What makes up a salary?

[mayerling]

Does anyone know?

Obviously there's a part that corresponds to whatever the employee's services are worth, and a part that corresponds to the cost of living allowance (I know this exists because cost of living is always being adjusted by a certain percentage so this adjustment has to be a percentage of something that is part of the salary). Is there anything else?

 

[aviastar]

Well, it think it depends on how you are defining salary and different companies will vary, also, but I think you include the value of any benefits offered, too. Obviously that doesn't show up in your take home pay, but it's my understanding that those things are also considered part of your salary package.

 

[mayerling]

No, I don't mean salary package. I mean parts of the money you get at the end of the month.

 

[sonnyjane]

As the PP mentioned, it will be different depending on the company. With my employer, "salary" is something quite different. Most of my co-workers and I earn an hourly wage based on a combo of our position, our cost of living, and our time employed. This rate is adjusted annually. My paycheck is made up of that rate times the hours I worked each pay period. Managers and supervisors do not earn an hourly wage. They are paid a "salary" which means that they are paid the same whether they work 40 hours a week or 80 hours a week. They receive raises based on COLA and time spent with the company.

 

[VRBeauty]

That amount you get at the end of the month is your base salary minus the various deductions - taxes, contributions to your health plan, retirement or social security, etc. If you get a cost of living adjustment it gets rolled into your salary and becomes part of the base salary for calculating all of those deductions and the for calculating any subsequent COLAs.... it isn't carried along as something discrete and separate from your salary. Where I work at least the only things that might get added on to a salary and stay separate from a salary are things like overtime pay, hazardous conditions pay, or special allowances such as a uniform allowance. Those items would not be considered part of your base pay, and as I recall any taxes etc withheld because of those add-ons are calculated separately too.

Is that what you were getting at?

 

[VRBeauty]

ETA I'm using the term "salary" loosely - "base pay" would be more correct.

 

[Rhea]

I don't think it's just what your employer considers your services to be worth, but what society determines your skills to be worth, with traditional "women's" work often being considered a lower value. I work in a profession where I help people and my skills are considered by worth very little to the government even though it's a very difficult job. I'd say that considerations are where you live, what the role has historically been valued at, and how long you've been in that role.

 

[JewelFreak]

What VRB said. A salary is fixed pay for services. It does not change (as hourly pay does) no matter how many hours you spend at work. Gross Salary is the nominal amount a company quotes when making an offer, and what they pay out. But they deduct taxes, retirement plan, health policy contributions, etc. The amount left -- your take-home pay -- is your Net Salary. When people talk about salaries, they usually mean Gross Salary.

Most businesses figure raise amounts around inflation % at the time. If earnings are especially good, they often add some, and employees who have worked far over & above expectations might receive an extra tidbit. Some companies pay salary + bonus for a specific category of worker -- in those cases the salary is lower than others' of the same grade, to motivate the employee to work harder for a good bonus. I've worked at places where the bonus makes up more than half the gross pay. In sales jobs, commissions are usually paid on top of a smallish salary.

Pay depends on various things: cost of living in the area, industry type, availability of qualified people. It's not determined by what "society" values, really. A company pays what it must to attract & keep the kind of employees it needs. If, in the industry the company is in, good people won't work for under $400K or more -- say, Silicon Valley -- that's what they offer. If $50K will attract a pool of qualified workers, that's the pay scale. Yeah, athletes make more than newspaper reporters, so you can blame "society" (who?) for that, but differences in categories have been around since money replaced barter -- maybe even before.

--- Laurie

 

[mayerling]

I think I should probably be a bit more clear about what I mean.

1. I am referring to gross salary, i.e. before deductions.
2. I am referring only to money that forms part of a monthly salary, not one-off bonuses or other expenses, reimbursements, etc.
3. I referring to salary as stated by an employer for a particular job, not what an employer might pay a specific person if they're dying to hire them.

To exemplify, imagine a job advertised for a full professor in academia. Let's say the university states they want a professor to be employed on Grade 10 of the pay scale (this is made-up). Grade 10 has ten spine points and starts from $91000 and ends at $100000. What I'm interested in is what makes up let's say the first spine point ($91000) - not whether this particular professor might be offered the job starting at $100000 right away because the university feels that his credentials are worth the last spine point.
Anyway, so what does this $91000 consist of? Obviously it consists of a basic salary - i.e. what the university feels that work at such a position is worth (regardless of who ends up being employed). It also consist of a cost of living allowance - we know this because this allowance is increased by a certain percentage every certain amount of time - so Grade 10 Spine Point 1 might have only been $90900 last year. It also consists of this cost of living adjustment, in my example the extra 100 dollars.

