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The salary landscape has become somewhat murky since the pandemic fueled remote work. How has this impacted efforts to pay a fair market wage? What steps should organizations take to ensure salary practices are competitive and appropriate to attract top talent? What sources of information should they turn to for evaluating the competitiveness of their pay practices? What used to work that doesn’t anymore?
Here, we look at these questions and offer some advice for employers operating in an increasingly competitive talent market.
It all starts with your pay philosophy
All employers have a pay philosophy, whether they’ve clearly articulated it or not. In short, do your pay practices lead, lag or match the market? There’s nothing inherently right or wrong with any of these philosophies. There are, of course, different outcomes that might be expected.
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For instance, taking a lead role might make your company more attractive to job candidates, but could result in your spending excessively to attract talent. Conversely, lagging the market could make it more challenging for you to find qualified employees who stay on board for the long term.
Conduct a job analysis and update job descriptions
Your compensation approach should support and align with your organization’s strategic objectives. Based on those objectives, you would then evaluate the various jobs in your organization to determine the extent to which they help to contribute to, or drive, organizational objectives. For instance, a salesperson in a B2B sales organization is likely to contribute more than a billing clerk in that same organization. All positions are important; conducting a job analysis is simply a way to determine the relative importance of the various jobs you hire for.
It’s also important to ensure job descriptions remain updated. As skill requirements change, and as new technology emerges, how jobs are done changes too, and so does the relative worth of those jobs.
Identify benchmark jobs
Smaller organizations may only have a handful of jobs that need to be evaluated. In larger organizations, though, there may be hundreds of jobs and accompanying job descriptions. In these organizations, benchmark jobs are used as a point of comparison.
These might be jobs that are most prevalent in your organization, jobs that are hard to fill or jobs that are selected based on other criteria that make them important for ensuring competitive wage rates. Generally, they would represent the higher-paying jobs as other jobs within the organization would have salaries set relative to these positions.
Determine the market you will be recruiting from
Some positions – for instance, retail clerks or bank tellers – are likely to be recruited from a local market. Other positions, like web developers or C-suite executives, are likely to be recruited from a much broader regional, state, national or even international market.
The pandemic experience has had a significant impact here. Prior to March 2020, many organizations might have said that a significant portion of their workforce needed to be drawn from a relatively local market. Now, though, we have all learned that many jobs can be performed remotely from across the country or across the world.
Determine pay ranges for the positions you will benchmark
In determining market-based pay ranges, companies need to research what other organizations are paying for similar positions. This information can come from professional trade organizations, from surveys conducted by compensation consultants or from other sources.
Salary surveys, which used to be a go-to source for relevant and reliable salary information, no longer carry as much clout for a couple of reasons. One, these surveys tended to lag by a year or two, meaning that, in a quickly shifting market, the data is no longer likely to be accurate or up to date.
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In addition, the impact of the pandemic and a sudden increase in remote or hybrid work has complicated the salary landscape. Because of these shifts, some companies are taking a national or international approach to setting wage rates. This would mean that an employee working remotely from a small town in Montana would be paid less than the one working remotely in Manhattan because of cost-of-living differences. (I’ve seen Google practice this.)
An important first step in determining whether pay is competitive is to monitor competitors. Their job postings, listings or ads may contain salary information. In some states and locations, pay transparency is becoming a requirement. Effective May 15, for instance, New York City will begin requiring employers to include salary ranges in job postings.
Glassdoor, Indeed and PayScale are popular services for obtaining salary and compensation trends data. While sources like these are populated with input from employees and may not be as reliable as other sources, they can indicate what your applicants are likely looking at as they do their own research on what they’re worth. LinkedIn Salary is another source of information about pay ranges that potential employees often turn to.
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The length of time a job remains open can factor in. Just as when selling a house, the actual demand received can be very telling. With open jobs, if you receive a lot of interest very quickly, you may be above market; conversely, if your job postings sit open for long lengths of time, you may be offering a below-market salary.
An ongoing process
The bottom line, though, while money is important, it’s not the only thing that’s important to employees. Be creative in crafting a compensation and benefits package that offers value to employees, and be forthright about communicating the value of that package and the other amenities your company offers.
Evaluating pay to ensure competitive positioning is not a “one-and-done” event. It’s an ongoing process that should be repeated and updated regularly, especially in a constantly evolving global economy.