In today’s ever-changing compensation landscape, having a multidimensional approach to setting pay ranges is not just recommended—it’s imperative. Drawing on traditional surveys, current job postings, and internal data can provide you with a nuanced, accurate pay range for any role. Here’s how to do it right.
Step 1: Identify All Roles, Prioritize Key Ones—It’s More Than Just Importance
Certainly, every role within an organization plays a part in its success. However, it’s crucial to dig deeper and prioritize roles not just based on their obvious importance, but also based on factors like “time-to-fill” and bench strength. This comprehensive understanding will set the tone for your entire compensation strategy.
Time-to-Fill: The Hidden Cost
Some roles are harder to fill than others, either because of unique skill sets, specialized experience, or market demand. The longer a key role remains vacant, the more it costs your organization—not just in recruiting expenses, but in lost productivity and potential business impacts. Being aware of the time-to-fill for crucial roles allows you to develop a pay range that is competitive enough to attract top talent quickly.
Bench Strength: A Risk Mitigation Strategy
Bench strength refers to the capabilities and readiness of potential successors in key roles. If someone in a pivotal role leaves, do you have a ready successor who can take over with minimal disruption? Having strong bench strength can influence how aggressively you need to set pay ranges for specific roles. If you have a wealth of talent ready to step up, you might have more flexibility in your pay strategy for that role. Conversely, if bench strength is low, you might opt for a more aggressive pay range to attract and retain top talent.
The Why: Strategic Resource Allocation
Understanding these key roles and their associated factors allows for more effective allocation of resources. You’re not just being competitive; you’re being competitive where it counts. It ensures that you’re not just throwing money at a problem, but strategically investing in solutions. This approach also informs other talent management strategies, such as development programs, which can build your internal talent pool and reduce time-to-fill for key roles.
By adding these dimensions to your role identification and prioritization process, you’re not just setting the stage for a targeted compensation strategy—you’re laying the groundwork for a more agile, resilient, and effective organization.
Step 2: Choose the Right Market Benchmark Surveys—It’s Not Just About Numbers, It’s About Trust and Precision
Choosing the right market benchmark surveys is not an activity to gloss over; it’s a decision that shapes the credibility and reliability of your entire compensation strategy. And it’s not just about the numbers—the data analysis techniques used, the credibility with stakeholders, and affordability are all critical elements that can make or break the success of your pay ranges.
The Power of Data Analysis Techniques
Professional benchmark surveys don’t just aggregate data; they apply rigorous data analysis techniques like regression analysis, quartile calculations, and peer group comparisons. These methods offer a level of accuracy and reliability that casual or ad-hoc surveys can’t match. The precision in these results enables you to set pay ranges that truly reflect the market, giving you a competitive edge in talent attraction and retention.
Credibility: The Cornerstone of Trust
Let’s face it, the results of your study will face scrutiny—from senior leadership to individual employees. Credibility is paramount. A survey’s reputation, sample size, and the organizations contributing data are all aspects that your stakeholders will examine. Ensuring that the survey is credible to both the sponsors of the study and the broader audience interested in its results can significantly bolster the acceptance and legitimacy of your compensation strategy.
Affordability: The Practical Aspect
Quality often comes at a price. However, a more expensive survey doesn’t always mean it’s the best fit for your organization. The chosen survey must be not just credible and comprehensive but also affordable within the scope of your budget. An overpriced survey that exhausts your resources will defeat its purpose by impacting the affordability of the pay ranges you’re trying to set.
Choosing the right market benchmark surveys is an exercise in balance and discernment. It sets the stage for a compensation strategy that is both empirically robust and trusted by your stakeholders.
Step 3: Analyze Current Employee Pay—Because It’s More Than Just Numbers, It’s Lives
When you’re setting new pay ranges, a detailed internal review of current employee pay isn’t just a step in the process; it’s a moral obligation. Why? Because pay isn’t just a figure; it’s a factor that significantly impacts the lives of your employees and, by extension, their families.
The Human Element: Lives, Not Just Livelihoods
Pay affects more than just the ability to pay bills. It influences the quality of life, provides opportunities for families, and can be a source of pride—or frustration. Setting pay ranges that are misaligned with the value of the work can lead to demotivation, causing both a productivity dip and, worst-case scenario, increased turnover. Turnover isn’t just costly for the business; it’s disruptive for families who depend on that income.