My question is, does it consist of anything else?

So another way to be clear about this is to ask what the amounts on a pay scale consist of (this way this has nothing to do with ends up being hired as scales are devised by an organisation regardless of who the employees to be hired are).

 

[VRBeauty]

It's as simple as this - somebody (or some committee) decides what the pay for an entry rank or top rank needs to be in order to attract and keep enough employees to that position. Some companies might think in terms of what an entry level employee should earn, or needs to earn to have some idea of what standard of living someone in that position should have. Then they add or subtract some set percentage to get the various steps or ranks. And that's it... the base pay is not split into pieces like pay and cost of living. I forgot about bonuses (they're not a part of my work experience, and that has nothing to do with me!) Where bonuses or overtime are an expected part of the overall compensation, that might be part of that decision about what the base pay needs to be.

As to where on a pay scale they put a new employee... there might be objective criteria, like length of experience (years) in a similar position, and/or the applicable degrees obtained. I suppose some places might also use the hiring manager's assessment of your skills or how well they think you'll fit in - in other words, how much they want you. And of course they could also take into account your current or previous salary, what competitors are offering, etc... in other words, how much they think they need to pay you to land you.

But again, that base pay is not broken up into pieces like COLA and base pay.

What sort of other things/categories are you thinking are in there?

 

[mayerling]

VRBeauty, why do you say that the salary is not split into base pay and cost of living? It must do given that the cost of living adjustment is not a percentage of the whole salary, it's only a percentage of the cost of living allowance. I know it's not stated as individual components, i.e. when pay scales are devised they involve one number, but that doesn't mean that number isn't created by adding a bunch of other numbers.

 

[rubybeth]

VRBeauty, why do you say that the salary is not split into base pay and cost of living? It must do given that the cost of living adjustment is not a percentage of the whole salary, it's only a percentage of the cost of living allowance. I know it's not stated as individual components, i.e. when pay scales are devised they involve one number, but that doesn't mean that number isn't created by adding a bunch of other numbers.

In most jobs, salary isn't 'split' into different components, at least I've never heard it being figured that way. It's just the total amount of what you are paid, regardless of cost of living or 'base pay.' My employer and my DH's have done cost of living adjustments of 1% or 2% over the last few years. It's not a percentage of the 'cost of living' portion of our salaries, it's actually 1% or 2% of whatever we are making. So, if I make $20/hour, I get another 1%, or $.20 per hour. And if there's another 2% COLA the next year, it's 2% of $20.20, so then I'd make $20.60/hour. I make a salary (meaning, I get paid the same amount every 2 weeks regardless of the hours I put in, and there are no bonuses or commission) whereas my DH makes an hourly rate and gets bonus pay for working weekends, holidays, can earn overtime if he goes over 40 hours in a week,

My employer is currently doing a compensation & classification study, where an outside consultant looks at all the components of each job, assigns points to those components (incl. educational requirements, experience needed, specific skills, level of responsibility, etc.), and then compares positions to those within other organizations in our area. Geography matters because it costs less to live in our area vs. a bigger city, but it can also be harder to keep people here because they'd rather live in a big city. The points assigned for each position will have some bearing in how much the position should be compensated. Is this what you mean when you talk about salary components? Managers in charge of other positions will be assigned more points and will therefore be paid more, in general, than non-managers. Jobs with higher decision-making powers will be paid more than those with few decisions to make. Jobs with more autonomy will have higher pay than those with little autonomy.

My org. is doing this study because we've had a number of newly created positions in the last 5 years, including mine, and the salaries paid for those positions were based on the previously done compensation & classification study. However, market forces change things, plus the position descriptions have been modified since I began in the job, as well (meaning: I've taken on more work). We learned that it's actually bad for a company's overall pay scale if they do layoffs or don't rehire when people leave, because that work is then done by other people, typically 'out of class,' meaning they are working at a higher level than they should be for their pay. So when a comp. & class study is eventually done, those people who have been working out of class may be recommended to be paid significantly more, thus not saving the organization any money. But it's not that there's a 'base pay' that we all start out from and then stuff gets added onto that, unless you are thinking of minimum wage as the 'base'?

Edited to add more info.

