# The mysterious salary formula

I've been observing a trend in several European and American software companies when it comes to salary negotiations. Basically, HR says we have a "formula" to calculate the salary for our employees according to their years of experience and the interviewers' feedback. However, none of them ever let you see that formula. They just tell you that this is a fair way to calculate the salary for all employees so that people with the same experience have close salaries.

Is this true? Or is this just a tactic in negotiations to convince the applicant to accept the offer?

I personally found it difficult to ask for more because it comes off as someone who wants more than his "equal" peers. After all, the company is telling you that all employees in your level are treated equally which gives a false sense of confidence in the deal from my side.

Is there really a salary formula out there? And if so, how do you negotiate for more in that situation?

Update for duplicate votes The duplicate question states how to determine a reasonable salary. My question comes at a later stage of negotiation and aims at countering the situation when HR somewhat put you in a situation where asking for more implies that you are asking them to ignore the policy laid for salaries.

• formula may be a bit loose. Most organisations I have worked for have ranges for each grade, and the position along the range depends on experience etc...but it's all skewed by so many other factors I wouldn't call it an equation (eg performance will be likely to boost salary, etc.) – Rory Alsop May 1 '17 at 17:18
• @Long well, considering that Stack Exchange itself does this I guess it's not really that surprising? – enderland May 1 '17 at 17:28
• The US government uses a "formula" to generate salary, but that's publicly available and is typically some combo of years of specific experience types (i.e. 1 year management experience, 5 years programming experience), + education, + position type. – LMGagne May 1 '17 at 17:38
• I have a formula for calculating my salary too. If the number disagrees, theirs is wrong. – PlasmaHH May 2 '17 at 9:17
• They may have a formula, they may not have a formula, but the end result is irrelevant - as with any other salary negotiation, you decide what you want, what you're willing to settle for, and see if you can get at least that number. – berry120 May 2 '17 at 11:34

Is there really a salary formula out there?

There's no one formula covering every company or industry. A particular company may have a formula, or more likely a set of ranges for each job level. And many HR departments subscribe to survey services which provide the "market data" that applies to them.

But as I describe below, that doesn't really matter anyway. The most important factor is what you want/need for a salary.

how do you negotiate for more in that situation

In any salary negotiation, you need to decide that you don't care how the other side came up with their offer. Instead, know what you are worth, what you want, and what you are willing to settle for.

You need to understand what kind of leverage you might have (if any). You need to know if you are in a market that gives you an advantage, and if you are a very desirable candidate. Mostly, you need to know what you have gotten before and what you could get elsewhere.

If you cannot get at least what you are willing to settle for, then just move on to the next opportunity. It doesn't matter how HR came up with their offer - if they use a formula, an industry report, or a dartboard - it only matters if their offer is good enough or not.

Don't try to argue with their reasoning, just indicate what you want to receive for a salary or move on. If they truly have a formula, they aren't going to change it for you. (But as others have pointed out, if they really want you they can easily make you fit within their "formula" by tweaking their assessments of the inputs.)

• This doesn't answer the question. – Bregalad May 2 '17 at 12:20
• @Bregalad: Yes it does. The question was "Is there really a salary formula out there?" and Joe's answer is "It doesn't matter." – TonyK May 2 '17 at 13:19
• If he asked, then it matters for him. If it didn't matter to him, he wouldn't have asked the question. Whether it matters or not for other people is irrelevant here. – Bregalad May 2 '17 at 13:27
• @Bregalad It could be the OP thinks it matters to them, and the "best" answer (or at least, a useful one) is one the argues why it shouldn't matter. – TripeHound May 2 '17 at 14:24
• This is completely accurate. My company claims to have a formula, but I've successfully negotiated larger raises than what was offered half a dozen times. Last time my boss couldn't convince HR/Payroll to give me more (well, as much more as I wanted), so I convinced him to give me a bonus on top of it. – DCShannon May 3 '17 at 23:42

Is there really a salary formula out there?

Yes, some places really do use a formula. StackExchange apparently uses a formula, but they make theirs public. Large organizations, e.g. the US federal government, also have standard pay scales where salary is determined by a combination of pay grade and experience.

If a company is going to tell you that they use a formula to determine salary, then it seems only fair to tell you what the formula is; otherwise, how can you know that it really is being used, and that it's being applied fairly? On the other hand, it's understandable that a company might not want to explain exactly how it determines salary because that could also help a competitor outbid them on every candidate.

and if so how do you negotiate for more in that situation?

If they're transparent about the formula they use, then you probably don't have much room for negotiation other than to argue about the inputs to the formula. You might claim that your skill level is greater than what they initially determined, or that some of your experience wasn't included. However, you should expect the company to apply it's standards to your skill and experience level the same way it would to anyone else's, and that may not match how you think they should apply.

