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10 December 2023 - 5 minutes

Demystifying Tech Salaries: Understanding Compensation Structures 

Here’s a breakdown of what tech salaries actually mean

Juliette Erath - Tech Writer

Careers

We get it–trying to decipher what a job offer actually means, taking into account the different forms of compensation and trying to decide what’s market rate and what’s being low-balled can seem like an impossible challenge. After all, it can differ so much depending on location, position, experience, and company that it’s not even possible to know what’s a fair offer, right? 

While we can’t tell you the details of every single position and location (we’d be here all day!), we can give you some insight into compensation structures in different positions, the different forms of compensation you can expect to receive, and (most importantly) how to tell if it’s a fair offer or not. 

Before anything else, however, let’s define what compensation really means and the different forms it can take. 

What Does Compensation Mean? 

Compensation is what’s awarded to you at work in exchange for your services; you may think it’s as simple as a paycheck, but it can be much more than that. Compensation can come in many different forms, such as: 

  • Salary: the most common form of compensation is your salary, which is the deposit you receive monthly or every two weeks from your employer. This number is typically set, unless you work in a tips/commission based role. Both in-house and freelancers receive a salary, although the exact terms will depend on the company. 

  • Bonus: typically awarded at the end of the year or right after the holidays in January, bonuses usually depend on your specific performance throughout the year and are decided by your employer. 

  • Incentives: some companies choose to offer incentives, which could be meal plans, transportation tickets, or child care as forms of compensation. Employees can usually opt in or out of these, depending on their individual circumstances. 

  • Retirement plans: this will depend on the country you’re located in, but many employers offer matching plans for retirement accounts; for example, employees can allocate a certain amount of money from their paycheck every month to their retirement account which employers will match. 

  • Health benefits: some employers will also offer private healthcare to their employees and their families, which is extremely valuable in some countries. 

Now that you understand what compensation is and the different forms it can take, let’s dive right into the good stuff: understanding compensation structures.

What is a Compensation Structure?

A compensation structure is the way your salary is determined; although it may seem random sometimes, your compensation is carefully decided based on a number of factors. Having a clear compensation structure is essential because it takes any bias or guessing out of deciding a salary, providing verifiable evidence as to why you are paid what you are. 

Compensation structures are usually one the following:

  • Graded pay: in the most common form of compensation structures, salaries and benefits are set in ranges for each position, allowing employees to be eligible for raises as they move upward. The increases you’ll see here are usually incremental and depend on the employee’s performance.

  • Market-based: in market-based compensation structures, employers use the competition and similar companies to set their expectations, ensuring that they’re offering competitive salaries to potential employees. 

  • Broadband: this is the least common compensation structure because it’s a bit arbitrary, allowing for employees on the same level to make different salaries. 

No matter the structure that your company uses, you’ll find that they use these four criteria to make their final decision about your compensation: 

  • Market research: in order to be competitive in the field, companies need to offer salaries that are equal to or better than what their competitors are offering to attract top talent. You’ll find that many companies participate in salary sharing research so that they’re able to see what’s going on in other organizations. 

  • Current market conditions: we’re sure you’re familiar with the basics of supply and demand and when there’s more demand for something than supply, the price tends to rise. Companies will use factors like the amount of unfilled jobs in the market, the unemployment rate, and required education or skills to determine a salary.

  • Fair pay: contrary to popular belief, companies don’t want to pay you as little as possible–they know that the better compensated you are, the more likely you are to perform well and stay loyal to the organization; companies do look at what’s required for each job to appropriately assign compensation. 

  • Company conditions: a company can’t offer more than they have and ultimately will have to do internal research to see what they can provide to each employee and their available budget. 

Usually, the benefits we described above are added later on when you’ve agreed on an initial  base salary; those are usually negotiable and you can find a balance that both you and your employer agree on. But in some cases, you might feel that your compensation doesn’t fit your expectations–if you think you’re underpaid, this next section is for you. 

Signs Your Compensation Isn’t Fair–and What to Do

There are quite a few things that could tip you off if you’re concerned about your compensation–knowing co-workers in the same role make more money or industry research that shows you’re underpaid. While these are quite obvious indications that you’re not being fairly compensated, there are some other telltale signs of which you should be aware: 

  • If your responsibilities have changed/are different than what was originally promised: your salary, like we discussed above, should be determined by the responsibilities your role carries; if you have new ones added or entirely separate ones that you weren’t aware of when you were originally hired, you are definitely due for a raise. 

  • If other colleagues have more/better benefits than you do: benefits are usually specific to a person’s situation, but if you feel that co-workers have significantly more than you, it might be time to schedule a meeting with HR. 

  • If you see job postings for lower roles that pay more: the market heavily influences how much companies offer for certain roles, so if you see that other roles (especially lower ranking ones) are offering higher salaries and benefits, you might be underpaid. 

Okay, so you know you’re underpaid, but what do you do? You might want to march into your boss’ office with guns blazing but that’s probably not the most professional option. Instead, consider one of these: 

  • Chatting with coworkers: before you accuse your company of underpaying you, make sure you chat with trusted colleagues to see if it’s a problem that only you’re facing or if it’s a company-wide problem. Talking about your salary with colleagues is acceptable in most places, but make sure you’re not pressuring them into sharing personal information. 

  • Schedule a meeting with HR/your manager: being underpaid is a serious problem–you deserve to be fairly compensated for your work. If you are sure you’re being underpaid, schedule a meeting to bring the issue to the attention of your supervisors.

  • Start looking for a new job: ultimately you may be faced with one choice: look for a job elsewhere. It’s not ideal, especially if you enjoy your current role, but ensuring you’re being paid fairly is key (not only for yourself, but for all tech future techies to come!). 

We know that navigation compensation structure, benefits, and raises can pose quite the challenge; it’s a delicate subject that varies significantly, depending on where you are and your role. But the tech industry is full of incredible opportunities and ensuring you’re properly paid for your work is absolutely essential. 

If you’re ready to start your tech journey and prepare yourself for the professional world, there’s no better place to start than at Ironhack.

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