Two key objectives in managing compensation systems are paying competitively and managing costs.
Market data is a valuable benchmarking tool used to make informed decisions about the organization’s compensation programs and pay practices compared to those offered by peers. Market data helps:
- Determine how pay for benchmark positions compares to peers you compete with for talent
- Develop and maintain competitive pay ranges
- Classify market-sensitive jobs, including technology, healthcare, bus drivers, and others
- Analyze pay trends and practices
- Plan operating budget for pay increases
Here are five steps to using market data effectively:
1. Selecting competitive market
The first step in obtaining market data is identifying the market group to include in the market analysis. Selecting a job market for comparison is based on a variety of factors, such as:
- Geographic region or location
- Competitors similar in enrollment size, type, budget, programs, and facilities
- Organizations that hire away your employees, those you hire employees from, and those you compete with for the same qualified applicant pool
The market group also may vary for different jobs. For example, the market for nonexempt jobs will be local competitors regardless of organization size, while the market for single-incumbent exempt jobs may be regional or statewide similarly sized organizations.
2. Selecting market sources
The second step is to select valid market sources to effectively assess competitive pay levels for benchmark jobs. Reliable market sources may be available for purchase from trade and industry associations, membership organizations, local business organizations, or compensation consulting firms.
Free sources of market data are available on the Internet. Use caution with these online sources, because the data typically is self-reported, can’t be verified, or is out-of-date.
A reputable market source for Texas school districts is DataCentral. Members of TASB HR Services can access market reports for superintendent, teacher, administrator, and auxiliary jobs, as well as extra-duty stipends. Pay data for more than 130 common school district jobs and 75 extra-duty assignments is available through DataCentral.
3. Identifying benchmark jobs
A benchmark job is a position that can be reliably matched to other organizations for pay comparison. Reliable benchmark jobs have similar skills and responsibilities across organizations, include multiple-incumbent positions, and are common in other similar organizations. For school districts, these include custodians, bus drivers, teacher aides, school counselors, principals, and special education directors, among other jobs.
4. Matching benchmark jobs to salary survey jobs
Once benchmark jobs are identified, the next step is to review the job description and match it to the survey position description, making sure qualifications and duties are comparable. Jobs shouldn’t be matched based on titles alone because titles can be misleading.
Job titles may differ from district to district, even if the duties are the same. For example, a school district may use the title “executive director” where the survey job title is “director,” but the duties and responsibilities of the position are the same level.
Benchmark jobs will vary slightly across organizations. Not all jobs will have a market match, especially those that require unique skills or “hybrid” jobs in which two or more distinct jobs are combined.
5. Comparing market data to district pay
The last step is comparing pay levels of benchmark jobs to survey pay levels. This pay comparison is referred to as a “market compa-ratio” and is achieved by dividing the salary by the market median rate for each benchmark job. If the comparison is lower than 100 percent, pay is below market. If the comparison is greater than 100 percent, pay is above market.
Generally, market ratios within 10 percent of market medians, above or below, are considered to be within a competitive range of pay. Jobs with pay greater than 10 percent below market need additional review and may require a pay adjustment depending on the situation. For example, an accountant new to the job with no prior relevant experience paid below 10 percent of market may be appropriate. However, organizations with below market pay for experienced employees may be at greater risk of losing employees.
Salary surveys use different statistical measures to present market data. A useful measure is the market median, which is the middle value of an ordered list of numbers. This means an equal number of reported salaries are above as are below. The median is the most useful statistical measure because it prevents skewing effects from unusually high or low data values.
HR can get the data needed to make informed decisions about pay by using reputable survey sources properly and consistently conducting market analyses. This extensive process ensures compensation programs are aligned overall with recruitment and retention goals for the organization.
Luz Cadena is a senior compensation consultant at TASB HR Services. You can email her at email@example.com.