Many people would see the absence of salary negotiation as a positive thing. Some folks absolutely hate financial negotiations, no matter whether they're interviewing for a job or buying a car. Negotiating over something like salary is stressful and unsatisfying because you're often left feeling like you could've done better, or that someone else will make more money than you do just because they have more negotiating skill.

• "a competitor [could] outbid them on every candidate." If a competitor can afford to outbid them on every candidate, and it provides a competitive advantage to do so, they will outbid them on every candidate, regardless of whether they know how the other company comes up with their numbers: they'll refine it over time until they get it right. Of course, that's assuming there's a large number of potentials who apply to both companies... – employee-X May 1 '17 at 21:01
• @jpaugh Knowing how your competition determines starting salary could certainly be considered an advantage. The flip side, of course, is that a company that willingly makes that info public is showing some confidence in the quality of its offer. – Caleb May 1 '17 at 21:12
• In Europe, you'll often find standard payscales in unionized industries, e.g. German car companies will usually follow the metal union payscales for all their employees even if they aren't metal workers but software developers. There are different salary bands for different types of positions and if you have some experience you can negotiate to start in a higher level of your position's salary band. Or you can negotiate to be paid more outside the payscales, but that is usually a thing for managers. Union payscales are nice because they level the ground for people who don't like to negotiate. – Sumyrda - Reinstate Monica May 1 '17 at 21:43
• @Caleb If the competition has so much extra revenue that they can actually afford to outbid on a significant number of candidates, chances are, they're already doing that. – employee-X May 1 '17 at 21:44
• "Some folks absolutely hate financial negotiations" - Amen to that! I don't enjoy haggling for the price of a car, piece of furniture, or whatever. For a job, I would much rather come in, they tell me their offer, if I feel it's fair, I take it, otherwise, nice knowing you! I once test drove a car, and after the test drive, I really didn't like it. The salesman mistook my dislike as "playing hard ball", and proceeded to slash thousands off the car price as I was walking out the door. It was comical at the time, but in the end, it just comes off as a dishonest business practice to me. – Ogre Psalm33 May 2 '17 at 12:24

Is there really a salary formula out there? and if so how do you negotiate for more in that situation?

Initial response

Yes, there are several sources available for this data for both the employer and you. I would ignore this tactic entirely however, its a facade used to make you think you are not worth as much as you expect. ( in the hopes you will take less money to come work for them )

There are tons of resources available online that are accurate with what a person in a particular field with X number of years should make. ( yes a simple average formula based on field, location, and experience )

If that number does not fall in the range of what is being offered to you by a prospective employer, then I would decline and move on to the next opportunity. If asked for a reason, then tell them what you salary expectations are, and cite your sources. I am intentionally not offering any sources for this information in this answer. ( Easily Google-able )

Employers know, or at least should know, what the going rate for a particular skill set it.

• And at the end of the day I don't care what the "going rate" is... I only care what "my rate" is. If they are below what I'm willing to take then I walk. – Matthew Whited May 3 '17 at 16:04

I do hiring and interviews for a lot of companies. And yes there is almost always a "formula" of some kind. Here are the most common

• We have X amount of money - Simple and straight forward this budget will support paying someone X. Don't pay them more then X, but you have to pay them more then Y.
• Here is the base line X, then add Y for years experience. - Mostly I see this one when looking for a "senior". The more senior the more someone is willing to pay. This has limits though.
• Super bonus mega lottery - I hate this one. It makes negotiation silly, but it's common enough. It works like this. "We will Pay you a salary of \$50,000. If the company meets it's sales goals then everyone gets a bonus of \$10,000. When your team meets it team goals then your team gets a bonus of \$45,000 to be split evenly among it's members. If we, as a company exceed our support goals by more the 10% everyone gets a \$5,000 bonus.

I have seen that last type of calculation a lot, and I generally refuse to participate in the hiring processes in places that do this. But it is frequently used.

My advice, if you get a place trying to do this is look only at the salary and not the bonuses.

