Why are salaries the way they are?
It was customary in ancient societies to pay workers with a part of what they had created. Agricultural laborers were given a share of the harvest, and craftsmen took home some of the pottery or tools they had made. Servicemen were compensated through several kinds of barter payments. In communities that treated grain and livestock as currency, these could be exchanged for work. Remuneration was linked to the local economic system, and the concept of monetary/standardized wages simply did not exist.
Currency came into existence for the ease of trade, and the market economy is largely responsible for the structured wage systems we see today.
The complications:
Globalization complicated the neat hourly payment arrangement we had because cost-efficient employees could now be found all over the world. The interconnectivity of global markets push industries to continue offering attractive packages and incentives. Thus, every modern paycheck is the result of an impossibly complex nexus of experience, company budgets, labor laws, location, benchmarking, and union negotiations. Questions around salary transparency, wage gaps, and the growing emphasis on equitable compensation further problematize this matter. Remote work has forced companies to deal with the problem of appropriate wages across borders and in different time zones.
The personal angle:
But salaries are subjective in more ways than one.
Although multiple factors influence how much a certain individual with a certain skill set will be paid for ‘X’ amount of their time, the truth is that salaries will always largely be a matter of an employer’s expectations/choices, and a result of negotiations with the potential candidate. Several aspects of individual preferences play a role in this process:
- An employer’s appreciation of a candidate’s skills
- Relevant experience may be taken into consideration
- Relevant education may also be considered
- Personal equations should not be considered, but the reality is that they often are
While ‘education’ and ‘experience’ appear to be universal salary determinants, personal beliefs and prejudices condition our understanding of what ‘education’ or ‘ work’ really means. For example, one recruiter might consider a managerial role at McDonald’s relevant supervisory experience. Others might think it too flimsy to take notice of. Ultimately, personal preferences show up throughout the negotiation process, directly or indirectly. Having said that, a number of unpredictable variables feed into salary negotiations at any moment.
The state angle:
Salary structures, market demand, and performance-based scales shape and reshape themselves to adapt to changing economic conditions. The core idea behind globalization is that any product or service can reach anywhere, and as soon as companies start spreading their wings, governments try to regulate their flight via trade regulations, preferential subsidization of certain businesses, and controlling raw material (which can be labor, in many cases). The flipside of this reach is that worldwide businesses are vulnerable to natural disasters, political issues, and/or recessions anywhere in the world. Uncertainties have been the only certainty in a turbulent world.
The adaptability angle:
The real differentiator, therefore, is a company’s level of preparedness for unforeseen situations. Like any major business decision, pay scales should be flexible enough to absorb small-term financial problems, losses, and (in certain disasters), recovery costs. It should align with an organization’s long-term business strategy and drive better performance. Poorly-researched compensation has the potential to ruin companies.
The pandemic:
This did not change radically even when flexible work options had to be adopted. The Covid-19 pandemic recreated work models, with major companies taking to remote work or letting employees switch between office and home work models immediately, and virtual collaboration spaces allowed this major transformation to happen almost overnight. However, a handful of factors that feed into salary discussions are still traditional. Negotiations seem to circle around the responsibilities in the role, the state of industry, standard company practices and policies, inflation, and current economic conditions.
Are there any other players in the game?
As of now in the autumn of 2023, absolutely.
– Geoarbitrage is one of them. It gave rise to the popular practice of moving to a suburban or low-cost locality/state/country while holding on to a city salary. There is nothing unethical, moreover, about professionals leveraging geoarbitrage to live better lives.
– Digital arbitrage, enabling entrepreneurs to exploit strong digital infrastructures to make a solid profit, is a huge plus in an online world. Creating content to distribute over a range of platforms is a great way to get paid more. Rapidly improving digital business environments means this trend is likely to stay. Government perks like e-residencies (depending on the power of your passport) and doing away with local business partner requirements encourage businesses to basically operate in any country, irrespective of their physical location.
– AI has had a complex and multifaceted impact on modern salaries. While some routine jobs have been handed over to AI completely, most companies are willing to pay for adaptability to AI and AI-related skills. But this is not all. As this article is being written, the SAG-AFTRA strike is entering its third month. Screenwriters have very valid worries about the way AI will affect their pay and careers.
Post-covid, a range of previously non-existent concerns have also started influencing paychecks. Post-pandemic supply chain disruptions, government support for covid-affected industries, and a surge in the prices of certain services translate into ups and downs in the amount companies pay their employees. Global hiring practices – companies competing on a global level for talent – affect salary levels and bring other discussions (the need to have more diversity and inclusivity practices during recruitment) to the forefront. This makes it impossible to draw wide-ranging inferences about salary trends across economic groups. The financial volatility birthed by Covid-19 is an ongoing crisis.
Social media:
Yet the financial crisis, complications of global work, and the threat of AI haven’t confused perceptions of modern wages as much as blatant misinformation about the truths of how companies decide to pay employees. The first culprit is the way individual stories on social media are amplified into becoming industry-wide narratives. Magical accounts of fresh-out-of-class graduates commanding eight-figure salaries from industry leaders and tragic tales of CEO and worker salary ratios being 6000:1 are mistaken for the norm. Clickbait manipulates our ideas of what’s typical, but views and likes don’t prove anything. There are multiple resources for a thorough understanding of what to expect on a paycheck; Twitter/IG posts are helpful indicators of trends, but rarely do they show us both sides of a coin.
A certain MNC may be able to save millions by nearshoring a production process, and its competitor may end up spending more trying to nearshore the same process – it’s the same with salaries.
Globalized salaries aren’t universally lower or higher.
Remote workers aren’t routinely paid the same salary or less.
Companies aren’t in a race to reach the “bottom of the pay scale” employees in low-cost areas.
(On the contrary, global hiring often forces employers to pay better-than-ever wages to retain employees with specialized skills.)
The bottomline:
It’s necessary for employers and employees to understand how nuanced these discussions need to be. Employees need to remember that businesses have to balance local cost considerations with offering attractive salaries. Employers have to be more transparent about their expectations and responsibilities; addressing internal wage inequality would go a long way in straightening out needlessly tangled affairs. It’s not compulsory, but taking each employee’s unique life circumstances into account is the fair thing to do.
Compensation is just one aspect of an employer-employee relationship, and ultimately it’s fruitless to speculate about what might be the most important determinant in a CTC figure. An employer might be paying for niche expertise, diligence, availability, or loyalty. Our efforts should concentrate on preventing misinformation and meaningless pay-centric conflict. The first step in doing that is understanding how these numbers are influenced by forces far beyond the ken of most employers and employees. Acknowledging this basic helplessness might be a better common ground from which meaningful negotiations can actually begin.
