The Value of Market Pricing Every Job

So I’ve been thinking about this a lot lately 1, and today I want to talk about job mapping:

For an organization what are the pros and cons of market pricing every job in2. Assuming you’re a median pay company – if not it could be something else – p75/p90/etc.the company at, say, p50 2 – identifying the closest match for each role based on job description and title?

I recognize that even if two incumbents (at different companies) are doing the same work, that said work may have a different value depending on the business model of the company each incumbent works for. And so to an extent the decision to market price each position comes down to if an organization believes in evaluating jobs based on the internal or external market value of the job.

With that said, rather an organization is using a traditional (internal based) job mapping structure like the Hay Method, an original job mapping system based on a company-specific grading structure, or perhaps (cringe) doesn’t have a formal method of evaluating work at all, it’s hard to argue with the wisdom behind at least market pricing the majority of jobs against the external market to see where the organization falls when it comes to competing for talent.

To do such a thing can be extremely time and resource-intensive, though – particularly if you’re a mid or big cap company with several dozen (or even a hundred) different positions.

On the other hand, the alternative – which is essential for a company to adopt the position that the external market doesn’t exist and that they are only competing for talent in their own industry until proven otherwise – ignores the fact that many employees have highly transferable skill sets.

As I’ve talked about before, it’s perfectly acceptable (and in my view often most logical) to adopt a pay range based on internal job valuation and compete for talent on that basis. *But* if a company doesn’t at least do external market pricing for their key jobs, they won’t know if their job valuation process materially undervalues a position against the external market until they start having retention or recruiting issues.

For certain executive level positions (CEOs/BU Presidents etc.) where skill transferability is low it’s probably safe to adopt an internal based pay3. Despite having massive equity holds, non-compete agreements, and pension penalties built into their executive’s pay packages, very few companies actually adopt an internal based pay structure, instead typically choosing to adopt a peer group pricing methodology for it’s senior executives (for fear of losing said senior leaders to the external market). I won’t elaborate here as the topic of executive pay deserves it’s own article(s)… but suffice to say the existing framework under which most big cap company execs are paid is fundamentally flawed.structure. 3

But more broadly speaking, companies compete against multiple industries for talent when it comes to most professional positions (and even for unskilled labor).

A company that pretends they exist in a market place where their only competitors for talent are peers in their same industry is fooling itself (with few exceptions).

The market for talent is fast becoming global.

It’s fine for a company to not compete at p50/75/90/whatever their compensation philosophy is to pay at for every position in the organization. Most company’s don’t need top talent in every role. They will often be market leaders in seeking out the talent occupying their key roles while being less selective for less impactful positions.

Conversely, in the era of big data it is becoming increasingly critical for companies to know where they are relative to the market when it comes to paying for talent – and then (and only then) to make a decision on if that’s the level at which they want to compete.

For me the big question is not if market pricing every job is valued added or not – it is. The more important question is if it’s valuable enough to justify the additional resources needed to market price said jobs (and do maintenance). Depending on the size of an organization’s compensation department, market pricing every role could mean increasing headcounts, new subscriptions with4. This final point requires buy-in from the leadership and collaboration with business managers (since they will know best what their employees are doing). This is not an easy task for HR in every company.3rd party vendors, and perhaps even re-writing (or writing for the first time) 4 job descriptions.

I think the answer to this question is pretty clearly organization-specific, but I’m curious to get your opinions/thoughts on anything I’m not considering here.


Categories: Compensation