Market Pricing Fundamentals

Market Pricing Fundamentals

Market pricing, or market matching, refers to the process of analyzing external market data (usually from salary surveys) to establish the competitive rate for a job.

When a Compensation Practitioner goes through an exercise to “Market Price a Job”, they are evaluating market data from their salary surveys to find a comparable “match” to their Organization’s job. The act of matching the market data to the job is what we refer to as market pricing or market matching a job.

The image, below, is a visualization of 3 salary survey matches blended together to determine the market composite value of the internal job.

Who to Include

Making Compensation Collaborative

In our research and experience, Organizations that manage compensation through a collaborative approach have better relationships with the business units they support. In these Organizations, Compensation Partners are frequently viewed as valued business partners by their stakeholders.

Identifying the Proper Stakeholders

Choosing who to include during the process of market pricing a job will vary based on the type of review and the Organization’ s culture. For example, ad-hoc job reviews may differ than a full job family review and may have fewer stakeholders involved. Senior leadership roles will almost certainly be scrutinized more heavily than roles deemed less critical to the Organization and are likely to be reviewed by existing senior leaders within the business. Stakeholders that may be considered include:

• HR Business Partners: have an broad view of the organization and the role(s) being evaluated and can provide unbiased insight to the job evaluation process.
• Line Managers: have the most detailed view of the job being evaluated, but may lack the broader view of the business or have biases towards their jobs.
• Functional Leaders: have a high-level overview of how the job being evaluated fits into the grander scheme of the organization.

Finding the Right Matches

The market matches should must be based on job content, rather than job title. Job descriptions in salary surveys are designed to be used by thousands of organizations in various industries and geographies and are likely to be more generic than other examples of job descriptions.

An easy way to find the right survey job match is to focus on the ‘spirit’ of the job’s description, rather than the exact wording. If you have stakeholders disputing the matches you’ve chosen, this is also an effective phrase to get buy-in.

In the event that the appropriate match is found, but there is a dispute regarding the level, please refer to this article, which provides tips about explaining job levels: https://comptool.com/the-best-way-to-explain-job-levels/

How Many Matches?

The number of matches selected may depend on the level of the job and the Organization’s access to salary surveys. According to a 2015 survey conducted by World at Work, 85% of organizations target using 2 or more salary surveys to market price analysis for a job. Using more than one survey will confirm the market rate and control for future volatility inherent in salary surveys.

The table, below, summarizes how many survey matches are typically used, based on the level of job:

Source: Job Evaluation and Market Pricing Practices. (2015, November). Retrieved from https://www.worldatwork.org/docs/research-and-surveys/survey-brief-job-evaluation-and-market-pricing-2015.pdf

Choosing the Right Survey Scope

The salary survey scope that an Organization chooses can dramatically impact the market value of a job. Many organizations will choose to use one of the following approaches to selecting a salary survey scope:

Using National or Total Sample Data

Using National Data or the Total Sample data cut with a geographic differential provides a greater sample size and reduces year-over-year volatility, compared to regional or industry based market data, however, it may not provide the level of granularity that may be desired.

Selecting market data from a specific geographic region or an industry

Market data from a specific geography may provide a more focused view of the market data, but the smaller sample sizes can lessen confidence of the data and create greater volatility in year-over-year salary surveys.

Each of these approaches have various pros and cons that must be weighted and decided upon to ensure the organization is able to attract, retain and engage employees.

Assigning the Proper Pay Range

One of the more common mistakes many Compensation Practitioners make is relying too heavily on market data and disregarding other data points such as recruiting data and turn-over data. These data points, coupled with the market data, can help to paint the full picture of the competitive pay range required to attract, retain and engage employees.

In addition to data points mentioned above, internal equity of jobs must also be considered to ensure that both career pathing is maintained and that the hierarchy of other jobs is maintained.

For more information about creating a pay range, check out this article

How Does the Compensation Tool Help?

The Compensation Tool was designed to make the Compensation Practitioner’s job easier by streamlining the process of finding market data and creating market composites.

Our platform was developed by a Compensation Practitioner while they were a Compensation Practitioner. The process of finding suitable market matches was designed to be quick and easy, while providing the right amount of information, with a large volume of advanced reports that enable the Compensation Practitioner to ensure both fair and competitive pay.

Interested in how we might be able to improve your processes: Set up a demo!