Reference to market is critical for every compensation program, says consultant Michael Strand. Without market pricing data, you’re likely to underpay (and lose your best workers) or overpay (and lose your profitability).
Strand, owner of consultancy HR Dynamics Inc., offered his seven steps to successful market pricing at a recent webinar hosted by BLR/HRhero.
1. Identify Positions to Market-Price
Ideally you’d like market data on all your positions, says Strand; however, in reality, you will probably obtain data on a sample of your positions, perhaps 30 to 70 percent.
For sure, he says, you need data for a selection of your positions that have “benchmark” characteristics:
- Common in your industry
- Sizeable portion of your workforce
- Common among different employers, specifically competitors for your positions (not necessarily in you industry
- They represent a range of your jobs: entry, support staff, technical, professional, supervisors, managers
2. Obtain Market Data/Surveys
There are a number of ways to get survey data, says Strand. First of all, you can do the surveying yourself. However, there are two caveats:
One, there are DOJ anti-trust restrictive regulations against price-fixing that basically require that you have a third party collect and publish the results.
Two, it’s just a frustrating and difficult task to do meaningful surveying. If you feel like you want to do your own salary survey, says Strand, “My best advice is to find a quiet place to lie down and wait for that feeling to go away.”
Free Survey Data
There is considerable survey data available on-line, Strand notes. DOL’s data from the Bureau of Labor Statistics can be helpful, and you may find free salary data at Salary.com, PayScale.com, or Salaryexpert.com.
Be careful about the free surveys, however, says Strand. They may just take national data and infer demographic breakdowns rather than calculating with actual data from the region.
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Fee-Charged Salary Information
Then, of course, there are surveys for which you must pay. Of course, you want to look for reliable information, says Strand. Look for indicators that the survey used employers with your profile (location, budget, size, type of organization). Here are possible sources:
- Your industry association
- Towers Watson Data Services ($199/position; not a bad rate, Strand says.)
- “Custom” surveys from places listed below. (I don’t necessarily recommend these particular sources, says Strand. I just list them as possibilities.)
- KeneXa
- CompData
- AON Hewitt
- Mercer
- ERi-Econ Research Institute
- MarketPay;
- decusoft
Vital Information from Surveys
Strand lists the following as vital information to look for in a survey:
- Job Summary (Education & Experience)—Vital
- Data Presented (for example, Mean, Median, 25th Percentile, 75th Percentile)—Vital
- Data Sorts (Location, Budget, Number of Employees, Organization Type)—Vital
- Effective Date—Vital
Helpful information includes:
- Number of participants
- ID of participants (to see if any of your competitors are included)
- FLSA status (Exempt/Non-exempt)
- Average years in position
3. Age Survey Data
Salary survey data is effective as of a specific date. You need to “age” or update that data to a desired date. That date may be the beginning of your fiscal year, the middle of your employee performance evaluation year, or another date that best reflects the needs of your organization.
The date selected, to some extent, reflects your organization’s compensation philosophy, as the aging shows whether you intend to Lead, Lag, or Lead/Lag the market.
Say the fiscal year begins January 1st 2012. Your plan is to review and make adjustments annually thereafter.
- To Lead: Age data to January 1st 2013. You lead the market throughout 2012. By the end of 2012 you meet the market.
- To Lag: Age data to January 1st 2012. You meet the market on January 1st 2012…but increasingly lag throughout 2012.
- To Lead/Lag (what most organizations do, says Strand): Age data to July 1st 2012. You lead the market in the 1st 6 months, and then increasingly lag through the remainder of 2012.
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4. Find the Market Rate
Using the median rates for your position in survey data, and taking into account the key characteristics of the organization (budget size; number of employees; organization type; and location), you will define the job’s market rate.
In tomorrow’s Advisor, steps 5 to 7, plus an introduction to a comprehensive wage/hour problem solver.