 

[JewelFreak]

Mayerling, the annual (we hope!) cost of living increase is usually simply a % based on the inflation number given by the gov't. (Unless you're in an ex-pat job, where it's a different thing.)

So if the gov't says inflation last year was 3%, most companies use that as their base raises for employees. If their business was bad, they may increase salaries only 2% if they can't afford more; if it was booming, they might give 3.5%. Some workers could receive above that if their work merited extra reward.

Other than that, I've never heard of specific components to salary. We do have some HR people here -- maybe they can explain.

--- Laurie

 

[VRBeauty]

VRBeauty, why do you say that the salary is not split into base pay and cost of living? It must do given that the cost of living adjustment is not a percentage of the whole salary, it's only a percentage of the cost of living allowance. I know it's not stated as individual components, i.e. when pay scales are devised they involve one number, but that doesn't mean that number isn't created by adding a bunch of other numbers.

The cost of living is an adjustment to the base salary, usually a percentage of the base salary - it's not an allowance.

Look at it this way. If your salary last year was $100 and there was a 2% COLA, you are now earning $102. You might think of it as $100 + $2, but the end result is the same - your pay is now $102. It has been COLA adjusted but the COLA is not carried on as a separate element of the salary.

A new person hired to your position would be offered $102 because that is the base pay for this year. When next year's pay scale is calculated, it will be calculated from a base pay of $102.

In other words, the COLA is a factor that is used to calculate the new salary, and once it has been applied... the salary is the salary. There is usually no "cost of living allowance" unless your employer has a single pay scale for employees in a lot of geographic areas, and they offer a cost of living allowance to those working in regions where the cost of living is higher.

 

[chemgirl]

VRBeauty, why do you say that the salary is not split into base pay and cost of living? It must do given that the cost of living adjustment is not a percentage of the whole salary, it's only a percentage of the cost of living allowance. I know it's not stated as individual components, i.e. when pay scales are devised they involve one number, but that doesn't mean that number isn't created by adding a bunch of other numbers.

I've always had cost of living adjustments applied as a percentage of my total salary. Just before Christmas everyone received a 1.5% adjustment applied to our salaries or hourly rates depending on how we're classified within the company. So management make more and get a larger cost of living increase.

I'm in Canada though so we might be different.

 

[JewelFreak]

Just what I meant, VRB, only you said it better!

 

[mayerling]

I see what you mean about COLA.

Also, I understand that salaries are not broken down into individual components on someone's payslip, etc., but I assume that they are made up of a bunch of different components. For example, European civil service jobs usually include an annual pay rise (not based on someone's merit) just to keep up with comparable jobs in industry. So, it's whatever the base salary was plus the annual pay rise, but on your payslip all you see is the final sum.

 

[Matata]

Mayerling...if you were to look at a company's budget sheets for payroll, you would see one column for gross salary (say the position pays $60,000/yr) and then there would be columns for taxes (such as worker's compensation), insurance, benefits, retirement, raises. That $60,000 is the gross amount the employee receives in each paycheck. For the employer, that $60,000 pay amounts to a greater debt. Where I worked, a $60,000 pay cost the employer a total of $85,000 which was the additional value of those other items I mentioned and reflect the total cost of the compensation package for that position. Those other items are not components of the $60,000 in that they are not represented on a pay stub, they are additional costs factored into the total budgeting process for a company. Don't know whether I've muddied the waters further.

 

[sonnyjane]

I see what you mean about COLA.

Also, I understand that salaries are not broken down into individual components on someone's payslip, etc., but I assume that they are made up of a bunch of different components. For example, European civil service jobs usually include an annual pay rise (not based on someone's merit) just to keep up with comparable jobs in industry. So, it's whatever the base salary was plus the annual pay rise, but on your payslip all you see is the final sum.

This is where you are getting hung up, because that's not how it works, at least not here in the states but I'm not sure about elsewhere. Say I make $50,000 a year and get a 1% pay raise each year (my company does this, and you mentioned European civil service jobs do as well). My new salary is $50,500. Same thing with cost of living increases. Say I make $50,000 but get a 2% COL increase. My new salary is $51,000. There are not individual components. Much like you order a pizza and the cost is $20. There is a not a cheese price, a sauce price, and a dough price added together. There is just the price of the pizza. If the price of sauce goes up, they increase the price of the WHOLE pizza. If you have a salary and you get a raise, they raise the entire salary. There is no one part that's being affected.

 

[Bella_mezzo]

In the states, it really depends by employer.