The Domino Effect: Motivation and Turnover
Improperly set pay doesn’t just affect your current fiscal quarter; it has long-term ramifications. Employees quickly catch on if they feel underpaid, and this impacts not just their productivity but their overall morale. Low morale leads to decreased engagement, which leads to increased turnover. And turnover is expensive—not just in recruitment costs but in the lost institutional knowledge and disruption in team dynamics.
Financial Viability: Balancing Act
It’s easy to say we should pay everyone more, but the organization needs to be able to afford these increases, both now and in the future. Understanding your current employee pay gives you the full picture of your financial capacity to make necessary adjustments. This is where your prior analysis from credible market benchmark surveys comes into play, allowing you to find a balance between market-competitive pay and what’s financially sustainable.
When it comes to setting pay ranges, remember that you’re affecting real lives. Doing it right requires not just market data and financial analysis, but a deep sense of responsibility and empathy for the people who make your organization what it is.
Step 4: Gather Targeted Online Job Posting Data—Easier Than Ever With Integrated Solutions
In today’s fast-paced market, the availability of immediate, accurate data is critical. When gathering data from online job postings, remember, not all data is equal.
Go Straight to the Source: Competitors and Geography
Targeting job postings from your direct competitors in your specific hiring regions gives you an edge. This is because these postings most accurately reflect the market conditions you’re operating in. By ensuring the roles you’re looking at align with your job descriptions in terms of job responsibilities and the level of work, you’re not just making ballpark estimates—you’re aligning your pay ranges with real-world, current market rates.
Technology as an Enabler: The Payfederate Advantage
Now, manually searching through competitors’ websites and various job portals can be a tedious process, but it doesn’t have to be. This is where tools like Payfederate come into play. Payfederate not only aggregates this data but also integrates it directly into your user interface. The beauty of this is that it streamlines your process, saving you not just time but also ensuring greater accuracy. Imagine having a dashboard where market data flows in real-time, ready for you to analyze and apply.
Why This Matters: Ease and Accuracy
The ease with which you can pull in targeted online job posting data directly into your analysis means you’re more likely to do it—and to do it more often. Regularly updated data leads to more accurate pay ranges and, ultimately, a more competitive stance in the market.
Incorporating online job posting data is no longer a nice-to-have; it’s a must-have. With platforms like Payfederate, this task becomes more manageable and efficient, allowing you to focus on strategy rather than data collection.
Step 5: Synthesize the Data and Engage Leadership
Once you’ve gathered all your data—market surveys, online job postings, and current internal pay ranges—it’s time to synthesize. This isn’t just a number-crunching exercise; it’s an opportunity to identify trends, gaps, or outliers that could influence your compensation strategy.
Now, here’s where the process takes on another layer of complexity and importance: senior leadership review. At this point, it’s crucial to involve key stakeholders, particularly your Chief People Officer and Finance team, in examining the findings.
Why is their review so vital?
The Chief People Officer
The CPO’s lens is geared toward organizational culture, talent management, and employee engagement. They can provide invaluable insights into how the proposed pay ranges align with broader talent strategies and objectives. Are the ranges conducive to attracting top talent? Do they contribute to employee satisfaction and engagement? These questions are central to the CPO’s role in safeguarding the organization’s most valuable asset—its people.
The Finance Team
Real-Life Example: A Pivotal Lesson from My Early Days at McKessonImagine the bustling warehouse of McKesson, a company at the nexus of the healthcare supply chain. Material Handlers are the unsung heroes here, ensuring that life-saving medications and supplies get from point A to point B. When I first joined McKesson early in my career, it quickly became apparent that something was amiss. Turnover rates for Material Handlers were soaring, and morale was low.We rolled up our sleeves and dived into the data. By using multiple data sources like market surveys, internal pay structures, and localized job postings, we crafted a multidimensional picture of what the compensation for Material Handlers should look like. But the process didn’t stop at mere numbers; we engaged in candid conversations with employees and supervisors to understand the nuances behind the work. In essence, we didn’t just want to “fix” the pay; we aimed to value it.When we implemented the new pay ranges, the impact was immediate and profound. Turnover rates plummeted, and equally important, a new sense of organizational pride emanated through the ranks. Our Material Handlers began to see themselves as valued contributors to a larger mission, not just cogs in a machine. The company saved not just on turnover costs but gained in productivity and employee satisfaction. It was a win-win, one that underlined the value of a comprehensive, thoughtful approach to compensation.
