Since none of us exist as completely self-sufficient agrarians, we will all accept some form of compensation for the work we do. For most of us, that will come in the form of a check from our employer while some will pursue self-employment. Put simply, compensation represents the price tag for the work a person does.

After looking back on conversations I’ve had over the last several years, it’s clear to me that employees generally misunderstand compensation. I think that’s understandable as few have ever been in a position to set someone’s pay.

I think we have a responsibility to ourselves to build a strong understanding of compensation. I’m convinced that it will help us establish contentment and apply our effort properly towards accomplishing our goals. Be honest, you’d be happy if you knew you were paid exactly right. And you’d love knowing how your compensation was set so you could do something about it.

Summary

Not sure you can make it through this whole article? I’ve summarized the critical bits:

• Business owners hire employees to make profit for them
• Compensation has nothing to do with a person’s worth
• Two things determine how much an owner will pay an employee: The market and the company’s financial situation.
• The market decides how much an employer will have to pay for certain work. It’s the economics of supply and demand.
• When the number of people who can do certain work goes up, the price employers will pay goes down.
• If there are fewer people available to do certain work, the employer will have to pay more.
• If the company cannot afford the market rate, it must offer less to employees. Special circumstances may encourage an employee to accept less than the market rate. Otherwise, the business will live with an unfilled positon until the market rate comes down, or finances improve.
• A business owner is free to ignore the market and pay whatever they want (more or less). It’s their business and they can do whatever they want with it.

You cannot determine how much to compensate a person for a given position without careful evaluation of what the market will bear. Anything else would be guessing.

Market rate for a position can generally be determined by a careful analysis of:

• How much would I have to pay a replacement to fill a position

• What would a non-competitor pay one of my employees currently in the position

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UPDATE (7:21pm):So…I find out that RVM symlinks into .gem/, so deleting completely may have been a bad idea. But…I was able to do “rvm reload” and “rvm update –head” that seem to have restored the symlinks I broke in the process. Life is good again.

While trying to install the latest Rails3 beta, I was beating my head against the following error:

ERROR: While executing gem ... (ArgumentError) marshal data too short

I’m running RVM and despite attempts to run “gem install rails –pre” on various ruby versions, every time I got the some error.

After bruising my head against nearby objects for a while, I found a small reference on a blog about gems in ~/.gem. After wiping them out, everything worked great! In the process, I blew away /usr/local/ copies of the gems as well (so your mileage may vary).