Daniels, Senior Consultant at Keating Advisors, LLC, offered her suggestions at a recent webinar sponsored by BLR and HR Hero.
Getting Market Pricing Right
Market Pricing is the process of analyzing external salary survey data to establish the worth of jobs as represented by market data, based upon the “scope” of the organization (geography, industry, budget/revenue size, employee size, etc.) and the job itself.
The important decision factors are:
- Cost of market data surveys
- Time invested in collecting and analyzing data
- Reliability/accuracy of data
- Availability of data relevant for your organization’s scopes and positions
- Confidentiality of survey data
It’s also important to know the market for your types of jobs:
- Profit, non-profit
- Organizational size (both budget and/or revenue and employee size)
- Geographic location (has a large impact)
Finally, be sure you select salary surveys that:
- Adhere to antitrust safe harbor guidelines
- Have adequate sample sizes, including 25th and 75 percentiles
- Contain timely data (ideally no more than two years old)
- Clearly communicate survey process and procedures
After you select your surveys, ask, what are your benchmarks?
- Industry or Subsector
- Size of budget
- Number of employees
- Organization Type
- Scope of work
- Experience required (some surveys offer this by number of years)
- Education required
- Supervisory responsibility
- Multi-function jobs (tricky, but it’s possible to blend data)
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Daniels offers the following steps for accurate benchmarking:
- Analyze job content data (i.e., duties, responsibilities and work requirements) based on current, written position descriptions
- Conduct market pay analysis for all positions, or at least a sample of positions that represent all levels and all departments in the organization
- Identify competitive market base pay rates on all benchmark positions (25th, 50th & 75th percentiles). Generally try to have this cover at least 40 percent of all jobs
- Collect data from at least 2-3 surveys, if possible
- Compare your current employee’s base compensation against the market data for similar positions
Developing a Base Pay Structure
To develop a market-based base pay structure, conduct a regression analysis on the desired market data points (e.g., 25th, 50th, or 75th percentile data points) for all benchmarked positions.
Based on the pay line that process yields, develop a proposed structure that will look something like this:
Market pricing, regression analysis—just a few of every comp managers’ challenges. And all that’s to say nothing of the most basic challenge—FLSA compliance. How about the regular rate for overtime? Prevailing wage? Mobile devices after hours—the list of ways you can get into trouble seems endless. How do you really know if your managers and supervisors are following your guidelines? There’s only one way to find out what sort of compensation shenanigans are going on—regular audits.
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Experts say that it’s always better to do your own audit, and fix what needs fixing, before authorities do their audit. Most employers agree, but they get bogged down in how to start, and in the end, they do nothing. There are, however, aids to making FLSA self-auditing relatively easy.
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