With three to four months left in the performance year, it is a good time to cement your performance and go into the 2025 annual performance review cycle with solid wins under your belt. This should (hopefully) have a positive impact on your performance review and your potential annual raise.
Purpose and Disclaimer
My goal is to share information about how compensation works. I know I had these questions in my career and I learned more about compensation when I became a manager. Most folks do not know how salaries are calculated and I should warn you, I am not an expert either, but rather. I am simply passing insights based on my own experience.
Not all companies operate in the same way and they may use other metrics to determine their employees’ compensation. Having said that, you will see some consistencies in how organizations make their financial decisions.
Total Comp (with a focus on base salary)
Total compensation encompasses three distinct areas: base salary, equity, and bonuses. Most folks within the Security Engineering space will be more familiar with salary and equity based compensation. However, I will mostly focus on base salaries.
Determining Base Salary
I have spent a lot of time interviewing security engineers to learn about their capabilities and strengths during the hiring process. The goal is to determine what level a Security Engineer should be hired at: Junior, Intermediate, Senior, Staff or Principal. Also, where do they stand within that level: Early, Mid, Late?
My goal as the Hiring Manager is to provide the leveling information to the Recruiting and Compensation teams and they would put forth a fair offer to the candidate. Ideally, the candidate would have also discussed salary requirements with the Recruiter, and the offer would meet both parties’ expectations.
Aside
It is also important to get leveling done correctly in an interview because we do not want to put undue pressure on the candidate when they start working. If someone was hired as a mid-Staff Security Engineer, I would expect them to deliver as a mid-Staff Security Engineer. Do not inflate a Security Engineer’s title in order for them to fit their salary requirements. This will cause larger problems down the road.
The Salary Band Model
In addition to the base salary, the Compensation Team has salary bands in place for every role within the organization. They are used in hiring (to establish base salaries), raises and promotions.
Moreover, ranges can overlap. It is entirely possible that a senior at the top of the band makes more money than staff at the lower end of the band. Plus, you might see an intermediate’s salary overlapping that of a newly promoted senior at some point.
Additionally, determining the bands’ range is not a simple feat and most companies will use data from vendors to help set the bands. Vendors (like Radford) supply the information about salary bands based on titles, geo-location, company size, etc. The Compensation teams would then apply the information to determine how to set the ranges for roles internally.
Some companies will leverage that data and say that they want to ensure that their employees average within the 75 percentile of the range. Conversely, other organizations (FAANG) want to ensure that they are at the top range of the band. Each company will come up with salary bands that reflect the internal policy while monitoring any changes to the bands closely.
As mentioned, vendors that supply salary data also supply data on geo-locations. This is why you see a discrepancy in bands for Canadian employees vs their American counterparts. Likewise, Americans based in locations where the cost of living is lower will get less money than those folks living in the Bay Area.
The Compensation Team aims to ensure salary bands are set consistently across the organization.
Challenges Posed by Salary Bands
Salaries are constantly changing, and for a manager, that can be challenging.
How Salary Fluctuations Adversely Affect Operations
During the Great Resignation, which was 2022(ish), most companies were handing out very high salaries in a grand effort to retain employees. Consequently, this practice posed a big challenge for managers.
First off, a manager would have difficulty with hiring candidates who were already accustomed to getting offers way more than the band’s ranges. This made hiring more difficult and it took longer to hire a candidate. In other situations, managers even had to resort to hiring candidates who received a higher salary than the folks on their team. You can imagine what that did to overall employee morale.
Adjusting the salary bands proved to be difficult because there would be friction with the Compensation team. The Compensation team moves at a slower pace and typically is only looking at vendor supplied data and not the data that you are providing with rejected offers.
How Recessions Contribute to a Downward Trend
The opposite scenario happens as well, this relates to our current tech recession. At this time, salaries have experienced a sharp drop and I have heard of organizations that took advantage of the situation by reducing their salary bands and offering lower pay to candidates that might be desperate.
Unfortunately, this also negatively affects the tenured staff as well. As the salary bands shrink, the decreased rates start to creep up towards the top of the band. As a result, the compa ratios make it impossible to get a decent raise.
