To make the most of any compensation strategy you must first determine what you want to accomplish with market pricing. Collaborate with leaders to determine what plan will fit with your company’s business strategy and work culture and ask yourself:
- Are you focused on retaining talent? Updating salaries after an extended salary freeze? Boost morale?
- What drives value in your organization? Does your current pay strategy produce your desired results?
- What labor market do you compete in and how has it changed?
- What is your desired level of competitiveness?
- Where and how will you use incentives and for what employees?
Step 2: Assure Job Descriptions are Up-To-Date and Accurate
Accurate job descriptions are a vital element of your market pricing project during this time of economic recovery. To determine if your job descriptions are out of date, a job analysis questionnaire (JAQ) should be given to each employee. A JAQ will provide a detailed overview of the position’s responsibilities and how each job is currently performed, allowing for a truer comparison to the market. Aside from editing your job descriptions, you may also find that you must reassign responsibilities or train employees on their job’s duties. Although this is usually the most tedious step in the process, the information gathered will allow you to more accurately and competitively price your salaries.
Step 3: Determine Effective Markets
Firstly, you must identify your competitive market or markets. Your market can be based on industry, geography, number of employees, or other criteria and many organizations are finding that they must define multiple groups that correspond with various functions and levels in the organization. Next, select benchmarks that are common in position, represent a cross-section of the workforce, total a significant portion of the employee population, and include hot jobs which tend to move more quickly in the marketplace. And lastly, select your data source for your competitive markets.
Step 4: Develop Your Pay Structure (Grades & Ranges)
Once you’ve selected your data source, develop a pay structure by comparing your internal data gathered from your JAQs to the market and to your compensation philosophy. Assign benchmark jobs to the appropriate grades and ranges based on the market and then slot non-benchmark jobs based on internal equity and similarity to benchmarks. Then, you should use the data you’ve gathered to identify where you’ve been over paying and under paying in regards to the market. And lastly, decide how you will handle the discrepancies in pay. For those who have been under paid you may choose to grant a lump sum payment or give them more increases over a period of time until the pay levels out with the market. Resolving the issue of overpaid employees is a tougher situation but you may choose to freeze pay until the market catches up or give lower than normal increases. Either way, you must be aware of the message you are communicated to your workforce.
Step 5: Communicate Your Plan
And lastly, you should have a clear plan of how you will share your compensation decisions with your employees. Without a plan for effective communication, your market pricing project may fail if employees do not understand the changes. Determine the most effective method for communication. Will HR or managers be responsible for informing personnel? Will you conduct group seminars or one on one meetings? Also, don’t underestimate the influence of direct managers; employees tend to trust their manager above all others. So be sure managers are well versed on the new plan and can effectively communicate the benefits of the program to their staff.
Hopefully you will find these tips helpful when trying to overhaul your compensation plan to be more current with today’s economy.
Are you looking to revamp your compensation plan this year? What steps are you taking to assure that it will be a success? We’d love to hear from you so please leave us a comment below.