What is meant by the term “market rate”?
Market rate or mid-point is the term used by compensation surveys to describe the salary that represents what the market is paying for a fully qualified employee in a given position. This number is arrived at mathematically from the data received from survey participants.
How do I know if I am paying market rates?
Sometimes you can get a reasonable idea through informal conversations with companies in your immediate area. More than likely, however, you will need to compare your salary data with available survey data.
Why should I want to pay market rates?
The real question is; what caliber of people do you need to achieve your objectives and what are you willing to pay to get them? It may be quite feasible to pay below market rates if you are willing to provide the training necessary to take the new people up the learning curve. On the other hand, the supply may be plentiful and you don’t have to pay top dollar to get good people. Also, while your salaries may not be at market rate, your benefits plan and other employment perquisites may offset this inequity. There are many factors to consider. The “Hiring Right the First Time” module of the TGS Employee Engagement Certification Course covers these important areas.
I am being presented with internet surveys from my employees that indicate they are underpaid. What do I do?
Take away their computers… just kidding… although one does have to wonder how much productivity is suffering because your employees seem preoccupied with salary concerns. It is important that companies be externally competitive in order to attract the caliber of people the company needs to be successful. People get very subjective where their compensation is concerned and the surveys being referenced should be very carefully analyzed to determine if they are an “apples-to-apples” comparison. At TwoGreySuits we believe that companies should make a conscious decision to compete in their marketplace at a given level and then be prepared to communicate the rationale for the decision to their employees. Remember, it’s all about having the right people to get the job done and you usually get what you pay for.
How should I be valuing jobs internally in my company?
There are two basic concepts to understand when dealing with compensation; internal equity and external competitiveness. There is a natural hierarchy of positions in any company with the President or CEO at the top end and the most junior position at the bottom. It is important that all positions in-between be ranked appropriately, one against the other, to recognize the differences in responsibility and contribution to the results of the business. TwoGreySuits’ Job Evaluation Questionnaire is simple to use and will effectively create a hierarchy of jobs that make sense for your company.
What is a salary range? How do I develop ranges?
Salary ranges indicate the minimum and maximum that an organization is willing to pay for a specific position. The minimum represents the salary that would normally be paid to someone who is brand new to the position. The mid-point represents the salary that would be paid to someone who is meeting all the positions requirements and the range from mid-point to maximum represents the area into which someone performing in an above average to outstanding fashion could move. The mid-point or market rate is established by comparing the organization’s positions to bench mark positions in a survey(s) that the company either purchases or in which they participate. The minimum is usually 20% below the mid-point and the maximum 20% above. Employees move through the ranges over time based on performance.
What is meant by the term compa-ratio?
Compa-ratio is the term that describes the percentage an employee’s salary is of the mid-point for the salary range for their position.
How exactly should employee performance be linked to their pay?
The annual Employee Performance Review will generate an overall rating for the employee. Most companies will create a grid with performance ratings on one axis and percentage salary increases on the other. The salary percentages normally include both a cost-of-living and performance component. The employee’s salary increase will take into account performance as well as position in range (compa-ratio). In addition to annual increases, employees can augment their pay further by preparing for and accepting more responsibility, thereby entitling them to promotional salary adjustments.
I am getting pay increase requests almost on a daily basis. How do I stop this?
TwoGreySuits believes that a compensation program, properly conceived, should include a communications component. If employees are made aware that the company has set their compensation levels competitive with the external market and has classified the positions internally to ensure internal equity, then effective communication should deal with these issues. Some employees may not be satisfied with the information, however, they will have to acknowledge that the company has done its’ homework. When employees are fixated on their salaries, it is usually a sign that there are other concerns management should be addressing. It’s a reasonably clear signal that employees aren’t engaged with the company and, while employees certainly have a role to play, responsibility for employee engagement rests primarily with management and supervisors.
An employee presented me with an offer from another company which is much higher, and says she will stay if I match it. I don’t like being put in this position. What should I do?
There are many, many factors that could be at play in this situation. Are the jobs comparable or does the new opportunity represent a promotion? When a company offers a salary well above market, there are usually extenuating circumstances. What are the working conditions? Is unpaid overtime expected? Is shift work involved? Are the benefits comparable to the current job? It’s not unusual that employees are, from time to time, enticed out of companies for higher wages. You shouldn’t be held up for ransom, particularly if you feel you are market competitive. A full and frank conversation with the employee during which all the facts are uncovered could very likely result in them changing their mind. However, our experience says that when an employee has decided to leave, and has been presented with another offer, even if they stay, they will end up leaving at some point.
I am hearing about paying a premium for hot skills. What does this mean?
It is not unusual that premiums are offered for skill sets that are in high demand and short supply. You have little choice but to “meet the market” if you are going to attract the people you need with the right skill sets but make sure you analyze your market thoroughly before jumping in.
What is an average salary increase to give that is consistent with other companies?
There are surveys and reports such as The Conference Board of Canada’s Annual Compensation Review that will provide you with projections for the average salary increases for various groups of positions. This information is reliable for purposes of budget planning.
Who should manage the pay process and increases in a company?
The Human Resource function normally handles the company’s pay processes. If there isn’t a formal HR function, this responsibility usually falls to the Accounting department. Salary increases are normally recommended by the employee’s immediate superior, approved by the next level and audited for conformity to accepted practice by Human Resources or Finance.
Can I implement a pay cut across the board in a bad year?
The answer is yes, unless you are operating under a collective bargaining agreement. This is a very drastic measure, however, and you should carefully think through the alternatives, perhaps with some expert guidance, before making the final decision.
I need to reduce my salary expenses. How can I do this without losing people?
Employees are not going to be receptive to a decrease in pay unless there is something in it for them. Companies don’t generally save their way to success and, if this is really short term pain for long term gain, you may be able to entice people to stay with some innovative approaches to indirect compensation. You might want to seek the advice of a qualified compensation consultant to help you.
I need a compensation program for my company.
All the information, tools and direction required to create a compensation program are contained in the Pay & Benefits section. If you don’t have the time to take on the project, you may want to engage a compensation consultant to assist you. But remember, you’ve been given all the tools so your reliance on a consultant should be minimal.
I need external market comparisons.
There are really only two ways to obtain this information. First, you can participate in a compensation survey. This approach has at least two advantages; the survey will usually be quite specific to your industry and, while there is some effort in compiling and submitting your information, the survey results will be free to participants. Secondly, you can purchase any number of surveys in the open market. They are not inexpensive and you should do your research to determine if one or more exists for your industry segment.