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your go-to guide for

compensation

Whether you’re brand new to

compensation or a seasoned practitioner,
this guide is for you. It provides insight,
tips, and tricks so you can boost your
knowledge and expertise quickly —
and lead your organization to success.

welcome to brighter
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Total rewards have become more important than ever before for securing
talented employees, which means your knowledge and expertise is key to
your organization’s success. Congratulations, you’ve got a very important
role to play!

Did you get into compensation after experience In this ebook, I hope to be able to share some of
with another function in human resources, or are the tips and tricks I’ve collected over the years —
you brand new to this important department? More both the basics of “what you do” as a compensation
likely than not, you’re figuring it all out as you go and practitioner and the more subtle aspects of how you
haven’t received a formal education in compensation. do the job and partner with various stakeholders.

I was lucky enough to take a graduate-level course Please take this as guidance, not the rules; every
in compensation while finishing up my bachelor’s situation is different and every organization faces
degree in business administration, which then led unique challenges. Please also note that not all areas
to my first job for Marriott International at their of compensation and total rewards are covered. For
headquarters in Bethesda, Maryland. example, I specifically excluded anything regarding
pay equity analysis or performance management,
So, why compensation? My journey into the world of as both of those vast topics are deserving of their
compensation was led by a series of college transfers own ebooks.
and limitations to transferable credits that got me
here. Turns out, I really took to it. Additionally, the practices and direction provided are
from my perspective as someone who has primarily
To me, compensation seemed unique compared to managed compensation for organizations based
other areas of HR due to the fact that it was largely in the United States; some practices will differ in
driven by analytics, math, and logic as opposed other countries (keep that in mind if you manage
to soft skills. More than 20 years and multiple compensation for an organization operating in
compensation jobs later — both in-house and as a multiple countries).
consultant with Mercer — I now know soft skills are
just as important. Like they say, “Compensation is If you haven’t done so already, I highly recommend
more art than science.” getting involved with WorldatWork, the best place for
compensation practitioners to connect and access
education and resources.

About the Author

Rebecca Adractas is a longtime compensation practitioner, having started her career
in compensation administration at companies including Marriott. After a decade at
in-house roles in various industries, Rebecca transitioned to the consulting world by
accepting a role at Mercer. Having recently moved out of a consulting role, she now
manages content strategy and produces content on a wide array of HR topics. Read
more articles by Rebecca here.

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Contents

Market pricing

What does it mean to be a compensation practitioner? 4

Compensation philosophy vs. compensation strategy 5

The key to effective, efficient benchmarking and market pricing 7

Establishing your benchmarking methodology 8

Selecting and using your salary surveys 9

Making data adjustments 11

Now you’re ready for market pricing 15

Salary structures

The basics of salary structures 21

Managing pay for other employees 24

Does your pay structure fit? 24

Annual planning 25

Tips for success 26

Elements and purpose of total rewards 28

Glossary 29

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Market pricing
What does it mean to be a compensation • P
 roducing reports for board meetings to provide
practitioner? a clear picture of the current state of compensation
Compensation. When you tell people that’s what in the organization and how it relates to the
you do, they probably say something like, “Oh, yeah, relevant market
workers’ compensation, right?” Well, not quite. Compensation and total rewards are integral to
So we often restart explaining our jobs by saying pretty much every step of the employee lifecycle.
something simple like, “I decide the pay levels for the From setting the right hiring range and knowing
jobs at my company.” Of course, that doesn’t quite when to utilize a signing bonus, to providing financial
cover it all, but it gives people a good idea. rewards for achieving particular goals and objectives
and ensuring the long-term retention of talent in key
Although the division of responsibilities varies roles, compensation is an incredibly powerful tool.
depending on your company and industry, it’s fair
to say that as a compensation analyst, manager, As a compensation practitioner, you play a critical role
director, etc., you will in one way or another engage in designing and administering compensation and
in some or all of the following responsibilities: total rewards that support your organization’s unique
goals and objectives. Understanding the true impact
• D
 etermining pay ranges for some/all jobs, and various functions of compensation is critical.
including some consideration for elements beyond
pay such as short- and long-term incentives,
benefits values, commissions, and more
• E
 valuating jobs to ensure equitable pay practices
based on the value of the contributions of the job What’s the difference?
to the organization
Total compensation and total rewards
• Collecting data on labor market competitors to are sometimes — mistakenly — used
ensure an annual pay and increase budget that interchangeably. In reality, there is a difference.
will support the organization’s talent strategy; According to WorldatWork, the two terms are
shepherding budgets through approval and on to identified as follows:
implementation
Total compensation
• P
 articipating in performance management Cash provided by an employer to
annual planning and implementation in order to an employee for services rendered.
ensure that rewards delivered through the process Compensation comprises the elements
adhere to the compensation and talent strategy of pay (e.g., base pay, variable pay, stock,
• P
 artnering with human resources generalists etc.) that an employer offers an employee
and recruiters to guide managers in developing job in return for his or her services.
descriptions that will accurately depict the role they
Total rewards
want/have in their organization
The monetary and non-monetary returns
• P
 roviding data and support during labor relations provided to employees in exchange for
activities their time, talents, efforts, and results.
Total rewards involve the deliberate
• F
 ielding questions from managers and HR integration of six key elements that
generalists about internal equity and market effectively attract, motivate, engage,
adjustments and retain the talent required to achieve
desired business results.

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Compensation philosophy vs. positions, we will target a national percentile of

compensation strategy 60th percentile vs. the median or 50th percentile
for the general population”).
Your compensation philosophy explains the
“why” part of the particular manner in which your • R
 ole of each element: the purpose of each
organization approaches compensation. It could be element in the total rewards package, including
something like this… base pay, short-term incentives, and long-term
incentives. In this case, base pay reflects the value
“At Company XYZ, our compensation philosophy is to of the job in the relevant job market, including
provide rewards that are: adjustments for skills and experience. Short-term
incentives and annual bonuses are used to reward
• fair and equitable;
employees for achieving annual objectives and
• a
 ble to attract, retain, and motivate the employees shall include a portion tied to company goals, team
we need to support our business objectives; goals, and individual goals.

• e
 asy to communicate to and by managers and • C
 omparator group: a clear definition of who the
employees; organization competes with for each business unit/
function (e.g., for human resources positions, the
• in line with our labor market competitors.” organization will recruit from general industry
Some compensation philosophies may provide nationally).
additional detail, perhaps being more specific about • I nternal equity: the degree of comparability
the target market percentages for different functions across business units and geographies (e.g., the
or even pay elements (don’t worry if that sounds sales organization will have a significantly higher
confusing; we’ll go into it in greater detail later). percentage of variable pay than other functions).
From the philosophy, you then take it a step • C
 ompetitive positioning: the target positioning
further and describe “how” you will specifically of each compensation element, including pay mix
achieve the philosophy’s stated goals — this is your (e.g., for base pay for administrative positions, we
compensation strategy. At the very minimum, your will target the median, which is the 50th percentile,
compensation strategy will include who it is you want with total compensation also positioned at or
to hire, what type of culture you want to drive, and slightly above the median).
therefore, your target positioning in the market.
• G
 overnance: the decision-making structure and
responsibilities of business managers and HR (e.g.,
the manager will complete a request for pay review
Compensation philosophy – a statement outlining your
organization’s goals for positioning pay among their labor and provide rationalization to the HR business
market competitors and assuring that the compensation partner, who will then work with compensation
program supports an organization’s culture. to determine whether or not a pay adjustment is
required).
Compensation strategy – a set of guidelines around
pay and benefits that determine how the compensation • C
 ommunication: the approach and commitment
program is designed, implemented, and administered. to clarity and transparency (e.g., “we will provide
a salary range to an employee who requests it for
their job only”).
Additional elements of your compensation
With a well-constructed compensation strategy in
strategy may also be:
place, you’re now ready to go from theory to practice
• S
 egmentation: the degree of differentiation by market pricing your positions.
needed in your compensation strategy to support
various functions, geographies, etc. (e.g., “for IT

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Connecting compensation to business strategy

Your business strategy states your company’s overall goals. Your talent strategy, on the other hand,
governs how your organization will secure the right employees and motivate them to perform at the
level needed to meet those goals.
In the illustration below, you can see that the compensation philosophy and strategy are connected to
the business strategy by way of a talent strategy. Recruiters should be able to attract the talent that
managers need, and incentives and base pay should motivate employees to fulfill their responsibilities,
as well as strive to hit performance goals. It’s all connected.

