Authored By: HR Performance on 11/1/2017
The Compease Team adjusts salary range structures each year to reflect market movement. The Team started with financial institutions, which was released this week, and will then move on to other industries such as healthcare, manufacturing, and many others. When clients log into the Compease system, they see a message which lets them know that the update is available. If the update is accepted, the 2018 data will be loaded into the system, automatically moving the system into the 2018 range year. It’s that simple!
What goes into the extensive analysis we do to keep Compease up to date?
First, it’s important to note that salary surveys usually will only have data for about one third of the positions in any organization, and as you may have discovered, different salary surveys often provide conflicting or widely varying data. Also, equally as critical, is the closeness of the match of the job’s being surveyed. The same job title can be very different in job content, level of responsibility, and complexity between different industries or organization sizes. Most surveys attempt to limit the variance in job content but do not generally deal effectively with differences in level of responsibility and complexity.
Who responds to a survey can also influence the results. The size, industry and location of the organization can dramatically influence the data being used for comparison. It is critical that data for similar size organizations are used when developing the pay ranges for the middle managers and executives. It is also important to use national data in the collection process so you have a consistent reference point to compare to when applying adjustments to reflect the local or regional market levels.
If you have completed a salary survey you know how difficult they can be to complete. Many people simply resort to reporting salaries based on the job title without matching the job content, which can be misleading and cause significant variability in the results. To address this problem, we index salary ranges to the market using only benchmark jobs; jobs that tend to be consistent within the industry and across multiple surveys.
The salary rate established for each benchmark job is our best estimate of the market rate for these jobs. We generally discourage organizations from making any major changes to benchmark job evaluations unless the job is clearly different in duties and responsibilities.
The Compease benchmark market pay line is developed by the regression of the benchmark market rates and the benchmark compensable factor point totals. This base pay line is then divided into salary grades that will be used to assign a consensus market rate to jobs with comparable compensable factor point totals. Thus, the compensable factor evaluation process allows you to place benchmark and non-benchmark jobs along the benchmark pay line at the point that reflects the appropriate market price for the duties and responsibilities that you have assigned during the evaluation process. The resulting salary ranges are a reflection of industry and local/regional labor market pay practices and your evaluation of the jobs within your organization.
If the evaluated grade and salary range for a non-benchmark job appear to be in conflict with market conditions (supply and demand or hot skills), you may need to re-evaluate the job or, as we have often done with technology jobs, override the grade to match the appropriate market level.
Each year we collect salary data for each benchmark job from a variety of national survey sources to establish a weighted average national salary for each benchmark job. The weighted average national salary data is then adjusted to reflect geographic wage differentials for the area in which you recruit your employees, whether it is local, regional or national. Geographic differentials are developed for hundreds of locations throughout the United States by compiling and comparing salary survey data from hundreds of local area surveys conducted by government, industry, trade associations and private business. Geographic wage differentials are used by all major U.S. corporations to establish both wage and cost-of-living standards for their branch locations.
We attempt to establish salary ranges that are a fair reflection of the market and industry in which you compete. We do it by using only surveys and jobs that are consistent within your industry and have a reliable number of responses. Your range structure is adjusted each year to reflect the actual market movement that is identified by analyzing the benchmark market survey data. This range structure is intended to give you the most up to date market data to compare your overall employee pay position against when making compensation decisions.
Compa-ratios and the Role of HR
You administer compensation through management of your compa-ratios. The compa-ratio is a mathematical calculation that identifies the relationship between actual pay and market rate for a person, department or the entire organization. For example, a 90% compa-ratio for an individual says that the individual is being paid at 90% of the prevailing market rate for his/her job. The compa-ratio is determined by dividing actual pay by the rate established as the mid-point for the grade. The mid-point of each pay grade reflects the median pay of people in the same or comparable jobs within the relevant labor market/industry. Approximately one-half of the people in comparable jobs are paid above the mid-point and one-half are paid below. The minimum of the range is 20% below the mid-point and the maximum is 20% above the mid-point. Executive levels are 25% above and below the midpoint.
As a rule, 90% of the people in the same or comparable jobs are paid between the minimum and maximum rates established by the salary range.
The mid-point also serves an important function in establishing individual pay rates. In a pay-for-performance system, employees are ultimately paid at a rate that is comparable to their long-term performance; below market for marginal performers, at market for employees who meet performance expectations, and above market for employees who exceed performance expectations. The overall expectation is that good employees are paid at a rate that makes them competitive within the labor market and, as a result, making it difficult for them to be easily recruited away from you.
While we express the prevailing market rates for jobs in our ranges, some of our clients want to establish their system at a rate that is higher or lower than the market rates. If your compensation strategy is to pay on average at the 75th percentile of the market and to be a pay leader in your community, we can add a new location option to the system ranges to accommodate this strategic position.
To summarize, Compease provides an unparalleled approach to managing compensation throughout your organization. Each year extensive analysis is performed to ensure that our clients have the best product on the market. To learn more, please reach out to our team directly.
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