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MARKET PRICING VERSUS JOB EVALUATION

I began my career in Compensation in the early 1990s using a combination of market pricing and job evaluation to establish pay structures.  Market pricing is the ‘external’ method, collecting salary data, usually through a salary survey, for similar jobs from other organizations to establish the ‘market rate’ or ‘price’ for the job.  Job evaluation is the ‘internal’ method, focusing on internal job worth, each job is rated or scored on several different factors and the total score equates to the job’s salary grade in the pay structure.  Over the years, the use of the point factor system fell by the wayside.  Having used both methods together, at first I was uncomfortable with relying only on market pricing and salary surveys.  But over time I saw that I was arriving at the same end result, and ultimately, where I wanted to be which was remaining competitive with the market.  Still I wondered if I wasn’t missing something in my analysis.  I found through my informal research that most of my compensation colleagues were also relying solely on the external market and the use of compensation surveys and the prevalent thinking was that a job is worth only what the market says it is worth. 

Job evaluation approaches were prominent when people stayed with the same employer, often their entire career, progressing through the internal hierarchy.  Most hiring was done at the entry level, and recruiting talent from the outside, was not as dominant as it is for today’s organizations.  Therefore, pay relationships between jobs inside the organization were more important than the external job market.  Today the ability to attract and retain necessary talent is critical and in order to do so compensation must remain competitive with the external market.

Still the debate goes on whether it is better to use job evaluation or market pricing and salary surveys to determine employee compensation.   Having an intimate and in-depth understanding of the jobs in your organization is critical to correctly matching your jobs to the external marketplace.  There is no scientific single rate of pay for a job or role, and rates may vary even for the same occupation and in the same location.  Experienced compensation professionals will be able to interpret the data for an organization and its jobs.   Though today compensation in the private sector is largely reliant on external market pricing, in my experience both techniques provide essential data to determine fair and equitable compensation practices. Combining market data with your internal job valuations to drive decision making is ultimately the best practice.

WageWatch Compensation Professionals can provide your business with compensation surveys and salary reports, and can assist you with your market pricing, evaluation of your jobs and organizational needs to establish a salary program that is both externally competitive and internally fair and equitable. Our innovative company is a leader in the collection of data for surveys and salary reports, which allows us to provide services to a wide range of industries in both the private and public sector. To learn more about WageWatch compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online  www.wagewatch.com.

This entry was posted on Wednesday, December 17th, 2014 at 2:31 PM and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.