How to Determine Fair Employee Market-Based Pay
Just how much money should you be offering for a job? How come the same position in one location has different pay in another location?
These are common questions people encounter when looking at jobs and pay. This is because fair employee market-based pay depends on several factors. Learn how to determine fair market-based pay and find out how compensation consulting can help you determine this!
What is Fair Employee Market-Based Pay?
Fair market-based pay, also known as market-based compensation, is a method of determining pay for employees based on the going rate for similar jobs in the same industry and geographic area. This method helps ensure that organizations offer compensation packages that are competitive with other employers in the same labor market.
The process of determining fair market-based pay typically involves analyzing data from sources such as industry surveys, government data, and compensation consulting firms, then identifying the median or average pay for a specific job. The organization then uses this information to establish pay ranges for each job within the company.
Besides ensuring that organizations offer competitive compensation, fair employee market-based pay also ensures people are paid fairly and equitably in comparison to their peers in the same industry and job market. This can help to improve retention, motivation, and satisfaction. It also helps the company to be competitive in the labor market and attract the best talent.
Factors That Determine Fair Employee Market-Based Pay
Below are some of the main factors typically considered in determining fair employee market-based pay.
Job Duties and Responsibilities
More than a job title, the specific tasks and responsibilities of a particular job have a greater impact on the pay range for that position.
Job Level and Experience
The level or seniority of a position and the level of experience or tenure required for a job also matter. Typically, higher-level positions or those requiring more skills and experience command higher pay.
Industry and Location
Pay for the same position can vary a lot depending on the specific industry and geographic location of the organization. For example, positions in areas with a higher cost of living typically command higher pay than similar positions in lower-cost areas.
Supply and Demand
Like in any market, the laws of supply and demand hold great weight in determining the pay for a position. The higher the demand for a particular skill set, the higher pay organizations offer to attract and retain employees with that skill set.
Employer's Budget
A company's budget and its financial capability will impact the pay they offer employees and job candidates.
How Do You Determine Fair Employee Market-Based Pay?
There is no definite formula for determining fair employee market-based pay. How much weight each factor has on the pay an organization offers depends on the organization, their priorities, and their budget. However, there are key steps one can follow in calculating a fair market-based pay for employees.
1. Identify the Jobs to Be Evaluated
Determine which jobs within the organization will be evaluated for fair market-based pay. This may include all jobs or a selection of key positions.
2. Conduct Market Research
Collect data on pay rates for similar jobs in the same labor market. This may include data from industry surveys, government data, and compensation consulting firms.
3. Analyze the Data
Analyze market data to identify the median or average pay for each job. This will provide a benchmark for determining pay ranges for each job within the organization.
4. Establish Pay Ranges
Establish pay ranges for each job based on the data collected and analyzed. The pay ranges should be designed to be competitive with other employers in the same labor market, while still staying within a company's budget.
5. Review and Update
Regularly review and update the pay ranges to ensure that they remain competitive with the current labor market.
6. Communicate the Plan
Communicate the new pay structure and ranges to managers and employees, and provide training and resources to help them understand how the compensation plan works.
Get Help Determining Fair Employee Market-Based Pay For Your Organization
Several factors are considered when determining fair employee market-based pay. Hire professionals to help you evaluate the salaries you offer for positions in your company. This allows you to remain competitive and also makes your organization a great place to work.
At FutureSense, we help companies find strategies that help them achieve their business objectives. Whether you're looking to improve your compensation for your workers or you're looking to attract more talent to your organization, FutureSense offers compensation consulting services to help you with your compensation and pay concerns!
Learn more about our compensation consulting services by contacting FutureSense today!
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.