If you have been contacted by an employer, you can be sure that one of the first questions that will be asked will be about your salary needs. You know this is coming, so as a job seeker, you should be prepared for this question. Why would an employer ask about this? The employer will usually have a range for the position based upon their budget. This budget may take into account the company’s compensation philosophy, the external market pay data and internal equity considerations. Let me break those down.

Many companies have a compensation philosophy which provides a framework for how the company wants to compensate employees. This compensation philosophy is based on many factors including the industry, the size of the company, competitive factors, etc. The compensation philosophy will include base pay, incentive pay and total rewards, such as vacation time and other benefits. Based on this, a company then will have an idea of how they want to pay people at different levels of an organization. So based upon the compensation philosophy, a company may look to pay employees within a certain range or percentage of the going rate in that geographic area. Companies can get a sense of what the salary range is for a particular job by using pay data to determine the current market rate. There are companies that gather pay data and sell it to companies who use it to determine what a specific job with specific education, years of experience, travel requirements, etc. is paid in a specific geographic area. A company, based on their compensation philosophy, would then determine the salary range they will be using. Based upon the compensation philosophy, one company might want to pay between the 40th and 60th percentile (the 40th percentile signifying that 40% of those in a similar position with similar experience are below this number and 60th percentile representing that 60% of those reporting are below this number), between the 25th and 50th percentile or between 60th and the 80th percentile. While looking at the external market, the company may also look at what is called internal equity. Everyone currently in the position is evaluated, noting education and experience. A salary range is determined based upon a candidate coming in with different levels of experience and education. A new person would not be paid more than someone currently in the position with more experience.

The above example would apply to a company that has a separate compensation department or has established compensation protocols. That is not the case in all companies. A company may not have a thought out compensation philosophy and salary ranges may be solely based upon what others in the organization are making, contract requirements or even a guess as to the market rate.

So when a company asks your salary requirements, they already have a good idea of what they can pay for a candidate’s services. They want to know if you are in the range that they have set. Simple as that. If they do not ask, they have no idea if you would consider the offer that they might be able to provide. Would you want to get through multiple interviews only to discover that what the company could offer would not pay your bills? Probably not and neither would the hiring team. That would be a big waste of time and effort. Therefore early on they will get a sense from you as to what you are looking for to see if this salary meets your needs.