Financial sustainability is the linchpin of any compensation strategy. Your Finance team can offer a detailed analysis of how the proposed pay ranges fit within the organization’s budget and long-term financial planning. This goes beyond mere affordability; it’s about understanding the value generated by each role and ensuring that compensation aligns with that value.
Together, these senior leaders can ensure that your compensation strategy is not only competitive and fair but also financially viable and aligned with organizational objectives. Their collective input can illuminate any blind spots, offer alternative solutions, and ultimately help to refine your approach. This step helps to align everyone on a compensation plan that is both sustainable and effective, which is pivotal to organizational success.
Step 6: Craft Pay Structures and Ranges – A Balancing Act of Precision and Practicality
Creating pay ranges for individual roles is the next logical progression after data synthesis and leadership review. But we’re not just throwing darts at a board here. The concept of a pay structure plays a vital role in this step. What exactly is a pay structure? Think of it as a family of roles whose market rates of pay often move in sync, like a flock of birds changing directions in the sky.
Importance of Correlation
When crafting pay structures, pay close attention to the correlation between rates for roles within the same structure. In a well-designed pay structure, these rates should move together closely. Why is this important? If you nail this aspect, you extend the relevance and sustainability of your pay structure, as well as minimize the frequency of required updates. The upside is significant—you save time and resources while maintaining a competitive edge in the talent market.
Affordability and Complexity
Remember, more structures aren’t always better. Each additional pay structure adds a layer of administrative complexity. So, there’s an optimal balance to strike. Ensure that your approach is as precise as necessary but as simple as possible. Overcomplicating structures can dilute the focus from what matters most—rewarding people appropriately for their contribution and potential.
One of the underappreciated aspects of a good pay structure is administrative ease. If the roles within a pay structure have highly correlated pay rates, fewer adjustments are needed over time. This keeps your HR and Finance teams focused on strategic imperatives, rather than constantly revising pay ranges.
Overall, crafting pay structures and ranges is a nuanced process that requires careful thought and alignment. It’s not just about setting figures; it’s about building a flexible yet robust system that stands the test of time while serving the needs of both the organization and its people.
Step 7: Continual Monitoring and Alignment—Why “Set and Forget” is a Fallacy
The Inevitable Drift: Markets in Motion
One of the truisms in compensation planning is that pay markets are never static; they are in a constant state of flux. From the minute your analysis is complete, the data begins to drift, becoming gradually less
aligned with the market. This drift isn’t just a data issue—it directly affects your competitiveness in attracting and retaining talent.
The Importance of Timely Data: A Strategic Imperative
In a rapidly shifting market, yesterday’s competitive pay could be today’s turnover driver. When we understand the criticality of having real-time, or near real-time data, it’s clear that regular monitoring isn’t just a best practice—it’s a strategic imperative. An outdated pay range can affect everything from employee morale to the bottom line. Therefore, the frequency of your pay range assessments should be dictated by both market conditions and the internal demands of your organization.
Budgeting and Scheduling: Planning Ahead
This leads us to an often-overlooked aspect: budgeting and scheduling for these updates. Ensuring that you have allocated both the financial and time resources for these assessments is critical. For dynamic markets, you might need quarterly or even monthly adjustments, while more stable markets might be well-served with annual or biennial reviews.
Why This Matters: The Sum of its Parts
The sustainability of your compensation strategy depends on its components staying current. An outdated pay range is like an expired medication—it won’t serve its purpose and could even be harmful. Regular updates should be a line item in your budget, and a recurring event in your HR calendar.
Creating a robust pay range involves multiple facets of data and continuous alignment with organizational philosophy. As you delve into this process, remember, the best compensation strategy is one that never stops evolving.
Whether you’re just starting out or looking to refine your approach, incorporating these steps into your strategy will ensure a more comprehensive, equitable, and effective compensation model.