People Management

5 factors that influence your salary and have nothing to do with you

Photo by Andrea Piacquadio from Pexels

We’ve all went (or will go) through the experience of asking for a raise and not getting it or through interviewing experiences that disappointed us when it came to the final salary proposal. We tend to reflect on our reputation and skill (yes, both of them!) and either sigh in disappointment or feel resentful. While we must admit that sometimes it could be a subjective decision, even discriminatory, in most cases there are business reasons that control this decision.

Here are five pure business factors that influence any decision regarding your salary and really have nothing to do with you, personally.

1.     The urgency to staff the position. Any contract is bound by terms and conditions. In big (well written) contracts – basically, where the money is – there is always a staffing condition as a proof of capability to deliver on time. This implies staffing the right people in due time, failure to do so resulting in penalties or cancellation. No one wants to lose good business, if the profit is good enough, just for not paying an extra buck. So maybe the GP (gross profit) will drop from 25% to 22% or even 20%, but that is still better than 15% (due to penalties) or 0% (cancellation). That’s why some people hit the jackpot asking for ridiculous amounts and that’s why such clauses are kept secret to avoid exploits.

2.     Company’s or project’s budget limits. Every budget in this world and every expense in the budget plan has an upper limit. Whoever tried to start a business, even on paper, knows that you can afford to pay only certain amounts for each type of expense, including labour. It’s not about going bankrupt beyond that point, or supporting loss, it’s about worth doing it. If an entrepreneur can’t make enough profit to ensure the targeted standard of living, then it’s not worth the struggle. If a company can’t make enough profit with a project, then it’s not worth allocating people there.

3.     Scarcity of your skill on the market. The question is simple: are there 10 000 people out there, in the same city, that can do your job? Let’s say you can code in Java. Great, there’s still a big demand, but it’s not rare. Remember RPA development as early as 2016-2017: with 1-2 years of experience you were already an elder and job offers were generous. Two years later, the market started to level off.

4.     Future perspectives of your role – Let’s say you’re a Cobol developer. Yes, they still exist and they work mostly for banks. The blunt reality is you get hired to maintain a legacy system, but once that gets refactored, there’s not much left in store for you. Don’t get fooled if someone is willing to pay you a substantial amount, because they couldn’t staff: that’s just a signal for the business that refactoring has to be a priority and you’ll be there just until the job gets done. Keeping ourselves employable is something we have to for ourselves. It’s nobody else’s task.

5.     The reality of your local market – That means paygrade based on country’s average income and taxes. That’s why you can’t compare salaries between countries without considering their tax system. An industry may hold certain fiscal facilities in one country that don’t exist in other. Progressive taxing practiced in most West European countries may take up to 45% of your gross salary, while in Eastern Europe tax level may be 15% or zero. Then there’s the buying power of each currency and in each country. A salary in British pounds may sound a lot when you’re in Portugal or fantastic for Bulgaria, but may not mean that much if you reside in London.

Out of the five entries above, the first two we usually don’t know unless we hold inside (and practically illegally disclosed) information. The other three we can find out by doing a reality check.

It’s not personal, Sonny. It’s strictly business” (Michael Corleone played by Al Pacino in The Godfather, 1972)