Salary Administration Depends on Understanding the Labor Market

by on June 18, 2009 · 0 Comment POSTED IN: HR Info Center

Geography is important for both salary administration and for jobs

The real labor market is actually probably broader than most people realize. A lot of companies decide who their competitors are or peer group of companies based on the products that they sell. That’s not necessarily the same thing as saying this is the list of companies in which you compete for labor. In fact, it may be quite a bit different, and knowing that difference helps your salary administration process.

There are several aspects of defining exactly what the competitive labor market is for your company. For example, geography is important for both salary administration and for jobs.

You may find that the geography within 50 miles of wherever you’re located actually differs too. If you’re in the Metropolitan area, a 30 miles outside could actually mean a pay difference of 10%.

So, it’s important to get the geography right so your salary administration policy doesn’t suffer. There’s a saying too, that executive job, most executive jobs you recruit on a national basis and consequently you should be looking at national data when looking at the proper pay levels for executives. There actually is a geographical differential for executive jobs as well.

In fact, one of the best geographical surveys done is one done by Economic Research Institute. It actually shows that the executive pay levels do not come together on a national basis where virtually every location will be paying the same until you hit around the $3 million salary mark.

Size does matter here too. The number one correlating factor with pay in the market place for non-supervisory people is education and experience even more so than functional responsibility. If you take for example, an HR, a professional HR person, IT professional and even a finance professional, if they’ve got a degree, let’s say a Bachelors Degree and five years of experience, if you look at the market data, you will find that virtually all three of those jobs can completely different functional areas will actually vary about 10%, approximately 10%. That’s not a big variation. So, getting the function right and match them at the market place is a good idea. But getting the education and the experience requirement is even more important to salary administration.

So, that’s for non-supervisory jobs. If you have a supervisory and above job, the highest correlating factor in the market place is actually size of responsibility or size of an organization. Generally, it’s expressed in number of people in a company or revenues.

Edited Remarks from “The Seven Deadly Sins of Employee Compensation Plans (and How to Fix Them)” by Rick Olivieri

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