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.
Compensation plays a critical role in organizations’ ongoing and increasingly challenging efforts to attract, retain and motivate a talented workforce. Compensation design and management play a vital role in aligning employee behavior with business objectives. Human capital costs represent a significant part of most organizations’ cost bases and need to be spent as effectively as possible. It is vital to understand the consequences pay decisions can have on your organization.
Salary structures are an important component of effective compensation programs and help ensure that pay levels for groups of jobs are competitive externally and equitable internally. A well-designed salary structure allows management to reward performance and skills development while controlling overall base salary cost with a salary range cap. Market pricing is the most common method companies use to design base salary structure ranges using external market data combined with a focus on internal pay equity. The goal of market pricing is to keep the organization from: 1. underpaying, resulting in losing talent to competitors, or being unable to attract the talent it needs and 2. overpaying which wastes organizational resources and impedes desirable turnover. The secret to effective market pricing is the ability to spot and adequately analyze and level the data anomalies and imperfections using both science and experience.
Some organizations elect to pay lower than market and offset lower than market wages with offers of ‘good’ benefits, meaningful work and stability. This practice can lead to employee disengagement. Ultimately, these organizations risk losing people. Also, the organization will likely attract people who couldn’t get ‘better’ jobs with the higher pay. One of the key determinants of job satisfaction or dissatisfaction is how employees feel their pay package compares to others.
Pay-for-performance programs are used to award employees for desired behaviors and outcomes and they take many forms, including cash bonuses, company stock and profit sharing. Pay-for-performance plans have a learning curve, and they require regular maintenance in order to be and remain effective. Incentive compensation plans need to align with the company’s business strategy, mission, goals, and objectives. They should address root causes of performance and the goals must reflect a balance of financial results and the key business drivers. Payout opportunities should be both consistent with the performance value and meaningful to employees.
While pay-for-performance plans provide financial incentive to employees, there can be disadvantages. If not crafted carefully, they can cause employees to focus more on quantity over quality. They may impede teamwork if workers view helping another employee as wasting valuable time that could be spent on reaching their own goals. And just like base pay, incentive pay should be competitive with the market or it could fall short of motivating the employees.
Smart, successful organizations do regular planning and evaluating of their compensation and performance rewards systems. Compensation is visible and important to employees. It is critical to have a solid and competitive pay strategy where pay decisions and policies match the objectives of the organization. At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online.