ask one another about salary.

Interestingly enough, however, salary is one of the first elements people consider when looking at job postings or negotiating job offers. As much as we’d like to believe that company culture, benefits, time-off, and other upsides can make up for a less than desirable salary, we all want to think about things like putting food on the table, affording rent, or being able to get to work every day.

Millennials are a great example of this. 44% of millennial employees feel salary is important when it comes to attracting talent, second only to career development.

From an employee perspective, the salary range for a role could easily determine whether you’re ready to take the leap and accept a job offer or keep looking.

But for companies, salary often comes down to statistics, averages, and what the company feels the role is worth.

So there’s a disconnect between what employees want and need versus what companies must do to ensure they hire the right talent without overpaying or overcompensating.

Compensation comes in many forms

Salary is only one part of most companies’ compensation model.

We can’t forget commissions and bonuses, nor can we ignore benefits or allowances.

That means that, for many roles, salary isn’t simply the total annual income you bring home. It can also include things like monthly wellness allowances, a great benefits package, quarterly or yearly bonuses and more.

And while not every company will offer the same salaries, benefits or bonuses, compensation isn’t always as clear as we think.

For example, you could make $45,000 a year as a teacher, but your partner could be a hedge fund manager bringing in $120,000 annually. Despite that, you could be incredibly satisfied teaching young children, while your partner may be disengaged and detached from their work.

It’s why salary doesn’t always equal happiness, but other forms of compensation may.

According to Gallup, the ‘magic number’ when it comes to salary is $75,000, but surprisingly, those who earn more don’t necessarily report being happier, both personally or professionally.

Further, how a company compensates its employees doesn’t always boil down to the number on a paycheque.

An organization may provide lunch every Friday for their entire team, or give a monthly $500 wellness allowance that employees can use on gym memberships or hiking gear. Those initiatives can quickly add up to the tune of thousands of dollars a year, but could entice employees to stay with their organization even if their salary range is lower.

Those perks or alternative compensation models matter. Consider the fact that 72% of millennials have made some sort of compromise when entering the workforce, with one-third taking a lower salary to land a job. What may seem like a low and undesirable salary situation can be helped by other bonuses that aren’t necessarily monetary (like your company culture).

How you determine salary counts (and not just for your bottom line)

When you think about salary, what first comes to mind?

For many of us, it’s the amount of money we make annually, but salary range differs based on roles and responsibilities.

Put simply, salary range is the range of pay companies establish to pay an employee who performs certain functions or tasks.

When determining salary range, typically there is a minimum pay rate and a maximum pay rate, accompanied by variances in scale depending on things like promotions, industry averages or increases, etc.

If you’re looking on Glassdoor to figure out the salary for, say, a content marketer in Vancouver, British Columbia, the average salary reported by that platform is $52,000 annually. Yet, a company may choose to advertise a content marketer role with a salary range of $50,000-$55,000/year.

That range is dependent on things like market pay rates, industry averages, education, skill level, and more. Thus, a role’s salary range can change in relation to the employer’s needs. Not so surprisingly, salary ranges can also be impacted by location!

When determining salary for a new role, employers have to take into account traditional considerations, such as:

  • Market research
  • Industry statistics
  • Location and demographics
  • Company need/necessity
  • Skills, education, experience

However, employers are increasingly having to also consider what will motivate the right talent to not only choose their company as a prospective employer but ultimately apply and accept a potential job offer.

Which leads me to our next point…

How do you go beyond stats and research to find the right people?

Salary and compensation can only entice people to a certain extent, which means if you’re hoping to motivate the right people to join your company using compensation as part of your proposition, you’ll need to make it worth someone’s while.

Determine what your salary philosophy is

Most companies operate using either a base salary or a variable salary.

Base salary refers to a fixed amount of money that employers pay to employees based on their job functions, whereas variable salary or pay denotes compensation that varies based on different factors (like job performance, sales, etc).

Base salary is more common to larger organizations or those which are well established, but regardless, your company has to determine how it prefers to provide compensation.

If you like the option of being able to raise salary levels for high-performing team members, for instance, in times of promotion or negotiation, base salary may be preferable. It comes down to what a company feels will motivate their target applicant to apply.

Consider the competition

Beyond market research or role averages, you may want to consider how competitive your company is in relation to your competitors.

If you’re a tech startup that creates food delivery apps for clients, for example, you’ll probably look at similar startups in your city or region that offer similar services, are of similar company size, and have similar team structures.

So, when it’s time for you to hire a Change Management Coordinator, you’ll know how competitive you have to be with salary and compensation to ensure your company stands out (and feels like the right choice for potential employees).

Don’t forget to reiterate the big picture

When candidates first look at a job offer, the salary may seem like the key differentiator between accepting a role or declining it for another. But it’s important to consider the bigger picture.

A match in retirement funds or great benefits and office perks may be enough to compensate for a salary that applicants aren’t totally on board with, especially if there is no room to negotiate.

At the end of the day, a salary is unlikely to be the sole reason someone accepts a job offer or applies to your company, so it’s a good rule of thumb to keep in mind how applicants perceive your organization and what you can offer that moves beyond monetary compensation.

Evaluate your benefits and perks

When was the last time you asked your employees about their benefits and organizational perks?

It sounds like an odd concept, but gathering feedback from the people who actually use the benefits your company offers can be incredibly useful in determining how you can streamline the non-salary compensation you offer future employees.

Part of that non-salary compensation can include engagement initiatives. When employees are unhappy or actively disengaged at work, up to 54% consider leaving their existing companies for a different job, which indicates that keeping employees engaged at work could keep work!

Part of the ‘perks’ of working at your company could include a highly engaged culture, where employees can collaborate and do their best work. Such perks can also compensate for lower or less sought-after salary ranges!

About Kudos

Kudos is an employee engagement, culture, and analytics platform, that harnesses the power of peer-to-peer recognition, values reinforcement, and open communication to help organizations boost employee engagement, reduce turnover, improve culture, and drive productivity and performance. Kudos uses unique proprietary methodologies to deliver essential people analytics on culture, performance, equity, and inclusion, providing organizations with deep insights and a clear understanding of their workforce.

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