Many jobs today—and perhaps some your company has posted—list the pay as “competitive.” But what does that mean, exactly?
"Human resource professionals really do have a consistent, conventional idea as to what it means to them when the term ‘competitive’ is used. You see this referenced frequently, especially in job ads when it says, for example, that the company pays ‘competitively’ in the marketplace for the job that they are advertising," consultant David Wudyka of Westminster Associates says. Specifically, it means that what they pay, on the whole, is comparable to what they believe the market pays.
What Does it Mean to be Competitive with Employee Pay?
While employers say they’re "competitive" and usually mean that the pay is comparable to others in the market, that is still a vague definition. What does it mean to the average HR professional?
HR practitioners would suggest that being competitive means paying, on average, +/- 10 percent from the market average pay for a job or a group of jobs. For those of us who are more conservative, they would say it means within 5 percent of the market average.
Here’s a simple example for an organization employing registered nurses (RNs). If the RNs in the organization are paid $30/hour on average, and the market average pay rate is $27/hour, this organization is paying 10 percent above the market rate.
It is calculated as the amount your pay would have to move to match the market rate—you always want to show what you need to do to your pay rates to equate to the market rate. This is why the pay difference here is noted as 10 percent rather than 11.1 percent (11.1 percent would be the amount $27/hour would have to increase to match your $30/hour).
So this is a simple example showing that one organization might say it pays competitively for this position, based on being 10 percent above the market rate.
How Does an Employer Determine Market Rates?
The way we can feel confident about making the statement that we pay competitively is to engage in pay surveys or acquire pay surveys and study them. This allows us to analyze our pay structures so we can say with confidence whether we pay competitively or not.
It all comes down to job pricing. Job pricing is "the process of determining what the marketplace pays for jobs that we employ," Wudyka says. Typically this focuses on benchmark jobs—jobs that are common to our industry or across multiple industries. When making these comparisons across industries or across employers, we have to know what we’re comparing to. We need to ensure that we are making "apples to apples" comparisons.
Live webinar coming Wednesday, January 14, 2015
10:30 a.m. to Noon Pacific
It’s the time of year when you might start looking at pay ranges and contemplate re-ranking jobs, moving positions, reviewing internal equity, or adding variable pay systems into your total reward compensation mix.
Whether you want to reward performance, time, knowledge, skills, or competencies, determining pay grades is the first step to creating an equitable, competitive compensation system. Without accurate pay grade determination, it won’t matter how good the pay survey data is that you may acquire—your internal compensation will likely be too high or too low.
Pay grade determination is often overlooked, though, as many focus only upon pay survey data in a process known as market pricing. But how can you price nonbenchmarked jobs without survey data? You need an internal method to grade and indirectly price them.
Participate in this interactive webinar with compensation expert David Wudyka, and you’ll learn:
- Laws affecting your compensation strategies
- What pay grades are, and the correct way to determine them
- How a pay structure (a set of pay grades and ranges) is built
- When to pay above market (and sometimes below!)
- The key ways that pay grades influence your performance/merit pay programs
- How pay grades interact with variable pay, and why this connection matters
- When and how to conduct an internal equity review
- Strategies for addressing pay inequities, while minimizing your legal liability
- “Gender equity”—what to do if you discover pay discrepancies
- How variable pay plans affect pay structures and pay analyses
- And much more!
In just 90 minutes, you’ll learn how to properly compensate the various jobs at your organization—and how to remedy any discrepancies you uncover. Register now for this informative event for HR professionals.
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