Business Talent strategy Outcomes

strategy

• Mission • Performance
• Compensation
• Vision management
management
• Values activities • Survey selection
• Recruiting strategy
• KPIs of jobs for
• Benchmark market pricing
• Shareholder you Total rewards/compensation methodology to
commitments are
• Pay management
here philosophy and strategy guide market
pricing structure

• Training and • Benefits • Incentive design

Development design and
administration

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The key to effective, efficient

Job evaluation, when combined
benchmarking and market pricing
with market pricing, focuses on the
One of the most important responsibilities of a “what” of the job as opposed to the
compensation practitioner is determining the value
performance of the individual.
of jobs in what is typically known as market pricing
or benchmarking.1 Many organizations will apply a
two-pronged approach using both market pricing
and job evaluation.
Job evaluation, when combined with market pricing,
typically consists of determining the importance or
contribution of the job to the organization as a whole,
as compared to other jobs in the organization. It’s
focused on the “what” of the job as opposed to the
performance of the individual in the job.
Some organizations have a specific method in
which different elements of the job are assessed,
such as people responsibility and financial impact,
and awarded “values” (i.e., a point factor method).
Regardless of the approach, the objective is to ensure
that the pay assigned to a particular job reflects
both the going rate of pay in the market (external
competitiveness) and the value of the job to the
organization (internal value).
While market pricing and job evaluation are equally
important, this guide focuses on market pricing
specifically, as each approach warrants a thorough
explanation and is too much to review in one guide.
Additionally, it’s important to note that the primary
focus of this guide is to establish base pay values.
How or when an organization determines values of
short-term incentives (STIs) and long-term incentives
(LTIs), as well as other elements of the total rewards
package, varies greatly. While some companies
rely strictly on the incentive values present in the
compensation surveys, there are typically rules Market pricing – establishing a value and
around job level and existing targets and structures subsequently a pay structure for jobs by
that have significant weight in the assignment of collected external market data typically from
compensation surveys.
incentive targets.
Benchmarking – market pricing a subset of jobs
that are commonly found in compensation surveys
and in competitor organizations.
Job evaluation – a process used to establish pay
differentials between jobs that includes taking into
account the responsibilities of the job, the impact to
the organization, comparable roles, etc.
Although benchmarking refers to the market pricing of a distinct group of
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jobs, the terms “market pricing” and “benchmarking” are typically used
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Establishing your benchmark methodology

What’s the most important element of any company’s Even before your benchmark methodology comes
market pricing activities? It is the methodology, into play, your compensation philosophy is your
typically referred to as the benchmark methodology.2 starting point. If you don’t have one in place already
The methodology is a framework for organizing the — STOP! Do not attempt to create a benchmark
steps taken to accurately, consistently, and efficiently methodology without understanding your
conduct market pricing activities for an organization. organization’s goals for positioning pay among your
It ensures that anyone who sets out to market price labor market competitors.
a benchmark job will consistently use agreed-upon
methods of collecting, weighting, and combining data. The first element in your benchmark methodology
should be recognition, or a summary, of your
Although the actual level of detail present in a compensation philosophy. Your benchmark
benchmark methodology may vary, having the methodology is part of your compensation strategy.
following elements — at minimum — will help ensure It is how you ensure your market pricing process will
market pricing consistency. support your compensation objectives.
Compensation philosophy: what is the overall
purpose of compensation in your organization?
Surveys: what surveys will you purchase to best Benchmark methodology – a framework for
represent your labor market? organizing the steps you will take to accurately,
consistently, and efficiently conduct market pricing
Scope cuts and data elements: what data should activities in your organization. It is a guiding
you collect and how should it be filtered (scoped)? compensation tool used to ensure that anyone
who sets out to market price a benchmark job will
Data adjustments: how will you make use of consistently use agreed-upon methods of collecting,
premiums and discounts? weighting, and combining data.

Composites: how will you blend and combine data

values?
Employee segments and markets: where do you
recruit for each employee segment?

One of the key drivers of a

benchmark methodology is a
thorough understanding of your
labor market competitors and how
that varies by employee segment.

The terms “market pricing” and “benchmarking” do have different

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meanings but are frequently used interchangeably. For the purposes

of this guide, a “benchmark methodology” is used to guide any and all
market pricing activities that take place in the organization, not just 8
those of benchmark roles.
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Selecting and using your salary surveys

Once you understand your target pay position relative to your
labor market competitors, it’s time to get the right inputs. 5 key factors to consider
That’s the role of salary surveys. Be sure to choose reputable
surveys that reflect your labor market competitors and that
when selecting surveys
will job match a significant number of the positions within your
organization. Once you select your surveys, it’s imperative that Competitors and peers:
you make use of your survey data accurately. This requires evaluate participating companies
applying an aging factor, which is a multiplier that uses some 1 to understand whether the
percentage of the coming year’s predicted pay increase results will provide you with a
percentage, such as those found in Mercer’s US and Canada proper and accurate benchmark.
compensation planning surveys, to determine an effective date. Jobs: if you’re looking for specific
All surveys have different effective dates. For example, the 2 positions, make sure to select a
survey submission materials might direct the participant to survey that has the appropriate
provide the salaries for employees as of (i.e., “effective”) April job matches.
1 of the current year. Other surveys might request data as of Scope: select a survey that
October 1. The aging factor you decide to use will depend on has a scope relevant to your
whether you wish to lead, lag, or lead/lag the external market. 3
industry, jobs, pay elements, and
If you want to lead the market, you would age your data a full geographic locations.
year ahead, which means that as other companies are adjusting Number of participants: ensure
employees’ pay, you have already accounted for that adjustment there are enough participants
in your market data. If you are more cost-conscious and wish to represented in the survey to
lag the market, then you would only age the salary data to the 4
accurately reflect your industry
start of your upcoming performance year. A lead/lag approach or geography as a whole with
would mean that you age the salary data to the mid-point of statistical significance.
your coming performance year.
Know the dates: understand
Developing a benchmark methodology requires understanding the specific dates and deadlines
how your company recruits talent and how that recruitment to participate, including
strategy may differ by employee segment. In most 5 survey open dates, submission
organizations, there is a segment of jobs where the talent may deadlines, and results delivery.
come from various backgrounds or industries, meaning it’s Ensure the schedule works for
not essential that candidates have experience in any particular your internal timeline.
industry.
Additionally, you want to understand which jobs you
recruit for locally vs. nationally. For example, an HR job or
an administrative support role can typically be filled by a
professional who demonstrates the skills you are looking Scope cuts – a customized selection
of data sources based on criteria like
for, regardless of prior industry experience (the rationale industry, geography, or size.
behind this is that the employee can learn the nuances of your
industry on the job).
However, other roles require specific industry experience
or even experience working in organizations of a particular
revenue size or type, such as a nonprofit organization. The
data filters, or scope cuts, that you choose to use should align Read more about when to use
with the kinds of experience that you require for each role. industry focused surveys.
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Labor market competitor – a peer group of

companies that an organization competes with
when hiring and retaining talent.

