Compensation is a very tricky issue in a consulting company that sells its services by the hour to clients. In some ways, the clients dictate the salary by what they are willing to pay. Of course, it is indirect because the clients usually only care about the overall hourly rate after overhead and profit are added and then compared with like companies. If a company is willing to take less profit, or the company has very low overhead, they might get away with paying a higher salary.
The second way salaries are set is by what the market will bear. To attract new people to join your company, you have to pay what it takes to get them to say “yes.” What clients will pay and what it takes to hire people are related, but certainly not directly, especially with senior talent.
Relative to mid three- to four-level employees, you are selling their skills and experience, with the beneficiary being the client. It makes all the sense in the world that the client would be willing to pay for comparable talent from other companies. But when referring to employees at the senior level, the value of a person is not what they can directly sell, but their leverage value of selling teams. Senior people are often hired to open new markets or add key clients. They also start new business initiatives. So, for these people we set salaries not on what clients will pay but how they will affect our business platforms. When this happens, how do you set salaries compared to your existing base?
Each company’s HR department will show an orderly and gradually increasing set of raw salary brackets that is tied to your existing […]