What is Market Pricing?
Marketing pricing establishes the value of jobs in an organization by looking at what the open market pays for such jobs. The market price of jobs is a product of the supply and demand of the skills required in each job on the open market.
Market pricing is using salary surveys to estimate the value of jobs based on comparisons between the jobs in the survey and those in the organization. This assessment of market value is conducted without taking internal equity into account. This approach necessitates thorough comparisons between the job descriptions from the salary survey and the organization's job descriptions. According to surveys, up to 80% of businesses base their pay structures on market prices.
Understanding the components of the position to be valued and the competitive labor market (e.g., area, industry, size) in which the company competes is essential before conducting a market analysis. Once concluded, the market price information can be used to create a salary structure.
Approaches to Market Pricing
To compare the organizations' pay rates with those of other businesses who offer comparable jobs, market pricing exercises use some form of job matching. There are many ways to compare jobs, ranging from job titles to job descriptions and where job grades are already available, it is easier to use job grades.
Collecting pay data
Giving jobs value requires collecting the necessary pay and benefits information from comparator organizations. After matching the company jobs to jobs in the market, you should collect pay data for the matched jobs. For an appropriate comparison, it is essential to use as many data sources as possible.
All data must be dated to a common date using a prorated percentage of the typical value increase in the competitive market since data is collected at different times, and each survey report has an effective date. This process of bringing data to a common date is called ageing. To get at the most accurate estimate of the market value, many measures of central tendency, including the mean, median, and weighted average, should be computed once all data has been aged.
Market pricing calculations might assume that reliable, comparable salary data is available and accessible. It's not always the case. For instance, certain occupations might be so specific that there are few external comparators available, necessitating assumptions about 'similar' job content that may affect the accuracy of the data.
The comparisons must cover all the facets of remuneration practices, from basic salary to total cost of employment figures and benefits.
Selecting a pay policy
A pay policy is a chosen market position that informs how the company would like to remunerate its employees. A company may decide to lag behind their target market. The common target market positions are 25th, 50th and 75th percentiles.
Sources of DataPublished statistics- A general idea of going rates can be obtained from published statistics from pay surveys and other organizations. Due to difficulties in comparing like with like, their usefulness is constrained.
Customized Salary Surveys-Special surveys are funded by specific organizations through specialized pay consultants, although access is typically only granted to participants and the contractor.
Basic Steps to market pricing
Step 1: Analyze Your Company's Jobs and Create Job Summaries
Organize and comprehend the positions you have in your business. Make precise job descriptions after analyzing these positions. Ensure the job descriptions outline the primary duties.
Step 2: Select Benchmark Jobs
Determine which of these jobs are considered benchmark jobs that would be typical in other similar organizations, such as an accountant. The number of benchmark positions your business chooses will depend on its size .
Step 3: Choose market data
Choose the surveys and market data you wish to use to determine the value of your benchmark jobs. There are various survey suppliers. Make sure to choose ones with adequate job coverage and the pertinent and reliable information you require.
Step 4: Make a match
Make sure to compare the positions available in your organization to those in the surveys by job description rather than the job title. To accurately determine a market price, it is recommended by the industry that three to five sources of market data be used.
Step 5: Chose Appropriate Market Scopes and Determined the Job Value
To determine the value of the job, choose the proper scope of survey data. Consider the sector, organisation size, and geographic area you want the data to reflect. This will assist you in estimating the fair market worth of particular jobs.
Step 6: Adjust Data as Needed
When you have established the market value, adjust the data or age data to ensure that it appropriately reflects your price philosophy.
Step 7: Based on Comparable Worth, Slot Non-Benchmark Jobs
You can compare these non-benchmark positions with comparable benchmark jobs that demand similar responsibility, skill, or knowledge.
Step 8: Do a reality check
Review your market pricing to see if there is a significant difference between the salaries offered by your organization and what the market is willing to pay for such roles. If so, you can design a new pay structure to balance those against the particular business priorities of your organization.
Market pricing can assist organizations in checking what the market pays for roles similar to those found within the organization. It can be handy when combined with internal gradin data to create an equitable pay structure.
Logical Zivurawa is a Business Analytics Consultant at Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm.
Cell: 0778 308 352 Email: logical@ipcconsultants.