Looking to Benchmark Pay?
Market Index
A market index is a percent comparison of internal pay to the marketplace.
It is calculated as follows:
Market index = actual salary/market rate
It is also known as a market compa-ratio. Market index should not be confused with compa-ratio which is an internal measure of employee salary/salary range midpoint.
The market index can be a helpful calculation to use when building a salary structure.
For example:
| Grade | Job Title | Actual Average Salary | Market Rate | Market Index |
|---|---|---|---|---|
| 2 | Accountant 1 | $70,000 | $71,027 | 99% |
| 3 | Accountant 2 | $77,000 | $80,619 | 96% |
| 4 | Accountant 3 | $94,500 | $92,959 | 102% |
A market index can also be compared with compa-ratio to determine if a salary structure needs to be updated or to identify any jobs potentially being paid too low or too high to the current labor market.
Aging the Survey Data
When analyzing salary surveys or building a salary structure, the survey data should all be aged to a common point in time. Typically, this is consistent with the desired date of your salary structure.
Number of Months to Age X Annual Market Movement of Salaries = Survey Aging Factor
Months in Year
Aging 3 months:
3 Months X 3% = 0.75% Survey Aging Factor
12 Months
Memory Jogger
If the effective date of the data in a salary survey is November 1 and your company has a lead-lag compensation policy with a July 1 date, how many months would you be prorating the salary survey data for?