Beyond the data scope cuts, you’ll want to be sure data or applying a filter/scope that will exclude all
to document the data elements you will use from non-healthcare organizations.
each survey. There’s nothing more frustrating than
The jobs on the right, which don’t necessarily
collecting data from a survey and realizing as you
require healthcare experience would, in this case,
are beginning to load it into your market pricing
use a combination of general or all company data
software or spreadsheet tool that you’re missing
along with healthcare data. In other instances, the
data elements you need.
compensation practitioner may not decide to even
Once you have identified the scope cuts, you now include healthcare data for these jobs, and instead
need to determine and document how to align the simply use the general industry or all company
data to the various employee segments. Typically, data, which may best reflect their labor market
it’s appropriate to take broad employee groups or competitors for those particular jobs.
departments (e.g., finance), consider the industry
Your compensation philosophy will identify the
experience that’s desired, and translate that into the
necessary data elements you will need to analyze
appropriate data scope. However, in some cases, it
your salary range competitiveness each year. Most
may be necessary to think in terms of jobs. A sample
organizations will collect some variety of base pay,
table outlining the data cuts for jobs in a healthcare
STI target, LTIs, total cash compensation, and total
organization is provided below.
direct compensation at the 25th, 50th, and 75th
For jobs in the “Healthcare” columns on the left, the percentiles, although the names of these elements
compensation person would only use survey data in each survey may vary. You may need additional
that was from healthcare organizations by either details as well.
using surveys that exclusively include healthcare

Healthcare Non-Healthcare
Title 1 Data Cut
st
2 nd
Data Cut Title 1st Data Cut 2nd Data Cut
Claims Examiner All Healthcare Accountant General Industry All Healthcare
Claims Resolution Specialist All Healthcare Administrative Assistant General Industry All Healthcare
Clinical Pharmacist All Healthcare Customer Service Rep I General Industry All Healthcare
Dir. Care Coordination All Healthcare Customer Service Supervisor General Industry All Healthcare
Grievance Resolution Specialist II All Healthcare Director Applications Management General Industry All Healthcare
Manager, Case Management All Healthcare Executive Assistant III General Industry All Healthcare
Medical Authorization Assistant All Healthcare Facilities & Support Services Coordinator General Industry All Healthcare
Medical Case Manager I All Healthcare Facilities & Support Svcs Tech General Industry All Healthcare
Medical Data Analyst, Sr. All Healthcare Financial Analyst General Industry All Healthcare
Medical Services Case Manager All Healthcare Manager Applications Management General Industry All Healthcare
OneCare Partner All Healthcare Manager Systems Development General Industry All Healthcare
OneCare Partner - Sales All Healthcare Programmer Intermediate General Industry All Healthcare
Outreach Spec for State Programs* All Healthcare Programmer Senior General Industry All Healthcare
Program Assistant All Healthcare Technical Analyst, Sr General Industry All Healthcare
Program/Policy Analyst All Healthcare
Provider Relations Rep All Healthcare
Q1 Nurse Specialist - FSR All Healthcare
Senior Claims Examiner All Healthcare
Sr. Projects Manager All Healthcare

Use your benchmark methodology as a place to document which data elements to pull for each data
cut in each survey. Then, when you are collecting data to update your market pricing, you will have a
clear checklist to follow, which will improve efficiency, consistency, and accuracy.

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Making data adjustments The simplest method for developing composites is

to average the adjusted market data3 for each pay
In the course of matching jobs to survey descriptions, element. Even in that case, you will need to determine
you may find that you are not 100% satisfied that skills how to address data anomalies, such as when a data
and responsibilities — and even qualifications — from element is not able to be reported. For example, you
your job are a perfect match with the survey job. In may be using a survey job that, once scope factors are
that case, you have the option of making some data applied, shows $50,000 for the base salary at the 50th
adjustments by applying premiums or discounts to percentile, but the total target cash compensation
the data. says “N/A” or “-”. You will need to determine how to
treat that data, or the lack thereof, in your composite.
For example, if I felt that a survey job description was a
good match, but had a bit more responsibility than my For more information on developing a benchmark
organization’s job, I could discount the data by 10%. As methodology, and similar topics, check out the
part of your benchmark methodology, you will want to “Market Pricing 101” series.
outline how premiums and discounts will be used and
what percentages will be used. Selecting your benchmark jobs
A benchmark job is a “standard” job that has a definition
Developing data composites and scope of work that is readily understood across
The best practice has always been to collect three different organizations. Your goal is to market price
survey data points for every job you are market at least your benchmark jobs annually by simply
pricing. As you probably already know, this can be refreshing the market data. Do you have a job that
difficult to achieve. With multiple data points for every has two incumbents? Skip it, you don’t need to market
benchmark job, you are faced with the challenge of price that job annually. Does that unique job combine
combining those data points. financial analysis with database administration? That’s
not a benchmark job. It’s unlikely you’d find that job in
Again, you can achieve consistency and efficiency by many surveys.
establishing a set of market pricing guidelines for
blending data or by developing composites in your What about the remaining 20-30% of your job titles?
benchmark methodology. You can apply different Just because it’s not a benchmark job doesn’t mean
weights to individual data points to make each one you won’t market price those jobs. It just takes more
more or less important in the resulting survey data effort, more conversations, more “art than science,”
composite. and probably more time to settle on the right market
pricing and subsequent reference point for those
For example, data from a particular survey may be jobs. Assuming you are subsequently slotting jobs
weighted less than other surveys due to the perceived into a pay structure with pay ranges, you can be
lower relevance of the organizations that participate in confident that the individual market reference point
the survey. Weights can be applied to data for a variety of for these jobs will not need to be refreshed annually.
reasons; it can get confusing to try to keep the reasoning
straight. Documenting your methods for market pricing
and capturing the weighting in your market pricing tool Your core set of benchmark jobs should
makes analysis and auditing repeatable and efficient.
include 60-70% of your job titles and
70-80% of your employee population.

It’s best to determine premiums and discounts based on the comparison of the job descriptions
alone, not the survey pay data. You want to avoid manipulating the data to influence the composite
based on a desired outcome.

 y “adjusted market data” we mean the data after any premiums/discount

B
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weightings are applied. 11

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Typical benchmark jobs include:

• B
 ack office/operations jobs, such as HR, finance, IT,
etc., that are commonly understood
• C
 ore industry specific roles that would be common
among your labor market competitors
• A
 sampling of jobs at various levels throughout the
organization
Percentiles – the value point along the data
What data from surveys do I need? distribution below which a given percentage of
the data falls.
Typically, salary or compensation surveys contain
rows and columns of data with various labels and
definitions. Reputable surveys will include a glossary
of definitions that will explain what each data point
represents. Because your goal is to use multiple • S
 TI target (average/mean, median, and various
survey sources when market pricing, you will want to percentiles, such as 25th and 75th), typically
be sure you review those definitions so that you make expressed as a percent of base salary
valid composites.
• S
 TI actual payout (average/mean, median, and
In addition to the job title and description, data for various percentiles, such as 25th and 75th)
a particular job in a typical survey will include the
following information, although not always in this • T
 otal target cash compensation (average/mean,
order: median, and various percentiles, such as 25th and
75th)
• U
 nique identifier of some sort, typically alpha-
numeric • L
 TI eligibility (average/mean, median, and various
percentiles, such as 25th and 75th)
• I ndicator of the scope of cuts selected (e.g.,
geography, industry, size, etc.) • L
 TI target/value received (average/mean, median,
and various percentiles, such as 25th and 75th)
• N
 umber of organizations that provided data for
the job • T
 otal direct compensation target (average/mean,
median, and various percentiles, such as 25th and
• N
 umber of observations, meaning the total number 75th)
of individual data points or incumbents that make
up the job (e.g., Walmart counts as one organization, • T
 otal direct compensation actual (average/mean,
but provides 9,000 data points for the job “cashier,” median, and various percentiles, such as 25th and
and that number goes into the observations) 75th)

• B
 ase pay (average/mean, median, and various Based on your organization’s benchmark
percentiles, such as 25th and 75th) methodology, you would want to carefully and
consistently collect the data for each of the elements
• STI eligibility that apply to your organization.

