I am delighted to present today’s post. It’s been written by Arif Ender, a young C&B professional whom I believe has a brilliant career ahead of him. Interested ? Read his bio at the end of the article… and read this post, where he presents useful tips on job pricing. Here we are :
The dilemma of using a standard method in market pricing continues and seems like to continue. Although it depends mainly on the organization’s compensation strategy and several other factors, this article is to provide you especially the pro’s and con’s of using job pricing in a developing market as well as some general tips/tricks of how to conduct it.
First of all, I have to say that I’m a true fan of job pricing. I compare it to “seeking a needle in the haystack” and it would definitely make me happy when I find that needle. However, it doesn’t mean that I’m always happy using it. I’ll try to explain how this goes :
Let’s explain what exactly ‘job pricing’ means
Job pricing is comparing some of your (benchmark) jobs -if not all- with the same jobs in other organizations in a more detailed way. Most preferred is to have at least 80% of your benchmark jobs in the list. Generally, pricing is done via market surveys where you use generic job codes provided by the survey provider.
For example, you would find an “Electrical Engineer” with a unique code of 123.456.789 having quite a generic job description. If this job description matches with the one you have for your own “Electrical Engineer” job, you will get the exact competitive value of it. We, Rewards professionals, consider a 75% match of job description quite acceptable.
This is a very crucial step in the survey submission because this is the main link between internal and external data.
As said earlier, it really needs fine-tuning and advanced business acumen especially if you have a complex organization with varied roles. A very robust job evaluation system will definitely help you in the matching step.
The advantages of this approach are countless:
- It’s very advanced.
Even in terms of data analysis; you really need to know how to play with the data. - It’s to the point.
It shows you the exact value of your positions in the market; so it won’t reflect the deviation of the exact value from a combined/weighted average of similar jobs at the same value. It’s kind of a sub-level data. - Market-driven.
Although all companies tell that they’re competitive, using more top-level market data for groups of positions and ageing them most of the times without revisiting the pay structure makes this statement partly invalid. Here the job pricing comes, you’re always on top of it.
Although these points can give a peak at heartbeat of a Rewards professional, let’s also see the other side of the coin.
There are also some cons that need to be taken into consideration:
- You HAVE to have good market data.
I will touch on this topic in the following parts of this article. But it’s a must. Without having a good number of organizations and incumbents and changes in the participating organizations, it’s a no-go. Point. - Might come up with inconsistent results year on year.
Well, I’ve seen cases where a reference pay for a position decreased ~5%, where the general salary movement was around 5%.
How come? This also somehow relates to the point above, and there might be a lot of factors causing that. Theoretically, it’s of course possible. Practically, no way.
So, you always need to be sense-checking data. I dare you to communicate to an employee that their reference pay has decreased! - It needs a good communication of your compensation management.
As usual, employees love to question this with what they hear from their friends/ex-colleagues/partners etc.: “I don’t think this is what I would get when I go somewhere else in the market; I don’t think this is accurate.” – The inevitable question pops up quite often. You have to be well-trained on what you’re doing and its communication.
Well, in the light of the listed pros and cons above, I would like to give you some tips and tricks; if you want to continue with this market pricing approach.
Job pricing tips and tricks
- Sense-check the data. Generally ignored two columns are going to be your new friends:
- Number of organizations
- Number of observations
- Try to arrange a job-matching session with a consultant from the respective salary survey provider. This will help you save some time in the job matching session and they know what to use or not as a benchmark job.
If you don’t want it, make sure that you have the all the right tools and you understand of the survey job matching methodology as well.
If the job evaluation is applied properly, whether internal or external, the market pricing will give you the same hierarchy in the compensation figures most of the times… Don’t heavily rely but always take a look at it… - Follow your gut-feeling and don’t pin your faith on the survey data.
- Choose your market wisely. Different jobs in different markets (region, industry, group of companies etc.) can have significant difference in value and eventually price.
- Document well. As usual. It’s for your own sake.
Try to capture the data, ageing, market, survey provider, benchmark job, grade and the raw survey data.
What about the developing markets then?
I assume the cons and the above recommendations are mostly derived from them as an experience. However, there’s light at the end of the tunnel. The organizations start to understand that they have to follow the market data and they are creating a good data pool by starting to participating in surveys/peer forums/seminars etc.
Again, in most of the developing countries, it’s hard to get a good number of data so choose your approach wisely. Nobody will ever criticize you about the approach you take so even taking a mixed approach sometimes looks more reliable than vice versa. The only thing that matters is that you should be internally equitable, externally competitive and financially controlling.
Related posts :
- From job evaluation to salary scales : the basics
- What is your approach to aging ?
- Updating salary ranges… or not ?
Author bio : Arif Ender is a certified Rewards professional with more than 7 years experience. He has worked in some of the global or industry leading organizations with local to regional scope.
He has a Mech. Engineering degree followed by a Master of Science in Engineering and Technology Management.
He used to be a part-time developer in college years and that relates his expertise and interest in system development and implementation to C&B or even generally in Human Resources field.
He runs his personal blog and loves football and running.
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