The Elements of the Model
The dollar value to the employer of different levels of job mastery is usually available to the employer, although he may be reluctant or unwilling to share it with you. Employers maintain tables of pay ranges for all their various jobs. For each job, there is a minimum salary and a maximum salary. The minimum salary is for people with the minimum acceptable level of job mastery. The maximum salary is for people with full job mastery. The salaries are usually based on what the employer believes are the minimum amounts he would have to pay to hire and retain employees with various levels of job mastery. In rare cases, they are based on what the employer believes is the actual dollar value to his business of employees with the various levels of job mastery.
When the employer hires you for a particular job, you will show up to work on the first day with some level of job mastery already in place. It may be zero or it may be substantial and it comes from your previous experience and background. If you are a new college hire or have never observed this job performed, your job mastery will be near zero and you will have a lot to learn to reach full job mastery. If you have held a similar or the same job prior to starting this job, you will probably already have a very good idea how to perform this job. To reach full job mastery, you may just need to "learn the ropes" of this particular company or organization, i.e. how to get things done within its organizational structure and culture.
Different jobs take different lengths of time to master simply because they differ in their complexity and their depth of knowledge required. For most jobs, the employer will have an idea based on experience of how long it will take a normally competent new employee to master the job. The level of mastery you bring to the job on day one also affects the time to master it. You can expect that your mastery of the job will increase steadily from day one until you reach full mastery. Of course, as your mastery of the job grows, your value to the employer also grows correspondingly.
How long will you stay with one job before you begin to feel that it is no longer good for your career or simply not meeting your personal needs? Some people are happy to find a job, master it, and stay in that job forever. Other people are restless or ambitious and will move on to something else eventually.
An employer views your salary as a cost of doing business. He will tie it to the maximum value that the job can return to the business. Some jobs are worth more to the business than others are. For example, the job of Marketing Manager, competently performed, would usually return more value to the business than the job of Mail Clerk performed with a similar level of competence. He will further tie your salary to your level of job mastery. A Marketing manager who has reached full job mastery returns more value to the business than a Marketing Manager performing with less than full job mastery. Over the long haul, the employer must not pay you a salary that exceeds the value that you return to the business. To do so is illogical and if done routinely, would lead to business failure. However, for the short haul, the employer is often willing (and often compelled by labor market conditions) to "invest" in you by paying an amount greater than the value you are able to return to business before you have reached full job mastery. He will make this investment if he believes you will repay it as you approach and achieve full job mastery.
When you start a new job, it is a virtual certainty that you are not a full master of that job and thus cannot return to the business the full potential value of that job. You can expect the employer to pay you less than he would pay someone who is a master of that job. How much less will he pay? He may want to pay a salary equal to the value that you do return to the business; would that be fair? Most likely, that will not be fair to you unless you can count on the employer to raise your salary continuously as you continuously increase the level of your job mastery. Salary administration never works that way though. What really happens is your starting salary in real dollars is roughly the salary you are stuck with for the duration. At most decent companies, you can expect to receive annual raises to compensate for inflation. Some companies will also routinely give you a 1 or 2 percent salary increase every year on top of inflation to compensate you for your growth in job mastery. However, these days, you cannot count on such a "real" raise.
In light of all this, what would be a fair starting salary for both the business and for you? It would be a salary that when considered with annual expected raises, corresponds to the value you return to the business over time. In order to make the hire, the business will often have to pay a starting salary that exceeds your value to them until you can obtain a higher level of job mastery. The business would view this overpayment as an investment and would expect you to repay it as soon as possible. You would pay it back by increasing your job mastery to such point that you are returning more value to the business than you are receiving as a salary. Eventually, you will reach a break-even point where you will have repaid the business' full investment. After the break-even point, a fair salary for both the business and you would be the one that most closely corresponds to the value you return to the business based on your job mastery.
What It Looks Like
Let's identify the elements of the application's display in an example screen-shot. The display contains a data entry area and a graph.
The data entry area allows the entry of several values and has a short description next to each. I described all of the data entry values in the text above except "Entry Level." The "Entry Level" salary is for a person who is hired into a position at the bottom of the career ladder that leads up to the job in question. For example, assume that the job in question is an "Applications Systems Analyst V." The job at the bottom of the career ladder that leads up to the position of Applications Systems Analyst V is that of "Applications Systems Analyst I." An employer would usually hire a person just out of college with a Bachelor's degree in Computer Science and no work experience into an entry-level job like Applications Systems Analyst I. The employer would not normally consider that such a person meets even the minimum requirements for a position as an Applications Systems Analyst V.