A common mistake is to not compare your job to the true value in the market. This happens
when you only compare your job’s rewards to like rewards in the survey data.

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Example: You are market pricing a manager of finance role. The job is paid $110,000 and is not incentive eligible.
You find three survey jobs that match the responsibilities of your job and develop a market composite. What value
should you use to determine what the market rate is for that job?

Element Our Job Market Composite

Base Salary $110,000 $120,000
STI Eligibility - 90%
STI Target as % of base - 15%
Target Total Cash $110,000 $138,000
LTI Eligible - 0%
LTI Target as % of Base - -
Target Total Direct Compensation $110,000 $138,000

NOTE: for the sake of the example, base + STI target = target total cash. This is rarely the case in real survey data.

The mistake here would be to ignore the STI and to be $124,200 to $151,800, which is 10% below the
resulting target total cash value. Even though the job composite value and 10% above the composite value.
you are pricing is not currently STI eligible, according (NOTE: looking at the value of the actual STI reported in
to the market data, 90% of employees in that role the survey will possibly help narrow down that range).
are being offered a short-term incentive, with a
median value of 15% of base salary. That brings the Save yourself the extra step and collect data for your
true amount of cash offered for that job, at target, target value, plus one above and one below. So, if
to $138,000. you target the 75th percentile, then you should also
collect that data at the 50th and 90th percentiles, or
Because STI is not guaranteed, it does not mean you whatever percentiles make sense based on what your
would need to consider $138,000 to be at the market vendor provides.
value, but you would consider $110,000 to be less
than competitive for the job.4 Many compensation
practitioners would determine a “competitive” pay
range for a job with target total cash of $138,000

If your compensation philosophy is to target the median, or 50th

percentile, don’t just pull that data point from the surveys. What happens
if you pull the 50th percentile but then see that your incumbents are not
paid anywhere near that value? You’d likely then have to go back and
look at the additional data to determine how your jobs compare to the
market (e.g., are you actually paying at the 75th percentile?).

When determining any pay adjustment you would also consider tenure,
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Incumbent- vs. organization-weighted market Which approach should you use? Well, that’s really up
statistics to you. An argument could be made for either method.
In general terms, organization-weighted data is meant
Surveys typically offer the option of selecting whether to reflect the organization’s policy, while incumbent-
you want your market data weighted by incumbents weighted data would better reflect the realities of
or by company/organization. If you choose incumbent- the labor market. There was a concern that large
weighted, it means all the data points submitted by employers would unfairly impact the market statistics
every organization will be treated equally and simply when using incumbent-weighted data, but Safe
added together and then divided by the total number Harbor laws passed in the 1990s have forced survey
of observations (n) to create the averages. administrators to minimize that risk.
To calculate other statistics, the data is sorted Some words of advice: be consistent! Don’t flip-flop
from lowest to highest, and then the percentile is between organization-weighted and incumbent-
determined based on the number of observations. For weighted market statistics depending on which one
example, if there are a total of 100 incumbents from makes the numbers look “better.”
20 organizations in a data sample, each incumbent
has a 1% impact on the calculation or market statistics.
An organization with 15 incumbents will have a 15%
impact on the final market results and an organization
with 2 incumbents will have a 2% impact. The results
are influenced by organizations that report multiple
incumbents.
On the other hand, organization-weighted market
statistics are calculated based on organization
averages. This means that each participating
organization’s data has an equal impact (weight) on
the market statistics. For example, if there are a total
of 100 incumbents from 20 organizations in a data
sample, each organization’s data points will have
a 5% impact (i.e., 100/20), regardless of how many
incumbent data points they submitted.

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Now you’re ready for market pricing

Now that you have your benchmark methodology
in place, it’s time to start market pricing.

The Market Pricing Process

Job review Job matching Data collection

• M
 anager provides • C
 ompensation selects • D
 ata for each match is
information about the job survey position collected, as prescribed
description(s) from by the organization’s
• C
 ompensation reviews surveys that best benchmark methodology
with manager to confirm reflect (70% rule) the
understanding organization’s job — • D
 ata is assessed for
without looking at anomalies and adjusted
• R
 elative value of the job as appropriate
compared to other jobs pay data
in the organization is • M
 anager and • M
 arket rate composite is
typically determined at compensation review created
this point and confirm matches

Job review: confirm, confirm, confirm qualifications. Many times, your colleagues outside
Whether your organization uses lengthy job of compensation don’t understand how much we rely
descriptions or simple level and function descriptors, on accurate job descriptions, so they may not put in
it’s always best to start with the person who knows the necessary effort. Having a conversation with the
the job the most, which is typically the (hiring) manger. manager or HR business partner will allow you to
Whether it’s a brand new job that is being added to the ensure you fully understand the job in question.
organization or a request to do a market comparison
for an existing job, your time is well spent by having a When preparing to discuss a job with a manager, in
conversation (yes, a conversation — either virtually or preparation for market pricing, I suggest having a few
in person) to ensure you understand the job. standard questions ready to guide the conversation.
These questions should help you understand the
I can’t tell you how many times I received what reason for the request, the overall purpose of the job,
appeared to be a well-thought-out job description, comparable roles, any special skills necessary, and the
only to learn, after matching the job to surveys, that importance or impact of the job on the department/
it didn’t accurately reflect the duties or skills and organization.

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Conversation Guide for Talking to Manager

Use this helpful guide to communicate with hiring
managers when you’re preparing to market price a job.

Introduce yourself and your objective

I have reviewed the job documentation you provided for XYZ job, but thought it might be helpful
to discuss the role with you to confirm my understanding. That way, when I market price the job, I
can find the best match.

Questions to ask
What led to this request? Is this a new job, a backfill with a change in responsibilities, or
1
something else?

Tell me in your own words, what is the overall purpose of this job? Or if this job did not
2
exist, what would happen?

3 Who will the person in this role report to? Will there be any supervisory responsibilities?

Please summarize the major responsibilities and time spent on each (you can limit them
4 by saying, “Give me the top three most important…” Keep in mind that these should be the
bona fide responsibilities of the job, not what an incumbent does/doesn’t do).

Are there other roles in your organization that you feel are similar to this one (you can ask
5 about relative impact here, but also find out if there’s someone doing the same thing in
another part of the organization)?