How Do Compa Ratios Work?
Compa ratios are a tool that is used to determine how much an employee is paid within their compensation band and a compa ratio of 1.0 means that it is in the exact middle of the band.
Most companies have policies for where individuals should be within a compensation band. For instance, a company’s aim may be to have employees between 0.8 and 1.2 for their compa ratios. If an employee falls under 0.8, the organization will try to get them to the bottom of the band (0.8) as quickly as possible. If an employee climbs above the 1.2 ratio, they may receive very little raises or none at all. Some companies have a hard cap for the top of the band (1.2).
To calculate the compa ratio, you would divide the actual salary by the midpoint as in the following examples.
Salary increase
Regardless of where you stand in the band, you have two main ways to get a salary increase: promotions and annual raises. There are possibly other opportunities, but those are the main ones.
During the annual performance review cycle, most companies usually designate one pool of money for annual raises and a separate one for promotions.
Annual Raises
Each company works differently when it comes to raises. It is possible that managers don’t have any control over how raises are delegated or they may have some control over how raises are delegated. I have worked at both types of companies. Regardless of the methodology, one practice remains a constant: the manager is expected to own the decision even if it isn’t the one that they wanted.
Let’s assume that a manager has some autonomy to give raises, what does that look like? That those types of organizations, they typically provide tools to recommend how much salary each individual on the team should receive. An example may relate to the correlation between compa ratios and performance ratings. A lower compa ratio combined with a higher rating results in a larger percentage increase for an employee’s raise.
The chart below is an example of what recommendations might come from a company. A manager should still have some autonomy when it comes to making the recommendations and put in their own recommendations for what each individual employee should receive. They will have a fixed amount of money that they can give out.
Based on all of that information, managers will have to make decisions on who gets what raises. So you can imagine how difficult the decision can be.
| Poor | Needs Improvement | Meets Strong Expectations | Significant | Exceptional | |
| Low Compa ratio (<0.87) | 0% | 0% | 3% | 6% | 10% |
| Average compa ratio (0.88-1.08) | 0% | 0% | 2.5% | 5% | 7% |
| High compa ratio (1.09-1.2) | 0% | 0% | 2% | 3.5% | 5% |
| Above top cap (>1.2) | 0% | 0% | 0% | 2% | 4% |
Promotions
Another pathway towards a salary increase comes through earning a promotion. Typically there isn’t much you can do as a manager when it comes to the amount an individual will receive for a promotion. Most employees will likely receive a pay bump to the lower end of the next level on the salary band.
Obstacles that Impede Salary Increases
Being a manager is hard, especially when the economy is not doing well.
You have policy and budget constraints and all managers do wish to reward their team with raises for their excellent job performance. Managers are given only a set amount of money to work with each year. Worse yet, they may even face the prospect of explaining to their team why a raise may not occur at all.
One Perspective on Salaries
Having shared my experience on the subject of compensation, I’ll tell you that my own perspective has changed throughout my career.
Early on, I focused more on personal growth since I was still learning and trying to carve out my own niche in this industry. As years passed, and as my responsibilities grew, I found myself caring more about salaries. As a manager, I firmly believe in fairness and wish to be compensated for my efforts and I also strongly believe in advocating for fairness on my team and their compensation as well.
Having said that, I don’t necessarily fully optimize my work performance for a higher salary these days. At this point in my career, I am comfortable with the salaries that I get and I focus more on experience and fulfillment. As a manager, I spend as much time with my team at work as I do my family. I want to optimize for a strong team and culture where we can share knowledge, collaborate on projects and are kind to one another.
One final note, I really dislike salary data from third parties. I can literally talk hours about why I dislike it so much (perhaps another blog post).
Summary
In a nutshell, those are my (lite) thoughts about compensation and how it’s determined. There are challenges around salary bands and the application of compa ratios. We’ve also discussed the opportunities for gaining higher raises in the form of annual evaluations and/or promotions. Managers may lead entire departments, but they still have set budgets and policy constraints that they have to work with. However, we do pass along suggestions to fairly compensate our teams and to advocate for them.