How Frequently Should Company Pay Practices Be Compared to The Market?
How often should a company compare its current pay practices to the market? This is generally called market pricing.
I am often asked this question by clients. The answer to the question will generally be unique to the characteristics of the jobs in question and needs of the company. Two primary factors will normally determine a market-pricing action plan—
- The importance of the job to the success of the organization; and
- Competitive pressure and demand for job incumbents that creates a higher-than-normal job attraction and retention risk.
We have recently prepared an example of two market-pricing alternatives for a client. This example is shown in the following chart. We feel both alternatives and methods can be effective.
Chart #1: Market-Pricing Frequency Alternatives
The above chart suggests that the CEO position should be benchmarked most frequently closely followed by other top executives or officers. We also generally reserve annual benchmarking treatment for jobs or job families that are believed to be in a “hot-skills” category. Then the company should market-price the remainder of its jobs in various manners over a span of 4-5 years. We suggest less frequent benchmarking for lower-level exempt or nonexempt positions because of the relative pricing stability of these jobs in the market.
On the other hand I have two recent clients that have taken a totally different (and complete sweep) approach to job pricing. The first is a large firm and it prices all non-contract exempt and nonexempt positions each year. The second is a smaller firm that also prices all positions at one time, but does so every 5+ years.
So there are many alternatives to effective market pricing. However, we have generally found that the more jobs that a company market prices at one time (say in a single year), the more outside resource and assistance the company will need to retain.
A more evenly-paced market pricing strategy can be accomplished using more internal company resources and limited and focused assistance from outside advisors. On the other hand, it may cost you a bit more in survey expense over time when purchasing market data.
In summary, Wilkening & Company always believes it is best to achieve two simple goals in a market-pricing strategy—
- Stay on top of your senior and “hot” jobs by checking their pay market annually; and then
- Check the market for a different portion of your jobs each year to keep your skills and processes sharp, and help avoid market surprises—often learned the hard way.
If your goal is to attract and retain the best employees, this approach should help give you a foundation to do so.
Wilkening & Company had helped many clients market price the jobs within their organizations. In doing so, we have also employed a unique and reliable approach to developing cost-effective and meaningful job and compensation structures—from CEO to blue-collar nonexempt. Call or write and we would be glad to discuss how to best price and structure the jobs within your organization. (847) 823-5090.