Using Job Evaluation in Your Organization

Market Pricing

Market pricing is a job evaluation methodology that creates a job-worth hierarchy based on the "going rate" for benchmark jobs in the external marketplace relevant to the business.

All other jobs are "slotted" into the hierarchy based on whole job comparison.

The term "Compensation is an Art and not a Science" most likely originated through market pricing. It is not an exact science but a sound and practical approach using credible and reliable salary survey results to add validity to the market pricing process.

Let’s look at how market pricing compares with other forms of job evaluation methodologies.

In the first example below, under market pricing, the hierarchy of an organization is established based on the external marketplace first and internal equity second.

In the second example, other forms of job evaluation align the jobs based on job content and internal equity first and most utilize the external marketplace second.

Market Pricing vs. Other forms of Job Evaluation

Market Pricing Steps

The following are seven key steps to market price the salaries for an organization:

Step 1: Collect three or more salary surveys representing your organization

Step 2: Identify benchmark jobs and match to the external marketplace

Step 3: Summarize market data and analysis for the benchmark jobs

Step 4: Develop a salary structure based on market data for the benchmark jobs

Step 5: Slot remaining non-benchmark jobs into a salary structure

Step 6: Develop a compa-ratio report comparing employees’ pay to the midpoints of the recommended salary structure with related costs

Step 7: Obtain top management approval

Market Pricing Guidelines

The following are some helpful guidelines when using market pricing to create the foundation for a sound salary structure:

• Use multiple salary surveys when creating your external market database. Three or more salary surveys are ideal!
• Attempt to match 70% of job content for each benchmark job to the survey job descriptions. The stronger the match, the more reliable the survey results!
• Attempt to match 50% or more of your benchmark jobs to the external marketplace. It is a good goal to match as many of your benchmark jobs to the external salary surveys as you can. This will ensure greater validity in your salary structure.
• Obtain surveys with credible and relevant survey participants closely matching your business.
• Use surveys which allow you to filter the data by number of employees, location, industry, revenue, and years of experience or level. This will ensure closer matches to your organization’s jobs, labor market, and size for management jobs.