Market Pricing Basics
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Market Pricing Basics

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As the economy rebounds, your top performers will be faced with new opportunities and your top candidates will have many offers. Reliable data on pay levels is foundational to your ability to attract ...

As the economy rebounds, your top performers will be faced with new opportunities and your top candidates will have many offers. Reliable data on pay levels is foundational to your ability to attract and retain talent. Are you effectively pricing key positions in your organization? To ensure competitive pay levels, it is important to market price properly.

Join us as IBM’s Kim Taylor, director of compensation, discusses the fundamentals of building and using market data effectively. Topics covered in this session include:

An introduction to market pricing.
The 10 steps to successful market pricing.
Determining fair pay.
Why we need to use surveys.
Effective job matching.

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Market Pricing Basics Market Pricing Basics Presentation Transcript

  • #WFwebinar Speaker: Kim Taylor, CCP, GRP Director of Compensation IBM Moderator: Frank Kalman Senior Editor Workforce magazine Market Pricing Basics
  • #WFwebinar Tools You Can Use Audio Control – A dial in number will not be provided. – The audio will come through your computer speakers or headphones. – Check the internal volume on your computer, external speakers or headsets.
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  • #WFwebinar Frequently Asked Questions 1. May I receive a copy of the slides? YES! You will receive a link to today’s recording, along with a link to download the slides shortly after the presentation concludes. 2. May I review the webinar recording at a later time? YES! You may log in again. A link that will be provided in an email after the event to review the presentation on- demand.
  • #WFwebinar Frank Kalman Senior Editor Workforce magazine Market Pricing Basics
  • #WFwebinar Kim Taylor, CCP, GRP Director of Compensation IBM Market Pricing Basics
  • © 2014 IBM Corporation Market Pricing Basics Kimberly Taylor – Program Manager, Compensation and Data Operations
  • © 2014 IBM Corporation Agenda Overview of market pricing Market pricing – ten steps Consumers’ guide to salary surveys Combining data from several surveys Questions 9 Market Pricing Basics
  • © 2014 IBM Corporation Overview of market pricing  What is it? - Formal process for determining the external value of jobs  What is it used for? - Establishing wage and salary structures and pay rates that are market sensitive - Tracking movement of the market over time - Providing a logic check for internal equity - Establishing fair and objective rates of pay that can be applied across the organization 10 Market Pricing Basics
  • © 2014 IBM Corporation Determining relative value Job Analysis Job Evaluation Job Documentation Market Data Emphasis Job Content Emphasis Data Collection and Analysis Job Content Evaluation Data Collection and Analysis Job Content Evaluation Reconciliation of internal and External Considerations Job Worth Hierarchy Base Pay Structure Source: WorldatWork 11 Market Pricing Basics
  • © 2014 IBM Corporation Overview of market pricing Market Spectrum Market Aware Market Focused Market Driven Internal focus Internal/external focus External focus Reactive use of market data Evolving use of market data Proactive use of market data Set of benchmarks; constant survey portfolio Periodic review of benchmarks and surveys Regular review/assessment of benchmarks and surveys Process "owned" by corporate compensation Shared "ownership" between compensation and line Shared "ownership" between compensation and line Training for corporate compensation only Limited management training/communication Broad management training 5 - 10 surveys 10 - 25 surveys 25 - 50 surveys 15% to 25% of jobs are market-priced 30% to 40% of jobs are market- priced Over 50% of jobs are market-priced Adapted from Bentson & Hand: “Getting the Biggest Bang for Your Survey Buck” 12 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 1. Analyze your organization’s jobs 2. Develop brief job descriptions 3. Identify benchmark jobs 4. Select salary surveys 5. Identify appropriate job matches 6. Choose appropriate market scopes and determine market value 7. Adjust survey data 8. Age survey data 9. Slot non-benchmark jobs 10. Analyze variance 13 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 1. Analyze your organization’s jobs to determine:  Main internal function and responsibilities  Knowledge/Skills/Abilities required  Organizational level and reporting relationship(s) 2. Develop a brief job summary  “Capsule” job descriptions facilitate survey matching  Avoid writing descriptions with an incumbent or candidate in mind 14 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 3. Identify benchmark jobs  Common jobs within a recruiting market  Typically found in many types of organizations (e.g. – accountant)  Can be industry-based (e.g. nurse) 4. Select survey or surveys  Geographic-based (e.g. Chicago metro area)  Functionally-based (e.g. accounting positions)  Industry-based (e.g. healthcare) 15 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 5. Identify appropriate matches between your organization’s jobs and survey jobs.  