• 'Bonuses in software' is an amusing and mythical notion. A bit like 'paid overtime' and 'appropriate training'. If you hear the word 'bonus', please assume they are talking about someone else :D – Gusdor May 2 '17 at 7:49
• @Gusdor: How so? A profit-sharing bonus scheme is not uncommon and I don't see why it's "amusing" or "mythical". Unless it gets out of hand like coteyr illustrates here with huge chunks of nominal income being dependent on various categories of performance. But a simple "you annually get X% of profit if profit > Y" is perfectly normal. – Lightness Races with Monica May 2 '17 at 9:44
• Because as a developer you have very little control over most of the categories. You can create perfectly awesome in house software, for example, and is sales suck, you don't get a bonus. Same with support. Support goals are generally something that you can not actually effect (most of the time). On top of that bonuses should be bonus, and not part of, or used in place of "salary" .Specially when bonus condition can change, without any further negotiation on the receivers side. – coteyr May 2 '17 at 10:54
• For example, if the way profit is calculated is changed? Or if a large hardware purchase is made. You don't get your bonus, because the company decided this year to put down new carpets. Not to mention. i'ts a great business strategy to re-invest "profits" back into a business to grow it, thus reducing your X%. – coteyr May 2 '17 at 10:56
• @MatthewWhited It's funny how people try to convince you the "bonus" is really part of your asking price. The baseline is what matters - bonus is extra. That's what the word means. The only reason why you should ever take a baseline lower than your worth is when you're looking for outright investment (e.g. "we're making a game together and sharing all the profits"). If you're not an entrepreneur, forget it. – Luaan May 4 '17 at 9:20

It's not uncommon to have a formula for such things, which is usually a weighted sum. I.e. your future salary X is `X = a*X1 + b*X2 + c*X3 ...`, where `X1`, `X2`, `X3`... are your qualities that were evaluated during the interview and `a`, `b`, `c`... are arbitrarily chosen coefficients. As you can see, this formula is still pretty subjective, but at least one can be sure a better qualified person gets more, and the management can prioritize qualifications by changing the coefficient values.

In fact, I have made such a calculation myself when I was looking for a job last time. In my case, `Xi` were base salary (with a coefficient of 1), various benefits (with derating coefficients) how far the place was from my home (with a negative coefficient representing the lost time and money) and how smart the interviewers looked. Such calculations didn't make my choice 100% objective, but they certainly helped to eliminate certain cases which looked good at first glance.

• In my experience, the biggest benefit of this approach is that it forces you to actually consider all the benefits and drawbacks of the offer. There's little point in trying to be objective - after all, we're talking about your subjective valuation here and nothing else. But it's very useful to realise why your subjective valuation is the way it is. It takes a bit of experience to stop lying to yourself, though ("does the offer feel this good just because the interviewer was cool/sexy/friendly/...?"). – Luaan May 4 '17 at 9:24
• @Luaan Yep, that's exactly what I was trying to say. In case of hiring someone, this makes people realize how much they are actually paying for each skill, including thinks like "wearing a tie on the interview". – Dmitry Grigoryev May 4 '17 at 9:41

They just tell you that this is a fair way to calculate the salary for all employees so that people with the same experience have close salaries.

Is this true? Or is this just a tactic in negotiations to convince the applicant to accept the offer?

Yes, it is probably true. That said, it is also a red herring:

Agreeing on your salary should not be done between yourself and their fair formula, but depending on other things (job responsibility, experience, market conditions etc); if the salary you need is not within their margins, they either have to go above their margins, or you could/should leave.

I personally found it difficult to ask for more because it comes off as someone who wants more than his "equal" peers.

After all, the company is telling you that all employees in your level are treated equally which gives a false sense of confidence in the deal from my side.

You are not asking for more than your equal peers. Just because the company considers you in a pool of equally qualified people, doesn't mean their evaluation is correct (simply present the same arguments you would present if their fair formula was not there).

It's often a complex and 'soft' formula which is a combination of : Pay grade, Seniority, and probability that the level of increase will lead to their best employees quitting for a better paid job.

So if they aren't giving you a good increase, they either think you're not a good employee or that they think you won't quit for a better paying job.

Keep in mind that if you're talking to HR, they would be hard pressed to accurately define the difference between a "formula" and "algorithm" and a "process". I suspect most folks like "formula" because it sounds finished and mathematical.

In practice, I would call this an algorithm blended with a heuristic. Places like StackExchange, with public transparency are rare. Places like the US Federal Govt with very, very hard and fast rules are also not the norm. Most places have some rules and guidelines and then ways to violate them with good enough reasons.

The general algorithm I've seen in numerous companies is:

1. Define a range (also called a band) for roles coupled with seniority. For example:

• A role would be "software engineer", "qa engineer", "manager", etc.
• For seniority, I mean grades up and down the role - "senior", "principal", etc.
• Don't assume that every range is 1:1 to with the job title. There can be two ranges (lower and higher) for 1 public title.
• Ranges typically overlap. So a SW engineer could be, say \$60K to \$90K, a SW engineer II could be \$75K to \$100K and a Sr. SW eng could be \$90 to \$120 (because they don't fit perfectly)

2. Research the market, at least every year.

• Sites like glassdoor.com make this very easy. Usually you want a few so you're not stuck with one site's weird statistics.
• Also consider the industry, the competition, and the precise location. And other perks.
• Usually this is the job of the recruiting staff, at best the hiring manager gets a report of some kind. The goal is to set the ranges so that it's not hard to hire new staff and not likely that anyone being paid w/in the range is likely to leave to go to the competition.
• Often evaluation of ranges falls behind if there's very little recruiting being done. Similarly, when the market is hot, and recruiting targets are hard, it gets reviewed and updated far more frequently than once a year.

