".. based on the value you bring to the company" - Unless you're worth significantly more to another company - For example, if they're not utilizing (fully) skills you have that might bring more value elsewhere.

Yes - the context for that statement was the salary you request from your current employer should be based on the value you're bringing (to your current employer.)

@schizoid04, that would be a reason to move to the other company, not to have your company pay you more. It is not good business practice to pay more than something is worth. Early in my career as a software developer, I worked for a pharmaceutical company. I realized that wouldn't pay me as much as I could earn elsewhere because I wasn't nearly as valuable to them as chemists and biologists. My worth to them wasn't going to change regardless of my worth to others and I wouldn't expect it to.

I agree with @cdkMoose - your value to another employer isn't really equivalent with your value to your current employer, and hence isn't really relevant to a compensation discussion with your current employer.

I disagree that the highest paid will be the first to go. Most of HR won't know if that person is actually getting paid their actual worth, nor if there's other reasons for something other than industry or company standard pay. I've found through repetitive experience that the newest employee is the first to go, regardless if the dept desperately needs more people or not. High pay might put a target on you, but not as big as other factors, including office politics. Other than that, this is a good answer.

I think this answer is good but the concept that "compensation should be based on value delivered" is not the whole story. Ideally it should be, yes. In practice, it is slightly more subtle. A more accurate way to put it is "compensation cannot ever be more than the value you bring", which is a more pessimistic way to look at it. But even more pessimistic is the observation the compensation is unlikely to be significantly more than replacement cost.

No, salary is based on how much is offered by the market. It is correlated to value, but not necessary equal to it.

How can I calculate the value I bring to the company? I am a programmer, not a manager..

@ErelSegal-Halevi That's a problem that both entrepreneurs and economists have been trying to solve for ages. The most correct answer has usually remained the same throughout modern history - compare your salary to the asking price of a comparable new hire ("comparable" itself being kind of hard to determine, of course). This is essentially the replacement cost Eric talks about. It doesn't matter what role you have; the most value is usually in empowering other people, because no matter how hard working you are, increasing the worth of ten other people by 10% will have more value.

@ErelSegal-Halevi And of course, that's what software does in the first place too. It's not like you're making software for the sake of software - you're empowering the users of your software to allow them to produce more value. That's why people are willing to pay for software.

@cdkMoose: "that would be a reason to move to the other company". What you're pointing at is a consideration for the company, not a consideration for the employee. If my employer agrees to pay me an exorbitant wage to perform a trivial job (because they really want to keep me, for whatever reason), that's not my problem, that's my employer's problem. It makes no sense to suggest that an employee should essentially change their job if they're getting paid more than what they could/should be getting paid.

@Flater, my point was that you can't necessarily expect your company to pay you what you would be worth to someone else if you aren't worth that to them. That would be a bad business practice for them.

@ErelSegal-Halevi: The value you bring the company is almost always in one of two forms: either you reduced a cost of doing business, or you increased revenues. If you optimize a program so that it uses 10% less electricity, and that program is burning $10000 dollars worth of electricity a year, then you've reduced the cost of doing business by $1000 a year forever, but if your fee was $100000 then that was a bad deal for the company. If you make a software package that can be sold then you've increased revenues; how much depends on sales.

@cdkMoose: The question is about what to ask, not about what to be guaranteed to receive.

To know what value I bring to the company, even in the ballpark sense, I'd have to know how much the company gets paid for the project I'm working on, and how much they pay in office rent, neither of those information are usually available, so how would I know? Even if I say, "I do 20% of critical tasks on this project", OK great, but how do I know what the project is worth?

@Flater and knowing what to ask requires understanding the situation. Just because I could make 2X elsewhere doesn’t mean I should ask for it here. You need to know you own environment or the exercise could be a mess

This answer is incredibly disingenuous. If salary were solely based on "value to the company", McDonalds servers would make more than the CEO, since the company can continue to exist without a CEO, but not without servers.

@BlueRaja-DannyPflughoeft - can you list any companies that have succeeded just fine without senior leadership? Or even better - any that failed the minute they lost an entry level employee? As much as I appreciate the sentiment of your comment, and I agree that employers "need" line staff, I don't think it reflects in reality. McDonald's will happily pay minimum wage to entry level staff, because there will always be a ready supply of replacements if those staff leave because they feel underpaid. The labor market is telling them what the value of that work is.

So your argument is that the value of the employee is what they're paid? That's circular reasoning. My point is that "value that the employee brings to the company" is only (mildly) correlated with pay, not equal to it.

My "argument" is explained in my answer. Perhaps you can add an answer if you have a different perspective? I'm looking forward to reading how you explain your own ideas.