Turning to the graph, you can see that it has dollars on the vertical axis and years on the job on the horizontal axis. The graph represents the entry-level salary ($70K), minimum mastery level salary ($80K), and maximum mastery level salary ($130K) as horizontal lines on the graph. The graph shows salary as a horizontal line too ($110K), but just in this first example. Later examples will show that the salary changes over time. The graph includes an "Actual Mastery" plot line. It represents the level of mastery of you, the prospective new employee, as your mastery of the job in question grows over time. When it hits the maximum mastery horizontal, it can increase no more. Notice that it takes 2.5 years for it to reach the maximum. The 2.5 years is a data entry value upon which you and the employer should agree when you use this application. Actual Mastery starts out at $90K, which is of course more than the minimum mastery horizontal of $80K. We interpret this as meaning that you have some experience and/or ability that allows you to start the job on day one at a level of mastery above the minimum. Perhaps you have already done some work at the Application Systems Analyst V level in your previous job but are still far from mastering the role.
The Actual Mastery plot represents your actual value to the employer. Notice that for a little more than the first year on the job, the employer is paying you more than your actual value. The employer makes this investment in you as you master the job. At just over a year on the job, your actual mastery (value to the employer) meets your salary. From that point forward, as your mastery of the job grows and your salary stays the same, you are providing more value to the employer than he is paying for. This is how you pay the employer back for his investment in you. Eventually you pay back the full investment and we call this the break-even point. There is a vertical line at this point and in this example, it is at 2.5 years on the job. Following the break-even point in this example, the employer is underpaying you. If you quit the job before the break-even point, your salary will have been unfair to the employer. After the break-even point, the salary is unfair to you.
Finding a Fair Starting Salary
How do we make things fair? We can adjust the starting salary, the time to mastery, or you can get a raise every year. In this example, we assume that the employer will give you a 2% salary increase every year (assuming no inflation) and that you will get a starting salary of $115.7k. When we make this change by entering 2% in the SalInc% data entry field and 115700 in the StartSalary field, your salary goes up at the start of each year on the job and it maxes out at the Max Mastery level ($130K) at the 6 year mark. (Why should the employer let your salary continue to rise beyond your value?) It also happens to break-even at that same time. Would you expect to stay in this job for six years? If so, a starting salary of $115.7K and an agreement with the employer that you will stay in the job for at least six years and he will give you a 2% raise each year until it hits $130K would be a fair arrangement for both of you.
WARNING! It would be very risky for you to take the employer's word that he will give you a 2% raise every year and it would be very risky for the employer to take your word that you will stay in the job for six years. Such agreements should be in writing.
The Effect of Inflation
Inflation (and its rare opposite - deflation) changes the picture. In this example, we have included a yearly inflation rate by entering 1.5% in the InflationAvg% data entry field. It causes all the plot lines to curve upwards. Now, the salary increases are a total of 3.5% per year, 1.5% for inflation plus our 2% real dollar raise each year. (Note that an annual raise percentage equal only to the inflation rate is not really a raise at all. It simply corrects for the decline in value of your salary in real dollars caused by inflation.) The break-even point falls a little sooner in this model at 4.66 years, but still hits the full mastery value at the six-year mark. From that point forward, the salary increment each year is just enough to follow the full mastery value plot as it curves upward due to inflation. For the employer, this is a lower risk model because you pay back his investment in you sooner. It is not as fair to you since the employer will underpay you for 2.33 years after the break-even point. This underpayment is money you never recover in this model.
How to Use the Modeler
This application will not calculate the optimum starting salary for you; that is why we call the application a "modeler" and not a "calculator." It is very rare that your manager will have a lot of leeway to set your yearly salary increases more than a couple of points above the inflation level. That is just not how the corporate world does salary administration. Therefore, the way to use this tool is to set the annual dollar values and the assumptions in cooperation with the employer. Then try various proposed starting salaries and adjustments of the salary increase percentage (considering the employers leeway) until you find a combination that seems fair to you and the employer. Make sure to take into consideration your expectations for how long you would likely stay in the job. When you have identified a fair starting salary and annual salary increase rate, use the tool to negotiate for those things by showing the employer how they make for a fair agreement for both you and him.