Data, data, data. We live, love and dream about data here at PayScale, and big data is driving business and pay decisions across industries and functions. But when it comes to data-based decision-making, there are a few occasions when decisions about pay and compensation need to go beyond the data.
Market data should inform how you set pay raises, determine pay increases and decide on pay offers for new hires; however, there will be occasions where factors like the make-up of a data set, internal equity, or individual employee contribution inspire compensation decisions that are made outside of the data.
Here are some examples:
1. You compete with a different location, industry or company size for talent
Often folks will begin market benchmarking by looking at data cuts for jobs in their specific industry, location or company type/size. When that data starts to look “off” or “too low,” though, it probably means your comp decision should be made based on other factors — specifically, other data.
This means looking for data that are coming from a more appropriate competitive set, that encompass other big players in your area or locations where you’re comparing pay and making decisions on that information instead; especially if you have one or two key roles (like an executive or regional manager) that operate in or compete for talent with a different market.
Example: You’re a small software startup in New Jersey, but you’re not trying to attract software talent from the Northeast only; you’re competing for IT and operations talent with the large local bank conglomerate headquartered in your area. You might need to look at a few different sets of market data to ensure you’re pricing your jobs to the appropriate market — software-positions data in multiple cities in Northeastern states, and IT and operations data aligned to the large banking industry in your location.
2. You need to pay above market
It’s very common for organizations to target the “middle of the market” (somewhere around the 50th percentile) for pay in their organization. But sometimes that target isn’t quite cutting it for the type of talent you’re looking to retain or attract.
Most market data provided by a salary survey or from a comp data solution will show a spread of data across the 25th-75th percentile of the given market for a given job. While it might be customary to make a decision based on that 50th percentile data point and target pay closely around that number, there will be situations where pay should align with the 60th, 70th or higher percentile(s) of the market.
Hot jobs or roles that are crucial to your organization may warrant pay that is above market, meaning it’s at the higher end of the market. Just keep in mind that you should still reference market data to make a conscious strategic decision to pay at the high end of it!
Example: If market pay for a role is typically $50k at the 50th percentile of the chosen market, and many of your top performing employees or candidates are asking for $80k, don’t just throw the market data out the door — look at the higher end of the market and see how close that ask is to the targeted percentile, and make a decision on whether you believe this role will be impacting your organization at that exponential rate.
Tip: Market-based pay ranges help with this! Build an internal pay range around the market data target that allows for some flexibility of pay decisions within that range. Building a market-based pay range allows you to set the midpoint of that range to the 50th percentile of the target market, with a range minimum and maximum that is still aligned within the market spread, but that also makes sense for your organization’s budget and internal comp policies.
3. You can’t find relevant market data
Every once in a while you’ll have a job in your organization that is fairly specific to your company or industry that doesn’t have a great market benchmark. While it’s a good practice to look at some market data for other comparable positions — even those that might be higher or lower level, but in a similar job family or field — ultimately the pay decision for the role will weigh more heavily on internal equity.
If you think about the job hierarchy and decision-making responsibility of this role, what might you compare it to in your organization?
Example: Your company wants to create a new role — “Customer Engagement Strategist” — that focuses on understanding the customer journey and strategizing all points of that journey to drive customer engagement with your organization, product or solution. You might start by looking at other comparable titles like “Customer Engagement Manager” or “Customer Experience Manager,” but inevitably find that it’s not quite on the mark.
Consider the data from those market benchmarks while also thinking about what other roles in your company might be similar: Maybe you have other internal strategist roles you could consider as data points?
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Lastly, you can look at where this role falls in terms of hierarchy in your organization: Who would they report to? Would anyone report to them? In your company, does this role align more closely with the decision-making authority of a manager, director or VP?
Considering things in this order — external comparable positions by job duties, internal comparable positions by responsibility level, and position level in organizational hierarchy — will help you get to a salary range that will get you started for recruiting!
4. Your top performers are worth their weight in gold
Many companies, or executives, have a mental list of the handful of people they can’t live without — the folks who are all about the mission and put in the time, energy and passion that drives the organization toward the goal post.
We often refer to that at PayScale as your “12 names in a drawer,” based on a CEO who kept a list of the 12 top performers crucial to the company’s success. Some may cringe at this story and worry about pay equity — but it’s also likely that you either know who these people are at your company or know a few department heads who have lists of their own. There’s a big difference between opening up the wallet for an employee who’s asking just because someone deemed them indispensable (not fair pay) and creating a performance plan that rewards their contributions in a measured and communicated way (definitely fair and equitable).
When it comes to compensating top performers “beyond the data,” the best way to do that is with pay-for-performance. Anyone in your organization who is impacting the business in a significant way should be compensated justly, which doesn’t mean you should disregard the data and give them whatever they want. It means you should identify the key contributions they make, incentivize them, measure them and reward based on them.
This might manifest as performance-based increase eligibility every year, or performance-based variable pay every quarter. Use market data and base pay range to guide these decisions, and be clear, thoughtful and intentional when making base-pay decisions that go outside of that range, or variable-pay decisions that add a significant expense to their TCC.
All in all, make sure you know why your organization is choosing to handsomely compensate a top performer — and most importantly, articulate that to the employee!
Four considerations to deciding pay
In summary, here are four things to think about in making pay decisions beyond the data:
- Does the actual relevant data for your position or organization exist in a different market set or data cut?
- Are you paying to the market target that makes the most sense for your business?
- Do you have a position you can’t find data for that you can help benchmark by looking at internally comparable roles?
- Are your top performers being paid according to relevant market data and a pay-for-performance plan that measures their impact?
How does your organization make pay decisions? We want to hear from you! Tell us your thoughts in the comments.
This article was first published on Compensation Today, the PayScale blog.