Should you be paid as much as Gareth Bale or Tom Cruise?

How much are you worth?

For the last 15 years I have earned my living advising companies on pay-related issues.

That may sound like a very strange way to earn a crust, indeed you may not have been aware that companies seek external advice in setting salaries. But unsurprisingly, everyone has an interest in what I do, because we all go to work to earn a living and we all want to get paid. Essentially my job entails helping companies decide how much to pay, what the pay mix between fixed and variable should be, what benefit package should be offered and how pay should be structured and administered in the company.

In all that time I have yet to meet anyone who thinks they get paid too much; whereas in every interview, focus group and employee survey, I am told by the hard working employees I am speaking with that the company is not paying enough. Indeed, there has probably been a point in your career where you have felt the same way.

Conversely, you don’t have to be the chief finance officer to work out that since salaries are a cost, it is in the interests of the business owners to keep them as low as possible. In fact, it may surprise you to know that in many service-related industries – such as banking, consulting, retail, hospitality – and basically most industries, except manufacturing and construction, the salary bill is typically 60 per cent to 70 per cent of the total cost base of the business.

Therefore, everyone in upper management will be carefully scrutinising the payroll for the career levels below their own and asking, “Are they worth it?”

Similarly, the board or the remuneration committee should be looking at executive pay and asking the same question of the top team.And given that pay at the senior management level tends to be significantly higher than in mid-tier management positions, the board should be pretty exacting in their assessment of worth and value creation.

We’ve all looked with envy at the likes of Gareth Bale who is supposedly being paid £300,000 a week to play football or Tom Cruise bagging millions of dollars for his latest film, but how many people actually understand how pay works in their own company?

A good starting point might be to state a few universal truths. First, there is no one “right” answer to the amount you should be paid. Second, there is no perfect salary system, and third, you will always hear of someone being paid more than you to do a similar job. That said, there are some hard and fast principles that your employer is likely to consider during the salary setting process.

These include organisational performance, the economic outlook, the range of salaries in a pay band, the experience the job requires and what the competition is paying.

So what can you do? First, you should understand how your company actually manages pay and how they decide how they pay you. It is usually not a state secret, but very few employees actually take the time to ask.

You can start by asking two simple questions.

How does internal equity work? That is to say, how you are paid compared with your colleagues.

Second, how does a company compare itself to the external market when it sets pay ranges?

Understanding these questions will allow you to make an informed decision on how much you are worth, and will be a far better barometer than basing your assessment on water cooler conversations or a call from the recruitment consultant – scenarios that are likely to involve some truth stretching.

Undoubtedly we would all like a little more money, and while I cannot guarantee that will happen for you, I hope to explain some of the fundamentals of pay management from a corporate viewpoint to better equip you over the coming months in this column.

Martin McGuigan is a partner at Aon Hewitt Middle East where he leads the reward consulting practice