Feb 14, 2013 | Post by: Gwen Moore 1 Comments

Defining Market Compensation

How do you define marketing compensation?

A January 2013 study by Dice.com revealed that technology salaries in the U.S. saw their biggest jump in more than a decade.  Average salary for a tech worker in Silicon Valley is now over $100K while Portland and Austin have grown over 10 percent in the past year.

The Society for Human Resources Management (SHRM) defines four types of salary ranges:

Traditional: Typically has range spreads of 20-40% and midpoint progressions of 5-10%.

Market-based: Typically has range spreads of 30-80% and midpoint progressions of 10-15%.

Broadband: Typically have range spreads of 80-200% with no defined midpoints.

Step structure: Typically has range spreads of 20-40% and midpoint progressions of 5-10% with defined points within the range.

In their 2012 compensation survey conducted by Deloitte Consulting, they found while Traditional and Broadband structures were popular in the past, Market-based salary structures are now common.  They further reported an increase in pay structure variation by job level and geographic location.   Additional variation is now being seen by job type in hot markets such as Silicon Valley.  This variation enables organizations to adapt more easily to market-changing conditions.

Market-driven compensation is much more than the structure of a salary range.  In broad terms, it means a total compensation philosophy based on current market value conditions for attracting desired talent.  Other key considerations that drive market-comp strategies include:

Competition.  Who do you lose employees to and where do you recruit from?  Understanding their pay practices is a key consideration when determining market value for a role.  Furthermore, do they lead, match or lag the market in their total reward practices?

Companies like Google, Facebook, Apple, LinkedIn, PayPal, and Twitter are known for their market-leading compensation programs – but how each gets there is different.  Each has its own combination of lead, match and lag strategies within the layers of Base, Bonus, Equity and Benefits.  A company may lead in one aspect while lagging in another.

For example, the same engineer at Google can expect a base salary of $180,000 per year compared with $155,000 at LinkedIn, $150,000 at Facebook and $125,000 at Twitter.  Add to that the value of variable pay, equity and benefits, and the playing field is relatively level.

Supply and Demand.  It goes without saying; a shortage of anything drives cost up.  When it comes to talent, expect to pay a premium for roles where talent is in short demand such as design, innovation, big data and cloud computing in today’s market.

Our best clients are tuned into current lifestyle trends of candidates they want to attract and adjust compensation components on a regular basis to maintain a market-driven program.

Next time we’ll explore the ramifications of compensation compression.  In the meantime, share this article with your friends and join the conversation on our blog about market-driven compensation practices and strategies.

One Comment to Defining Market Compensation

  1. Brice X. Bryan
    February 15, 2013 10:27 pm

    The answer? If salaries stay on the low growth path (and inflation doesn’t enter the picture to alter the paradigm in any substantial way), I think we’ll be forced to consider narrower ranges – ranges which support a more reasonable salary progression relative to the market or “target” value for the job. It may also, however, be time to begin fundamentally rethinking the kinds of tools we use to manage base pay.

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