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Being Competitive With Pay - Linking to the Market

Aug 17, 2007
Having a workable salary system is important and there are many aspects to designing and implementing it effectively. After the fundamentals have been covered, defining jobs, evaluating them in terms of value to the organization and building a structure, it is time to determine the levels of payment for each position.

As a result of the job evaluation stage we have grades or groups of jobs we decided were of similar value to the organization. It is now necessary to look at the market and establish what financial value this might be.

Sources of salary data
There are a number of ways of obtaining salary data but it is important to make sure you are matching with similar jobs and with similar sized organizations. The samples also have to be of a reasonable size to ensure the validity of the data.

Purchasing a survey
There are several surveys available from consulting organizations that can be purchased. If you also contribute to them it often reduces the costs. Checking the size of the survey, the types of jobs matched and the type of contributors is important.

Employer or professional organizations
Surveys are often conducted among members by these organizations and these can be particularly good for industry specific or specialist positions.

Commissioning a survey
You can always conduct your own survey or have a third party do it for you. A third party often gets a better response from those invited to take part as they may provide a level of confidentiality for contributors. Involving local businesses or other organizations in your industry can be very useful, mutually beneficial and can be done every year or two to ensure your rewards are not out of line with the competition.

Informal networks
These can be very useful but you must be careful to ask the right questions. Is the job really similar or is it just the job title? Is the amount base pay or total package? Are there other benefits or incentives paid? These are often suitable for wages or hourly paid jobs but with more complex packages, care needs to taken.

Job advertisements
Looking at job advertisements may be helpful but can often be misleading. Again, for wages level jobs this may be adequate but for higher levels of pay, packages advertised may not be the ones that are finally paid.

Also, one needs to know what is included in the package and how it was costed. A $200K package may be $80,000 base plus car plus superannuation plus incentive. The car may be costed in a number of ways, the super may have restrictions on it and the incentive may be very difficult to earn!

Keep in mind that job advertisements are for people changing jobs. The salaries shown are not necessarily that of the general market - people who are remaining in their jobs.

Using the data

Salary strategy
Before starting work on the salary structure an idea of the strategy you are going to use is important. This will depend on a number of factors:
* What type of business are you in?
* How difficult it is to attract good people?
* Do you need the best people?
* How attractive is your business to potential employees?
* How much can you afford?
* At what stage of the business cycle is your organization at e.g. growth, mature, decline

Most organizations aim to be in the middle of the market, that is, the 50th percentile where half the market would pay higher and half lower. However there are many variations on this which may include some job grades in different parts of the market or using some variable pay in addition to the fixed rate.

The calculations
Once job matches have been made and the data obtained it is necessary to group and analyse the data for the jobs in each grade, looking at how each grade relates to the others and calculating a salary range for each grade. These ranges will allow individuals within each grade to be rewarded competitively and in line with their performance.

Once this structure has been developed we have our internal relativities and market established and now need to turn to the actual salaries being paid to existing people within the organization.

By plotting their actual salaries against our ideal structure we can see who falls within the ranges and who falls outside. Decisions then need to be made as to what steps to take.

They are either going to be within the range, over it, ie overpaid, or under it, ie underpaid. If there is a good reason for them being over or under that's fine. If not, then some action needs to be taken. Those over the range can be slowly brought back into line by holding their salary at the same level over a period as the ranges are reviewed each year.

Those underpaid can be put on a program of accelerated increases linked to performance objectives. The possible scenarios are endless, so some creativity and fairness needs to be applied but being clear on your end objectives is absolutely necessary.

Sharing with staff your objectives for the overall salary system is an important step in setting expectations and managing the process in a positive way.

The business benefits
By having this systematic link to the market there will be no need to make ad hoc and reactive decisions on salaries when recruiting or when individual employees raise pay issues. You will be able to refer to a salary range that you know is competitive, internally equitable and is applicable in a consistent way across your organization.
About the Author
Paul Phillips is a Director of Horizon Management Group; a specialist human resource management consulting firm. He has over 30 years experience in HR and, while based in Australia, has worked in a number of overseas locations. www.horizonmg.com
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