How is base pay determined in a company?

Companies consider factors such as job responsibilities, required skills and experience, education level, supply and demand, and location or cost of living when setting the basic salary. Salary benchmarking helps employers stay competitive, while internal pay equity measures ensure employees with similar roles receive comparable wages. Many companies use pay grades or salary bands to maintain consistent base pay ranges across the organization, aligning with the company's size and budget.

What is the difference between base pay and total compensation?

Base pay is the fixed amount an employee earns for their work, either on an hourly or a salary basis. Total compensation encompasses all forms of compensation an employee receives, including basic salary, bonuses, stock options, overtime pay, and benefits such as health coverage and retirement contributions.

How often is base pay adjusted?

Many companies review base pay annually, often alongside performance evaluations, though some adjust salaries more or less frequently based on their industry or approach. Strong performances, promotions, or shifts in job responsibilities can lead to pay raises. Market changes, inflation, and company budgets also play a role, with some businesses making adjustments to stay competitive in their respective industries.