6 Confirm the required vs. preferred qualifications.

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After discussing the job with the manager, you’re then Data collection: getting to the nitty-gritty
ready to match the jobs to the survey job descriptions. After you have confirmed the survey positions that you
will use to market price your job, it’s time to look at the
Job matching: the dos and don’ts data and identify any anomalies or issues. It makes
What’s so difficult about job matching? All you have to sense to do this prior to combining the data, otherwise
do is take your organization’s job and find that job in known as creating composites.
the surveys, right? If only it were that easy.
To help guide you through the process of matching
Outlier – a data result that is significantly
your job(s) to the various salary survey job descriptions, different from the range of other data sources.
here are some basic dos and don’ts: An outlier could indicate a statistical anomaly or
initiate a review of the data source.
• D
 ON’T try to match your job(s) to survey jobs based
on title.
• D
 O match survey positions by comparing
responsibilities, skills, and qualifications to your Let’s take a look at some of the more
organization’s job. common data anomalies.
• DON’T assume the job description is accurate. Outlier data point
• D
 O take the time to discuss the role with the hiring You have three different survey data sources for
manager and ensure you understand the core a particular job. You’ve collected all three and are
responsibilities, as well as the required vs. desired looking at the median (i.e., the 50th percentile)
skills, qualifications, and experience. base salary value.
• D
 ON’T assume that if you’ve matched to a certain Survey 1 shows the base salary is $67,000, Survey
job in one survey that you should be able to use 2 shows the base salary is $70,000, and Survey 3
what appears to be the same job, by title or level, in shows the base salary is $120,000. Wait, what?!
another survey. The average, or market composite value, of these
data points is approximately $86,000 because the
• D
 O thoroughly read the survey job descriptions
$120,000 base salary from Survey 3 is driving the
and compare them to your organization’s job.
average up. What should you do?
Aim to select survey jobs that best reflect the
skills, qualifications, and responsibilities of your Step 1: double check all of the data from Survey
organization’s role. A good rule of thumb is to aim for 3, starting with the number of observations.
70% of the responsibilities matched, but that’s not If either number looks small (e.g., less than
always possible without blending jobs. 100 observations or less than 10 companies),
discard5 the $120,000 data point. If any other
• DON’T let the market values influence the job match.
numbers seem “off” (e.g., if the target total cash
• D
 O have a job matching review with the manager, compensation is lower than the base salary), then
without any market values, to get his/her buy- consider discarding it as well.
in on the comparison of the organization’s job
Step 2: reexamine the survey job descriptions to
responsibilities and qualifications vs. the survey
confirm the survey match represents your job. If
description.
you are comfortable with the match, then perhaps
• D
 ON’T rely only on the survey to market price your jobs. it’s just “bad data.” That’s the only way I can
explain it. This anomaly is likely tied to the number
• D
 O carefully select surveys that will allow you to
of participants, but if not, it could be a variety of
understand your competitive position by market
other things. It’s best to just discard it and move
pricing a significant amount of your jobs.
on… particularly if you’re doing a major market
pricing project and have many more jobs to price!
By “discarding” the data, I mean to remove it from the composite,
5

typically by weighting the match as 0%, although the actual steps

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will vary depending on how you build your composites.
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Common data anomalies (continued)

Job family inconsistencies
Perhaps you have been asked to market price three not actually be the case. Your job ladder in that family
jobs within one job family: accountant I, accountant might start higher or lower than what’s reflected in
III, and senior accountant. The base salary data at the survey. Double check that the jobs are matched
the 50th percentile that you have pulled from one based on responsibilities and qualifications, and then
survey for these roles doesn’t follow the increasing adjust as necessary.
progression you would expect:
Next, take a look at the observations and organization
Accountant I: $65,000 count for that accountant III match. It could be that
Accountant III: $64,000 there weren’t enough observations reported and
Sr. accountant: $74,000 the average is being influenced by a low payer with
multiple incumbents. In that case, you could switch to
What should you do? You can’t have your market company-weighted data, assuming you’re currently
reference point for accountant III be lower than looking at incumbent-weighted data.
accountant I! Don’t panic, there are a few things
you can do. Finally, assuming you have additional data points
from other surveys for that same job, discard this
First, reexamine the job descriptions of both your data point and move on. In the long run, particularly
jobs, as well as the survey position descriptions. when pricing jobs that are in the same family, you will
Many times, we make the mistake of saying, “Well, end up positioning them in a salary structure in a way
the lowest job in my organization has to match to that makes sense relative to each other. That one data
the lowest job in the survey.” However, that might point is not going to throw everything off.

Developing market rate composites

At this point, you now have multiple survey data points for each job that you are market pricing. Next, you
should figure out how to combine the different survey data points to develop a market rate composite for
each job (the specific rules, or method, for building composites will be determined and documented when
developing your benchmark methodology).
Assuming you have already applied an aging factor to your survey data, you will now need to consider your
weighting factors, as well as any premiums or discounts you have noted in order to account for differences
between your job and the survey job.
How and why you apply weights to survey data is something that should be documented in your benchmark
methodology and applied consistently as you market price jobs. Before we talk about why you might apply
different weights, let me show you an example to ensure we are on the same page.

Survey Job Title Adjustment Weight Base Pay Adjusted Base

Great Survey Financial Analyst I 0 33% $65,000 $65,000

Pretty Good Survey Jr. Financial Analyst 0 33% $63,100 $63,100
We Pay Low Survey Financial Analyst, Level II -10% 33% $72,000 $64,800

Composite $63,657

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In the example on the previous page, you can see Many times, that’s because it is an industry specific
that we have three data sources. The third one, survey that better reflects your labor market
“financial analyst, level II,” has a 10% discount taken competitors.
from the job because the responsibilities are just a
Or perhaps you want a survey to contribute to the
bit higher than those in your organization’s financial
composite less because it has a reputation for always
analyst job. That discount results in a reduced base
reporting lower salaries due to a high amount of
salary that will contribute to the composite.
nonprofit participants. In that case, you might weight
You can also see that each survey is weighted equally your data differently (see below), resulting in a
at 33%. This indicates that we don’t value any of slightly different composite.
these surveys more or less than the other two and
In reality, it’s less about the difference in the
want them all to contribute equally to the composite.
composite than it is the discipline of carefully
Each of the adjusted base values is multiplied by
considering the data and survey source, utilizing a
the weight and then added together to create the
methodology to market price jobs, and documenting
composite.
it all. When it comes to presenting your findings to
One example of when you would apply differing hiring managers, you’ll want to have that degree of
weights to survey data is when you want a particular certitude in your back pocket.
survey to have a greater influence on the composite.

Survey Job Title Adjustment Weight Base Pay Adjusted Base

Great Survey Financial Analyst I 0 40% $65,000 $65,000

Pretty Good Survey Jr. Financial Analyst 0 40% $63,100 $63,100
We Pay Low Survey Financial Analyst, Level II -10% 20% $72,000 $64,800

Composite $64,200

Troubleshooting
Instead, you will take the senior systems engineer data
What if I can’t find a match? and add a 10% premium to it by multiplying by 1.10.
If there just doesn’t seem to be a great match in your (IMPORTANT: document your reasoning for why you
available surveys for a job in your organization — matched this way and what the premium represents).
don’t worry, it happens. Here are a couple of common
Option B: match your job to multiple survey jobs,
approaches for dealing with this situation.
applying weights to each survey job that will impact
Option A: find the job family that most closely how that job contributes to the composite you create.
resembles the core responsibilities of your job and
Example: in your company, you have a role that does
then apply premiums or discounts to adjust for
recruiting and serves as an HR generalist, although
responsibility level.
recruiting is the smaller component of the job. In this
Example: you like the responsibilities described for the case, you may take survey data for an HR generalist role
senior systems engineer, but your job has some additional making $50,000 and give that a weight of 80%, as well
responsibilities as a team leader. The role is not a full as a recruiting job that makes $65,000 and give that a
supervisor or manager, so you don’t want that match. weight of 20%.