Match jobs based on content, not title - Don’t match incumbents  Solicit feedback on your matches  Match at least 70% of your company job  Consider combining multiple survey benchmarks to match hybrid jobs - Two is ideal, three in certain circumstances 16 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps Dos and Don'ts of Job Matching Do Don't  Do use all available information including job descriptions, organization charts, etc.  Don't rush this process. It may be time-consuming, but it's necessary.  Do price as many levels as possible within a job family  Don't assume other organizations are mirror images of yours.  Do think creatively. For example, other organizations might not use the same titles your organization uses.  Don't rely on job title alone during the matching process -- a recipe for disaster. Adapted from Bentson & Hand: “Getting the Biggest Bang for Your Survey Buck” 17 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 6. Determine market value at pay points corresponding to:  The appropriate market scope  Your organization’s compensation philosophy - Mean (Average) • Organization-Weighted • Employee-Weighted - Median - Quartiles 18 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 7. Adjust data based on credibility of the source and degree of match  Weigh survey data  Premiums and discounts 8. Age the survey data based on organization’s market timing and methodology  Lead  Lag  Lead/Lag 19 Market Pricing Basics
  • © 2014 IBM Corporation Market pricing – 10 steps 9. Slot non-benchmark jobs based on comparable worth  Organization job may fall between two survey jobs or require knowledge/skills/abilities that are similar to another benchmark job 10. Analyze variance versus current practices  What is the gap between what your organization currently pays and where it wants to be in the market? 20 Market Pricing Basics
  • © 2014 IBM Corporation Consumers’ guide to salary surveys  Evaluate survey quality - How old is the survey? - Who conducted the survey? - How many organizations/incumbents are represented? - How often is the survey conducted? - How stable is the participant base? - How is the data collected? • Aggregate method vs. Incumbent method 21 Market Pricing Basics
  • © 2014 IBM Corporation  Evaluate survey quality (continued) - Does the survey comply with Safe Harbor Guidelines issued by U.S. Dept. of Justice & U.S. Federal Trade Commission? • Survey must be conducted by a third party • Data must be at least 3 months old • Each disseminated statistic must have five companies reporting data • No individual company’s information represents more than 25% of each disseminated statistic 22 Consumers’ guide to salary surveys Market Pricing Basics
  • © 2014 IBM Corporation  Evaluate survey quality (continued) - Surveys to avoid: • Surveys that report data in violation of the “survey safe harbor guidelines” • Surveys with wild fluctuation in participation • Telephone or e-mail surveys conducted among compensation or HR “friends and colleagues” • Published surveys that display a page of data for each participant • Published surveys that display lines of data for each participant 23 Consumers’ guide to salary surveys Market Pricing Basics
  • © 2014 IBM Corporation  Evaluate survey relevance - Does the survey include data on the right jobs? • Are survey jobs comparable to my organization’s jobs? - Does the survey include data from the right companies? • Are survey participants my organization’s true labor competitors? 24 Consumers’ guide to salary surveys Market Pricing Basics
  • © 2014 IBM Corporation  Understand survey compensation data elements - Base Salary - Bonus/Short-Term Incentive • Target vs. Actual - Total Cash Compensation - Salary Range • Minimum, Midpoint, Maximum - Incentive Eligibility - Long-Term Incentives • Cash, Stock 25 Consumers’ guide to salary surveys Market Pricing Basics
  • © 2014 IBM Corporation Sample survey data 26 Consumers’ guide to salary surveys Market Pricing Basics
  • © 2014 IBM Corporation  How many surveys to use? - Is one enough? • Robust survey • Only option - Does it vary by job? • Executives • Rank and file employees - Is there a such thing as too much data? 27 Consumers’ guide to salary surveys Market Pricing Basics
  • © 2014 IBM Corporation Combining data from several surveys A data example Data Source 1 Scope Base Salary Job Title Effective Date Industry Size Location 50th Percentile Accounting Lead May 1, 2013 All Industries 200-300 FTEs Florida $53.1 Data Source 2 Scope Base Salary Job Title Effective Date Industry Size Location 50th Percentile Senior Accountant January 1, 2014 Mfg Durable 200-300 FTEs Florida $53.9 Composite Base Salary Job Title Effective Date Aging Factor Premium/Discount Weight 50th Percentile Accounting Lead May 1, 2013 3% 5% 1 $57.4 Senior Accountant January 1, 2014 3% 0% 2 $54.4 May 1, 2014 Composite $55.4 28 Market Pricing Basics
  • © 2014 IBM Corporation What we covered  What market pricing is and what it can be used for  10 steps to effective market pricing  Types of salary surveys available, and how to choose  Combining data from several surveys 29 Market Pricing Basics
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