My employer (and most in my industry) does not offer any kind of cost of living adjustment or increase.

Your salary is a number you agree to at the time of employment and that's it.

My brother is in the military, he has a lot of extras depending on where he's stationed (cost of living, housing allowance, etc.) and what he's doing (hazard pay, etc.)

My father and many friends are college professors, their pay is a salary but then depending on the university they may also have research stipends, payments for class overloads or over enrollments, etc.

 

[PintoBean]

.30 at-work boredom + .20 at-work daydreaming + .10 fear instilled in me by student loans +.40 cramming to meet deadlines b/c I was bored and daydreaming = 1 salary

 

[minousbijoux]

.30 at-work boredom + .20 at-work daydreaming + .10 fear instilled in me by student loans +.40 cramming to meet deadlines b/c I was bored and daydreaming = 1 salary

PB, you are sooo funny!!

 

[mayerling]

I think this illustrates my point: http://en.wikipedia.org/wiki/General_Schedule
Employees only see one number, but pay grades are made up of at least two different things.

 

[rubybeth]

I think this illustrates my point: http://en.wikipedia.org/wiki/General_Schedule
Employees only see one number, but pay grades are made up of at least two different things.

Hmm, interesting! So it looks like you are correct in that there are a couple of components, but it's basically just a base rate plus extra depending on where you live because of the wide range of living costs in the US, possibly extra for housing if serving overseas, and maybe a bonus. My dad worked for our state government for over 30 years and I never heard of this, and I work for a county entity, must be federal only. Are you looking at government jobs?

 

[mayerling]

I think this illustrates my point: http://en.wikipedia.org/wiki/General_Schedule
Employees only see one number, but pay grades are made up of at least two different things.

Hmm, interesting! So it looks like you are correct in that there are a couple of components, but it's basically just a base rate plus extra depending on where you live because of the wide range of living costs in the US, possibly extra for housing if serving overseas, and maybe a bonus. My dad worked for our state government for over 30 years and I never heard of this, and I work for a county entity, must be federal only. Are you looking at government jobs?

That's what I was getting at, that there is a base rate plus at least one other component, and was asking whether people knew of any other components such as the civil service pay rise - I was wondering whether jobs in the private sector have this pay rise or other components.

 

[Bella_mezzo]

pinto bean, you are hilarious!

Mayerling-the link you posted only applies to federal civilian jobs, that is a very specific pay scale.

Are you applying to a federal civilian job?

If so and this is the payscale you want to know about, only feedback from US federal civilian jobs (civil service) would be helpful for your conversation and you would probably get the right people if you change the thread title as such...

For the majority of Americans, this has no relevance and you will get very different responses (as you see in this thread

 

[mayerling]

Bella, no, I'm not applying for any federal job. I don't live in the US. I chose that example because I figured it would make sense to most people on this forum. I believe it is just that; an example of how salaries are made up. I don't think this is specific to a federal job. In fact, as I keep saying, I would be very surprised if not all jobs didn't included at least these two components; they might include more but I doubt they include less.

 

[mercoledi]

Generally no, even with government-funded faculty appointments like your example. The GS system (and the equivalent UK civil service and FCO pay grades) were designed to account for equivalent compensation within grades across highly variable cost of living regions.

In the private sector some companies might have a similar system, but most of the time it's just a base salary that's competitive with the local market. So a 'Level3' programmer at Google in SF might make slightly more than a 'Level3' programmer in Boston, but that's due to local competitive pricing rather than a set geographical scale to account for cost of living.

 

[JewelFreak]

No. Never have seen it in private sector jobs. Civil service is its own special world. Private business offers a salary, period. Increases can be made for inflation rate or merit, but as stated above, they are thrown into the pot of base pay & become the number off which the following year's increase is figured. A bonus may be part of the pay but is not included as "salary." It's a separate thing & may or may not be offered subsequent years.

If an employee is sent to work & live in a foreign country, COL is a component of pay, but not when the employee lives in the States, though salaries at the same company & employment grade may differ in various areas due to cost of living -- it's not figured as a component, though. Only on what the going rate for particular skills or industries are in each place.

 

[mayerling]

I think everyone is getting hung up on the word 'component'. I completely understand that people's pay is not broken down into individual components, and that most of us probably never think about how a salary comes to be - I know I didn't before this thread. I was just interested in whether people know what factors go into devising a pay grade - because some factors do go into it. I figured someone would know.

Having said that, I do appreciate everyone's responses.