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You should then determine the salary using the I have a survey job match, but the market data is
equation “($50,000 * 0.8) + ($65,000 * 0.2) = $53,000.” blank. What do I do now?
In this case, you have accounted for the higher salary
Typically, when this happens it’s because there were
of the recruiting job, but are not fully paying that
not enough responses to allow the survey vendor to
higher salary, because it’s only a small portion of the
publish one or all of the market data elements. You
job.
may see base salary at the average or median, but no
Option C: match to multiple survey positions to other data points.
attempt to replicate the responsibilities of the job
One way to try to rectify this is to adjust the scope cuts
in your organization, but then use only the highest
(or filters, if you will) that you have on the data. For
value. The thinking behind this method is that if you
example, if you are trying to get data for a mid-level
need the skills present in the higher paying job, the
financial analyst and you are adding scope factors that
percent of time that they use those skills is irrelevant
limit the market data to the city of Chicago, Illinois6
— you have to pay the higher salary in order to attract
and companies under $50 million in revenue, then
that candidate and those skills (this method is often
you might try expanding your scope by removing one
referred to as paying for the “highest compensable
or more of the scope factors. By first removing the
factor”). Using the prior example of an HR generalist
financial/size factor, you may see that there is now
who also does recruiting, you would simply use the
enough data to conduct your analysis (a discount could
higher salary of $65,000.
be applied to the data if the size factor is critical).
CAUTION: One thing to be careful of when creating a
Another option in this situation would be to select a
composite is how you combine the data. When you are
higher or lower level job in the same family and apply
attempting to reflect an additional skill/responsibility
discounts of premiums. Although it’s dependent
that the job in your organization needs by taking two
on how your promotions and pay structures are
survey data points and simply averaging them, you
managed, a good rule of thumb is to consider the
may be inadvertently lowering the market price of the
difference between levels to be around 10%. So, if you
additional skill that you’re looking for.
were to collect data for a job that’s one level below
Example: Most of the responsibilities in your your target role, you would add a premium of 10% to
organization’s job are captured in Survey Job A, which that job by multiplying the applicable market data by
pays $50,000. However, there is a particular responsibility 1.10.
that your job has that is not captured in Survey Job A
but is found in the description for Survey Job D, which
pays $75,000. Creating a simple average would lead to a
market price of $62,500. In this case, the market data for
Job D is pulled way down while that of Job A is inflated.
Using one of the options above, rather than a straight
average, would likely produce a market price/composite
that more accurately reflects your job.

6
Of course, sometimes we can provide support for creating a hiring package
beyond what the market data and/or internal comparisons would dictate,
but it usually requires additional management/leadership approval. 20
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Salary structures
As of March 2022, 83% of organizations that participated in Mercer’s US
Compensation Pulse Survey report that they manage pay using a formal salary
structure. In a company of any significant size, it’s much more accurate, consistent,
and efficient to develop a salary structure and then market price jobs and assign
them to the proper range. Individual employee pay is then managed within the pay
range by assessing several factors for each employee.

The basics of salary structures

Pay Grade
Salary ranges are established based on the range
Maximum
of the target market pay for a cluster of jobs in the
same pay grade. This means that each pay grade has Pay Grade
an associated salary range that reflects a reasonable Midpoint
Pay Scale

spectrum of market value for jobs in that grade. Pay Grade

Minimum
There is always some degree of overlap in salary
ranges for consecutive grades, which recognizes
a seasoned employee in a lower grade may have
= Job
equal or higher value than a new or less-experienced
employee in a higher grade. The distance between
midpoints still provides for meaningful progression Pay Grades
when moving from one pay grade to the next. The
degree of range overlap and progression between • T he minimum is the lowest salary that should be
midpoints may vary depending on local market paid for a position
• The maximum is the highest
dynamics by country. • The midpoint is the aggregate of the going rate for
a number of jobs in that grade
There are many different structure designs, and not all
support the same sort of pay management. Let’s take
a look at the many different types of pay management
constructs and consider how they might work for benchmark data and salary surveys to support the
various employee populations and organizational guideline pay ranges included in the structure.
cultures.
There are many different ways to manage pay
and each has a certain set of characteristics. Each
Fundamentals approach, when evaluated against your employee
To make sure we’re all on the same page, let’s define population and desired method of pay management,
what is meant by a pay structure. A pay structure is a has certain advantages and disadvantages. Some
management tool used to simplify the administration structures work best for hot jobs, some for hierarchical
and management of pay for individuals. A pay organizations, some for those that promote based on
structure consists of a series of pay ranges for jobs time in job, and some for executives who come with a
of similar internal and/or external worth. Typically, broad range of experience and qualifications.
pay structures are built using external compensation

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Let’s take a look at a few types of pay structures in a bit more detail

Market reference/ Traditional pay Banded

spot rates structure structures

$ $

Market reference Position Position

Market reference
When managing pay with market reference points or defined as a collection of ranges, each with minimum,
spot rates, there’s one primary requirement: you must midpoint, and maximum pay guidelines.
absolutely love to benchmark jobs! The premise of this
The range spread (i.e., the percent difference from
type of system is that you will practically match every
minimum to maximum) is typically from 40% to 60%
job in your organization to market data that will allow
wide. The midpoint progression (i.e., the percent
you to develop a market reference point, plus or minus
difference between the midpoint in a range and the
a percentage to allow for varying experience and
midpoint associated with a range one level higher) is
performance.
typically 10% to 20%, with the wider percentages being
Within this approach, each job range is discrete and used for the higher valued jobs in the organization.
independent, and there is no clear or predetermined
Some have come to expect even a traditional structure
progression between the ranges or within job families.
to be somewhat more varied in range spread
Though less frequently used, this type of system
distribution, perhaps with ranges going from 30% to
can work well for jobs that are hard to fill, are in high
100%, in order to accommodate the full organization
demand, or are evolving, all of which are factors
(from the entry-level jobs up through executive-
that cause the market rates associated with jobs to
level positions). A traditional structure tends to have
fluctuate.
10-to-30 ranges with jobs aligned to each other in
However, that brings about another issue — in this a hierarchical manner. You would not typically have
type of system, you need to update all of the market overlap of jobs within a career path in one range.
reference points annually, if not more frequently. This
This type of structure largely supports pay
type of system requires a significant amount of market
progression through the attainment of jobs in higher
data and a solid understanding of a wide variety of
pay ranges. Flatter organizations that are encouraging
jobs. However, the results of this approach provide
skill development more broadly or are using more
specific pay guidance that can be very beneficial, even
flexible approaches to work (i.e., agile) may not find
necessary, in certain types of organizations.
the best support from a traditional pay structure. Note
that traditional pay structures — and the construct
Traditional pay of having a hierarchy of ranges all with a pattern of
progressing midpoints — can be used to manage
For those of us who have grown up in compensation salaried or hourly pay. For hourly pay, the approach is
over the past 20+ years, the definition of a traditional less common. When used, however, one typically sees
pay structure used today may vary from the “textbook lower range spreads and midpoint progressions.
definition” we used to know. To most, though, it is
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Types of pay structures (continued)