3. Figure out what to do about existing staff salaries

• This is a place were companies often fail and staff gets screwed. The ideal here is that as soon as the company increases the range for a given role, it also takes a good look at salaries of existing staff and does what's necessary to lower the retention risk. Reality is - it's often not done in a timely way, and/or the compensation increase isn't perfectly enticing.

• The other rock and hard place is that paying people more involves having enough money to pay them. It can be easy to justify the 1 case of more money for a new hire, but much harder to find the money for increasing the salary of the 100 people that are already being underpaid.

• The problems of paying existing staff has never (in my experience) been a blocker to changing the ranges for recruiting targets. There's generally an understanding that an incoming new hire may require more money than people who already work here, and there's an assumption that existing staff will forgive a company (for at least a little while) if salaries of new and existing staff aren't well aligned.

4. Negotiate on a case by case basis

• The range is often divided into quartiles, and people are grouped accordingly into the low/middle/upper end of the range
• Inside the company, the ideal is that a person who just got promoted is on the lower quartile and as a person gets close to qualified for a promotion the person is solidly hitting the 3rd quartile. That way, by the time a promotion is locked and loaded, the person is not getting poor increases because he's stuck at the top of the range.
• With that in mind, it's considered poor form to hire someone at the top of the range. Generally the thought is:

• First priority - get the person into the best role that they qualify for. Don't hire someone where hoping they can stretch to fill it is your best strategy, unless this really was the best and only candidate you could find for this job.
• Next - figure that if they are working at their level, they are addressing the learning curve of adapting to a new company and team for a year or two and unlikely to qualify for a promotion for the first ~2 years. So for at least 2 years, you want enough slack in the range that you can give them an encouraging salary increase w/out going above the midpoint.
• Last - assume people talk. It's one thing to have a new guy make a small percentage more than your current team. But if the guy comes in at the top of the range and your existing staff is all at the bottom of the range - this is a serious pay gap. Never assume that people won't talk and share. If this is the situation at hand, as a hiring manager, be prepared for some tough discussions with the rest of the team.
• Have a policy and follow it on bidding wars. Often you'll have direct competition for candidates. Getting into a direct escalation between companies frequently is great for candidates, but poor for profitability, and really both companies loose. Generally there's some guidance around what to do for a candidate with a competitive offer that includes going to a certain point w/respect to the range and then stopping.

• Have tricks and tips for non-salary compensation - for example hiring packages, stock options, bonus plans - stuff that incentivizes good performance (*) and longevity (like vesting options on a several year plan), without providing the obligation to provide more salary year after year if there are lean years.

(*) - there are studies out there that past a certain level, more \$ does not really equal better performance. "Merit based increases" is always great sounding, but there's a lot to be said for the benefits of autonomy and good growth experiences on the job as a better way to get people more engaged, committed and better at performing.

5. Engage the exception process

If this is a case where 20-100+ positions are filled a year, I'd expect the exception process to be rare - the range will be adjusted instead. But when you're hiring a weird role, or a very high level one, there may be an exception process because baselining the salary is nearly impossible. Any time this happens, the manager is going to have figure out how to sell the idea that this particular candidate is so unusual that it deserves the paperwork --and-- what are we going to do when they deserve a raise, because they are so very awesome.

In practice, how does one use this?

Typically I know the ranges in my local area. I have a pretty good idea of what my peers make, and a pretty good idea of where I might rank in the pecking order relative to my skill level.

In the interview, I spend a lot of time trying to categorize how the company divides roles in my career vicinity, and thus what roles I may qualify for that I'd be interested in doing. Based on that, I can build a sense of where the range might be. I have a bit of an advantage - I'm a hiring manager, so I know what kind of offers I've approved recently, how hard it was to find candidates, and I talk to enough of my peers about business to get a sense of what the management market might be.

Then, when I'm negotiating, I try to get a sense of where I fit in the range. I want to come in at a slight salary boost to me, but with a role I'll enjoy and be only slightly challenged by. Certainly other have a higher range of what "challenged by" looks like. I'm more of a gentle step up, I have friends who take a more flying-squirrel approach to rising up the ladder.

And I negotiate accordingly. I don't want to start my relationship with my manager feeling like I screwed him over. But I don't want to take a pay cut for the next job... either. I want to like all of it - my job, my boss, and my salary... and I juggle accordingly.