Since compensation is an important retention criteria, it's good to start by defining and understanding the compensation philosophy you want to pursue . Most development organizations feel they need to pay in the top 25% of what similar companies pay to attract and retain the top talent. This is probably a good starting point, although there are certainly counter examples. The IT department of a large upstart movie studio targets pay at the bottom 50% of industry rates. It is still able to attract and retain good candidates because of the glamour associated with working for the upstart company and because many employees believe the experience will qualify them for much higher paying positions later in their career. A large software company is known for offering employees low base pay that employees accept because of historic gains from the company's stock plan. Government agencies such as NASA who continually push the edge of technical possibilities attract developers for lower than industry salaries simply for the chance to work on exciting projects.