Broad bands Bands with reference points

Broad bands, or a banded pay structure, are best Originally born out of the need for pay decision
suited for an organization looking to emphasize career makers (i.e., supervisors and managers) to be given
development for roles that change less frequently guidance and more tools to use when considering
and/or provide varying levels of contribution to the pay changes for their employees, organizations that
organization. Promotions tend to be tied to a major implemented banded pay structures often now use
role change, rather than doing more of the same type “reference points” or mini-ranges within the bands.
of work, perhaps a little differently. The bands, or These ranges or reference points provide a clear view
ranges, are typically 100% to 200% wide and are often as to where individual jobs actually align along the pay
organized by career level (e.g., professional, manager, band.
executive).
For example, a senior accountant job might be
Broad bands allow for the greatest level of flexibility assigned to a professional pay band that has a
in managing pay, which has pluses and minuses. minimum of $70,000 and a maximum of $140,000.
Organizations can experience challenges with broad The current employee in the role, let’s call her Jean,
bands because of the flexibility. Managers will always makes $80,000. When Jean’s manager is considering
play a role in making pay management decisions, and whether she is eligible for a raise, he or she needs
asking them to function with such broad guardrails to understand how Jean’s pay compares to the
can cause frustration. Managers typically want to competitive market rate. It’s helpful for Jean’s manager
understand what the “market rate” is for a job, and to know that the market reference point for this senior
that is not readily apparent in a banded pay structure. accountant job is $85,000, which represents the rate of
This leads us to the next type of pay structure, bands a fully proficient employee with a solid performance in
with market reference points. the job.
Now Jean’s manager can decide, based on Jean’s
performance and how her pay compares to the
market, whether a pay raise is warranted. While
communicated differently, there are a limited number
of practical differences between this approach and
traditional pay structures.

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Managing pay for other employees Step-based pay structure: a schedule of discrete
hourly wages for each job. Pay progression is
Executives typically determined by time-in-job, skills obtained,
Managing pay for the executive population, performance, or a combination of these factors.
particularly the “c-suite” (e.g., CEO, CFO) is usually This approach is common in union and non-union
handled differently. Typically, pay for these roles is environments where experience must be obtained
managed outside of the pay structure, with limited before workers become fully proficient.
controls — in the typical HRIS sense, anyway. Or,
executives’ jobs may be assigned to pay ranges but
deviation from the guidelines (i.e., minimum, midpoint, Does your pay structure fit?
and maximum) is allowed. For executives, either of
these arrangements can work. It’s important to have a pay structure that supports
your hiring objectives, promotion strategy, and
These variations reflect the differential nature of the performance management program — more simply
roles filled by executives. Fundamentally, the highest put, your overall talent strategy. Trying to operate
level of company management has a very wide array with a pay structure that is misaligned to your
of experience and qualifications. They bring many talent strategy can lead to frustrated managers and
different skills to the table and contribute to the disengaged employees (not to mention an HR team
overall achievement of the company’s success in a that may feel a little beat up!). Do you know how well
myriad of ways. That in itself creates a need for more your pay structure is aligned to your talent strategy?
flexibility in rewarding their contribution through pay. Give it some thought by asking yourself these
Beyond that, we’ve only been talking about managing questions:
base pay, or salary. For the c-suite, base pay is not
Are the majority of our employees within the
always the most important component of the rewards
construct of our pay structure?
package. A review of competitive market data
Except during periods of transition, you want a well-
suggests that it’s not uncommon for a CEO to have
functioning pay structure to contain almost all of
50% or more of his or her pay delivered via incentives.
your employees (i.e., upwards of 90%). If you have a
Given that dynamic, as well as the factors listed
significant portion of employees outside of your pay
previously, the structure used to manage only 50%
ranges, and a lot of exceptions, then your structure is
(or less) of the rewards package is less important.
probably in need of some tweaking.
Hourly Employees
Do employees understand how their pay is
For the hourly population, there are several determined?
approaches to managing pay. However, in contrast Let’s be honest, everyone wants more pay. So, simply
to executive positions that may have a much broader asking if employees are “happy with their pay,” seems
range of pay based on experience and performance, a bit futile. However, having a solid pay structure,
hourly positions tend to have a narrower degree of pay along with an element of pay structure transparency,
and role variation within one job. This characteristic can provide employees with an understanding of how
means that, although you could create a pay range their pay is determined. This transparency can go a
(as noted above), fixed-wage/job rates or step-based long way toward improving your employees’ overall
wage structures tend to be more efficient from a pay satisfaction with the pay they receive.
administration standpoint, and are therefore more
common for hourly employees. Of course, there are many other measures of
alignment that you can use to understand whether
Fixed-wage/job rate: a set hourly wage for each job.
your pay structure is the best fit for your organization.
This approach is common among hourly roles where
jobs are highly defined, there is limited variation of job
responsibilities, and the time to proficiency is low.

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Annual planning
Being intentional about how you spend your time • C
 ollect and submit compensation survey data for
during the year — what you do and when you do it applicable surveys
— will give you a leg up when it comes to proactively • E
 stablish project teams and executive sponsors for
managing your most expensive resource: your project work based on identified talent management
compensation expenses. priorities

While every company has its own unique set of May – July
circumstances, using this checklist as a guide can help • P
 articipate and lead project work teams
you feel confident that you’re looking at all angles of • C
 omplete any targeted market pricing for particular
managing rewards. The months suggestions might job groups (NOTE: all jobs should be market priced
not work for you, but you’ll likely still need to do most at least every two to three years)
of these activities at some point in the year.
August – September
January – February • B
 egin annual planning in preparation for budgeting
• Finalize annual increase budgets and prepare for process:
performance management process: -P lan your internal department budget (tools,
- Ensure approval by leadership/board surveys to purchase the following year)
- Create direction to managers on how to distribute -M ap your next year’s compensation calendar
budget whether based on performance, skills, -C ollect preliminary survey data for compensation
market alignment, etc. planning
- Set up all systems with appropriate inputs; test -R eview survey results and incorporate new survey
systems and tools data into benchmarking tools; assess current
- Communicate to managers: alignment (e.g., pay structure to market, jobs and
- Guidance on using the systems/tools employees to pay structure)
- Availability of training opportunities and • M
 eet with leaders and HR partners to discuss needs
knowledge resources for following year
• Collect and submit compensation survey data for • C
 ontinue to participate in and lead project work
applicable surveys teams
• Finalize incentive plan design and communicate to
eligible population September – October
• Finalize project plan for calendar year across HR, • D
 evelop proposal for:
and your role in each project, by identifying talent - Annual increase budget, annual increase matrix,
management priorities (e.g., flexible working policies - Incentive payout (e.g., modeling payout)
and practices, DE&I, hourly pay, identifying skills, etc.) • A
 ssess current incentive plan design and determine
changes for next year
February – March • P
 resent budget and incentive plan design for
• Administer and support these processes: leadership approval, revise as needed
- Performance management and annual increases • P
 resent any project work for key stakeholder
- Bonus calculation and distribution approval; plan roll-out for new year
• Collect and submit compensation survey data for
applicable surveys November – December
• Establish project plans for other identified talent • F
 inalize budgets for annual increases and incentive
management priorities and obtain buy-in from payouts by incorporating leadership feedback as
leadership well as any revised survey data
• F
 inalize incentive plan design for next year and
March – April develop communication materials
• Develop reporting of annual increases and incentive • P
 repare systems and tools for performance
payouts; secure approval and process payouts management and annual increase process
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Tips for success

