Written by Megan Nail, SVP, Total Rewards Practice. If you're looking to make some adjustments to your total rewards strategies to mitigate potential talent challenges, please contact Talent Solutions.
What is the market compensation rate for a position? While this may seem like a straightforward question, it's not that easy.
There is no magic number that reflects the market rate. What “market” is will vary according to the data source you use. Market is a wide range of pay that can only be narrowed through meaningful consideration of the strategic objectives your organization has and the talent you need to drive results — all while supporting the organization’s mission, vision and values.
However, there is a number that’s right for you. To find it, you will need to assess multiple valid compensation data sources in the context of your pay philosophy.
Compensation Data Sources
The more sources you use for market compensation data, the better. This is a sound practice because it allows you to understand and offset variation between sources. Why do survey sources differ? Survey data differences can be attributed to factors such as:
- The profile and characteristics of the participants.
- When the data was collected.
- The ability of the participants to accurately match their unique jobs to the survey jobs. If a job is matched incorrectly, it will skew the data.
You will find even more inconsistency in results if you are using crowdsourced or self-reported data. This is information found on websites such as Glassdoor or LinkedIn, which is based on what individual people report as their salaries. We recommend avoiding this data because it is:
- Inconsistent and fragmented.
- Unverified and not reflective of the entire population.
- Unable to be customized for your organization type.
You can access credible benchmark data through published, third-party salary sources. You can either purchase these surveys on your own or partner with a compensation consultant like NFP’s Talent Solutions, where we provide multiple data sources and the expertise to analyze them for your organization's specific characteristics. The best compensation data sources allow you to customize it based on factors such as your industry, revenue, operating budget and employee size.
Compensation Philosophy
Once you have the data, you'll need to decide how to use it. You should always link your compensation decisions to your compensation philosophy.
Remember that not all organizations choose to or can afford the market median, while others may choose to pay above market. You also need to consider your other compensation programs (such as equity and incentive opportunities), as well as other benefits in your total rewards package.
Your compensation philosophy may be a high-level strategy or detailed with processes and procedures. Regardless of the approach you take, this is an excellent item to share with managers and employees so they understand how decisions are made. It gives a framework, even if you do not have or wish to share formal compensation ranges.
Two of the biggest keys to success in a compensation project are using multiple, credible data sources and evaluating them in the context of your unique compensation philosophy. The compensation strategy forms the core of your compensation program and aligns your compensation resources to accomplish your business goals.
