Consider Market Pricing When Developing Salary Administration

by on June 26, 2009 · 0 Comment POSTED IN: HR Info Center

Three Factors Determining Market Pricing And Salary Administration

Benchmarking is simply an evaluation of what other organizations pay for jobs in our organization. There are three considerations when determining salary administration and market pricing. One of the most important factors is location. Should we be benchmarking to the local labor market? Is it statewide, regional or maybe even national that we should be benchmarking this job? The question that you should ask yourself as you go through the salary administration process is what are the labor markets in which we recruit employees from? And if someone in this role were to leave, where would we lose them? Would it be to the local market, regional market or national market? It depends on the job. For lower-level positions, maybe for a receptionist, the appropriate benchmark is the local labor market. In other words we’re not going to hire somebody from across the country to be our receptionist. If that happens, it’s going to happen by accident. The people are typically not going to move across the country for a non-exempt or a receptionist role.

As we start to move up the organizational chart however, that labor market both where we recruit people from and where we would lose them to, tends to broaden. So that when you get to the extreme of an executive role, oftentimes the CEO, were he to get hit by a bus and we’re looking to replace that CEO, more often than not we will conduct a regional or probably even a national search because we’re looking for the best and the brightest and we’ll move somebody to our location but we want to make sure that we have the right person first and foremost.

The second consideration for salary administration is industry. That one’s a little bit more straightforward. Some jobs are found only within a certain industry. Some tend to be industry specific and so, the appropriate market data is within that industry. However, there are other jobs that are found across the broad spectrum of employers. HR jobs are a perfect example of that. The market data collected should match that market dynamic. Finance, Accounting, IT or other – jobs that are typically found across that broad spectrum of employers.

Now the third component is scope or size of organization. Typically speaking that only impacts executive level positions meaning the CEO of a $1 billion company is going to tend to be paid more than the CEO of $100 million company. There tends to be a correlation between executive compensation and size of organization. There does not tend to be a correlation between receptionists paid in a billion dollar versus a hundred million dollar company. The billion dollar company may have eight receptionists and the hundred million dollar company may have two receptionists, but their pay is not going to be different typically.

Edited Remarks From “How to Set Pay Ranges That are Fair and Effective” by Edward Rataj

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