While there is a lot of number crunching involved, it’s • H ow you determine which surveys and data scope
so important to get out from behind the computer cuts to use to approximate the labor market
screen and in front of managers and employees. • The market pricing process
Speaking with the managers, HR partners, and even • How annual increase budgets are determined and
recruiters when it comes to understanding a job, the rationale behind the distribution guidelines, if
market pricing, and assigning a pay range is great for applicable
building rapport. • How managers can speak to employees about
compensation
Not only can you ensure you understand the job, • The process at your organization for requesting a
but you’re creating (or reinforcing) a partnership compensation review for a job
that includes cooperation. You’re also getting a • When an off-cycle compensation adjustment would
chance to educate all the parties on compensation be warranted
practices. Additionally, you will be making connections
and building allies in your company that will prove Plan for failure
invaluable in your career! Whether it’s loading a performance management
system with the current year’s algorithm or managing
Partner and educate
a huge market pricing spreadsheet to update market
Possibly one of the most common phrases uttered by pricing, there will be mistakes. Make sure your timeline
managers around annual increase time is something allows for multiple revisions, peer review, and testing.
like, “I don’t know, it’s just what HR told me.” Certainly,
that’s not the answer they want to give, and they One of the things you learn early on is that data is best
know the frustration that causes for their employees, when left in its natural state. The more you have to
but, in reality, often times they truly don’t have the manipulate the data, the more chances there are for
knowledge to explain why or how compensation and errors. Keep that in mind as you develop your market
annual increases are what they are. pricing and annual increase processes. Whenever
possible, leverage technology to create efficiencies,
This isn’t only a problem at annual increase time. It such as uploads/connections from one system to
also happens when managers are trying to hire “that another. Minimize the amount of times a human —
top guy” or “the one we have to get” who is so critical with our tendency for errors — will have to interact
to their department and they don’t understand why with data manually.
they can’t just offer whatever the candidate wants to
ensure they are able to hire them. Additionally, when
they have that high-performer who has come to them
with a request for an off-cycle adjustment and they
are afraid to lose them, they often times take a look at
others in the role and just can’t justify an increase of the
size the manager wants to give them to “lock them in.”

With a solid education in compensation and a really

great partnership, hiring managers and your HR team
members become your partners, not your enemies.
What should you educate them on? Here are a few
suggestions:
• Y
 our compensation philosophy and strategy and
how it connects to the overall business objectives

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Track and document everything

There is very little in the compensation world that In these and other scenarios, as someone responsible
is a one-off situation. Even situations that seem to for compensation for your organization, having good
be “unique” will likely pop back up again in a year documentation and a way to look back at prior actions
or so. Keeping good records that are accessible and and decisions is critical. Take stock of the tools you
understandable by others is critical. In my consulting have available to you, identify any gaps (and close
life, I can’t tell you how many times I spoke with them, if possible), and create a consistent method of
clients who didn’t have a market pricing software, documentation.
that instead kept their market pricing for individual
jobs in separate spreadsheets…with no way to search
through them or analyze the work.

Even answering the question, “How many requests for

individual market pricing have you fulfilled this year?”
Mercer is here for all your needs.
would be challenging when you’ve used an individual
form to market price each job. The fact that so many
For more information on compensation
jobs are related and comparable — you must have related tools and services contact
a way to easily access prior market pricing activities us today!
and the justifications for premiums, discounts, etc.
Many would point to having a tool such as MarketPay 855-286-5302
for solving that problem, but even tools like that still [email protected]
require disciplined documentation of the job analysis
and reasoning for particular market pricing choices.

The annual increase process is another example of

when tracking is critical. Question and document
everything. Since the process requires manager
input, there is always room for errors. Be sure you
build in time to review any outliers — for example,
the employee that the manager submitted with a
“1%” annual increase. Is that correct? Was it a typo?
Make sure you confirm the manager’s intentions and
document reasoning.

It’s helpful to create analysis and reporting processes

that will help you audit the merit increases. If you
are lucky enough to have a software solution, that’s
likely already available to you. But even if you rely on
spreadsheets, it’s still possible.

Additional Resources
Mercer | mercer.com; mercer.us; mercer.ca; imercer.com
WorldatWork | worldatwork.org
Society of Human Resources Management (SHRM) | shrm.org
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Elements and Purpose of Total Rewards

Element Strategic Role Examples

Compensation
Total Cash

• Support asset management

• Salary
Base Pay • Secure key skills
• Hourly wage
• Signal career progression
Total Direct Compensation

Short-term • Focus attention on short-term priorities • Bonus

incentives • Reward results; drive critical behaviors • Team-based incentive
Total Compensation

• Reward effective strategy and policy

making
• Stock options
Long-term • Balance annual incentive with focus on
• Restricted share units (RSUs)
incentives long-term (three to five year) results
• Performance share units (PSUs)
• Align employee interests with
Total Rewards

shareholders

• Retirement/pension
• Enhance security • Healthcare
Benefits
• Provide tax effective rewards delivery • Life & disability
• Paid time off

• Time efficiency/convenience • Club memberships

Prerequisites
• Status • Company car

• Build institutional knowledge

• Management training
Careers • Support succession planning (next gen-
• Rotational assignments
eration of leaders)

• Work environment
Quality of • Support attraction, retention,
• Quality of supervision
work life and productivity
• Flexible scheduling

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Glossary

Aging survey data: aging the data is the process of Industry specific: survey data that limits
taking data from different survey sources issued at participation and results to a particular industry in
various dates and adjusting the data to a common order to provide the most accurate data for jobs that
date to account for changes to merit and promotion require specific industry experience.
increases, new hires, and terminations.
Job review/job analysis: the process of examining
Benchmark methodology: a framework for the duties and responsibilities an incumbent is
organizing the steps you will take to accurately, required to perform, along with the nature and
consistently, and efficiently conduct market pricing level of the work and how the role fits into the
activities in your organization. It is a guiding organization.
compensation tool used to ensure that anyone
Job matching: the method of finding corresponding
who sets out to market price a benchmark job will
survey positions to match an organization’s position
consistently use agreed-upon methods of collecting,
using job descriptions to fit as many roles and
weighting, and combining data.
responsibilities as possible.
Compensation philosophy: a statement outlining
Labor market competitors: a peer group of
your organization’s goals for positioning pay among
companies that an organization competes with when
their labor market competitors and assuring that the
hiring and retaining talent.
compensation program supports an organization’s
culture. Outlier: a data result that is significantly different
from the range of other data sources. An outlier
Compensation strategy: a set of guidelines
could indicate a statistical anomaly or initiate a
around pay and benefits that determine how the
review of the data source.
compensation program is designed, implemented,
and administered. Percentiles: the value point along the data
distribution below which a given percentage of the
Composites: the result of combining various data
data falls.
according to the benchmark methodology. Different
weights may be applied to individual data points to Scope cuts: a customized selection of data sources
make each more or less important in the resulting based on criteria like industry, geography, or size.
survey data composite to account for any inherent
biases in the source. Total compensation: cash provided by an employer
to an employee for services rendered. Compensation
Compa-ratio: a ratio that conveys the relationship of comprises the elements of pay (e.g., base pay,
an individual’s compensation to the midpoint of a pay variable pay, stock, etc.) that an employer offers an
range to assess the competitiveness of an employee’s employee in return for his or her services.
pay level.
Total rewards: the monetary and non-monetary
Effective date: the point in time that a survey’s data returns provided to employees in exchange for their
is most accurate and at which increases in salary or time, talents, efforts, and results. Total rewards
pay rate go into effect. involve the deliberate integration of six key elements
that effectively attract, motivate, engage, and retain the
General industry: general industry salary surveys
talent required to achieve desired business results.
provide data on positions across a wide variety of
industries, allowing you to benchmark jobs that are
not exclusively tied to just one sector of work.

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