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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.

Posted in Uncategorized on June 16th, 2016 · Comments Off on MARKET PRICING VERSUS JOB EVALUATION

ALLOCATION OF MERIT INCREASES

A primary goal of any compensation program is to motivate employees to perform their best.  Most organizations have pay for performance at least in the form of a merit pay system.  An accurate, reliable and credible performance-appraisal program that is aligned with company goals, core values and industry best practices is the foundation of a successful merit pay program.   Performance measures should be tailored specifically for the organization and it’s jobs with clear outcomes that minimize bias and misinterpretation.   Consistency, manager training, effective communications and a periodic review are also essential for success.  

The merit pay budget has two aspects to it, determining the size of the budget and allocating the budget to organizational units and it’s employees.  Determining the size of the budget will be based on competitive trends, the organization’s financial situation and other factors that may impact pay such as minimum wage and cost of living changes.  For the past several years merit budgets have been small and therefore it has been a challenge to adequately rewarding top performers as well as those that are rated ‘Good’ and ‘Average’.  Employees with performance ratings of Good and Average can be the largest percentage of employees and therefore the backbone of the workforce.   These employees should not be overlooked but raises for these employees often do not keep up with the cost of living.  Also the differentials between performance levels may not be large enough to motivate and retain employees.   These factors reduce the motivational potential of the merit pay program. 

Using a merit increase matrix may help to maintain internal equity but may not properly reward top performers.  You want your reviewing managers to be engaged in the merit award process and to give appropriate thought and consideration to their pay decisions.  A certain amount of guidance and training is needed but the merit matrix can be too structured and rigid as well as make it too easy for reviewing managers to simply follow the formula rather than spend the time and effort for a thorough review.  Greater rewards for top performers and greater deviation of awards between good and average performers can be accomplished by providing zero increases to employees whose performance falls below average.  Providing broad increase guidelines in lieu of a matrix to your reviewing managers using factors such as performance rating, time in position, and position in salary range can eliminate the rigidity of the merit matrix and drive a a more thoughtful approach to the merit award process.  Once tentative award amounts are determined, reviewing managers should perform an analysis of the awards looking at the whole department and at each individual award using these and other factors as well as any unique or special circumstances. 

Annual pay increases not only help keep employees’ pay at market, providing awards that are accurately linked to performance are important in retaining employees – especially your best ones.  Compensation frequently emerges as a driver of retention, and when pay increases aren’t provided regularly and fairly, it will negatively impact job satisfaction.

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 and that your pay practices are fair, equitable and non-discriminatory. We can provide your business with compensation surveys and salary reports to help you establish a budget for your merit pay program, including bonuses and incentives. 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 our compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online.

Posted in Uncategorized on January 14th, 2015 · Comments Off on ALLOCATION OF MERIT INCREASES