Ellen Warden, SPHR
WorkPlace Synergy, LLC
You don’t have to be the top-paying employer to attract the right talent. But to compete, you must be aware of what the market is paying for certain skills in order to develop fair and reasonable salary ranges that reflect your firm’s pay philosophy. Even when pay systems are not formalized, decisions about pay are usually based on some kind of market-based rationale.
But how do you know if you are “in the ballpark?”
Regular market pricing reviews will help you keep a finger on the pulse of pay rates and spot trends in the market. This means you can confidently create and maintain competitive pay plans that help attract and retain key talent and manage the bottom line.
But before a firm can benchmark its positions it must understand the market it is competing in. Part of defining your compensation philosophy is knowing with whom you compete for talent and how competitive you want to be.
Where are you getting your talent? Who do you lose it to?
Do you compete with different organization types (such as accounting firms, BV firms, banks, financial consultants)?
Do you compete with different size firms than your own?
Is your competition for talent local or national?
How competitive do you want to be relative to the market?
What is your compensation philosophy? Based on such factors as the outlook for growth both short-term and long, the ability to attract and retain talent, and overall philosophy on base and variable pay, many firms choose to target compensation levels between the 40th and 90th percentiles. There is no right or wrong in this; it’s about what works best and what you can afford.
Do you want to choose a different target based on different positions within your firm? For example the 40th percentile may be targeted for support and administrative positions, the 60th percentile for consultants and the 90th percentile for rainmakers.
Benchmarking means matching an internal job to an external job of similar content.
Develop an accurate, up-to-date job summary, a “capsule job description,” for each job to facilitate survey matching. Include clearly defined requirements such as education level, certifications and years of experience.
Price “spaces, not faces.” Be sure to think of the job, not the incumbent, when defining the role and responsibilities. When benchmarking, the market value goes to the job, not to the person filling it.
Make sure to benchmark jobs to job content, rather than job title, as job titles and the number of levels of jobs are not consistent between firms. For example, a Senior Consultant may have a key responsibility of garnering new business in one firm and not in another. Be aware of “title inflation” – some employees may have been “paid” with a new title.
In small firms, people are often called upon to fill hybrid jobs – for example, a person may be tasked to research and analyze financial information, and be the office manager. It is important to understand and review the responsibilities for each of the components of the hybrid job, and develop a market price accordingly. Slot non-benchmark jobs based on comparable value to organization.
How do you get access to current and accurate market data? We’ll cover this topic in the next issue of Business of Valuation.
Ellen Warden consults with business valuation practices on a variety of human resources issues. Read more at http://www.workplacesynergy.net/