15 Jan Using Market Data to Create Salary Ranges
One of the most important components of an effective compensation planning process is gathering and using market data. By analyzing external pay data, you can compare your own pay policies to the marketplace to see how your compensation plan lines up. There are a few steps to the process, which we’ve outlined below.
- Participate in credible salary surveys.
A good rule of thumb to follow is to participate in at least three to four market surveys. This will allow you to get a full – but not overwhelming – picture of market pay.
- Age the survey data to a future date.
Most organizations don’t implement the survey findings into their planning cycle right away. If your planning cycle doesn’t begin for another few months, be sure to age date it accordingly.
- Set salary structures by relying on rates paid in the external marketplace.
Create a graph or similar visual to map out data points from the different surveys, illustrating where you’re paying versus the marketplace.
Another factor to bear in mind when creating salary ranges is your pay philosophy. There are four main approaches organizations take towards compensation:
- Paying with the competition
- Leading in pay philosophy and policy
- Lagging the marketplace
- Using variable pay
The majority of organizations aim to pay in line with the marketplace, though some use higher pay to attract and retain employees. Others still may pay behind the market, but this approach is usually used in concert with a separate strategic element of total compensation, such as a very strong benefits program. Lastly, some organizations use short-term incentive plans as a way to match or lead the market through total cash.
No matter which pay philosophy your organization maintains, using market data is an integral component to developing a fair and equitable compensation plan. By comparing current salaries within your organization to external data either annually or every other year, you can ensure you’re staying competitive while also incentivizing high performance.
HRsoft is the industry leader for compensation planning and total rewards software. Our cloud based SaaS solutions combine best of breed features with an intuitive, easy-to-use interface that simplifies and automates the entire compensation process helping companies save time and their best employees.