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Lots of companies fret if their salaries aren’t “at market.” Should they be? Lots of effort goes into the compilation and analysis of data to determine just how competitive salaries and total comp are. If people care so much it must be worthwhile. Is it?
Well…yes and no. Of course it’s helpful to know if you have pay levels that are way out of line with market standards. But remember that those standards come from thousands of inputs (some good and some not-so-good) from thousands of people in thousands of companies. Of course, average large numbers can help to weed out the bad data. And if you average different survey sources you again find some “happy medians.” So the data may be helpful, and even reasonably accurate—as far as they go.
But therein lies the problem. Who’s to say that setting ‘median salaries’ is a best practice? Sounds like a ‘median practice’ to me. It seems like the foundational decision should be to determine what the overall pay package should look like. And this should depend on the company strategy and culture. Two examples may help.
In the last two weeks I visited two different clients in different parts of the country. Both companies are successful and growing. Company A has a very aggressive growth culture. Employees are expected to put in a tremendous effort to achieve higher and higher results over time. If they produce the expected results they’re paid well above market. Salaries are already set above market to help with recruting of top talent. Bonuses and other awards push the total comp package to the “Nth” degree. Employees are hired and fired with these expectations in mind. The company personality is designed for high performers with high expectations.
Company B is in a very competitive industries. Margins are tight. Fixed expenses must be watched carefully. Thus, salaries are below market—quite a bit below in some cases. But the company compensates in other ways. The work environment is fairly casual. The culture is very “family friendly.” Sure, some people grumble because pay levels are perceived to be low. But turnover is light. Nobody’s going anywhere. They’re hiring 20 new employees this month. Something must be right about “pay.”
So the next time you begin your market pay research first ask yourself what the relevance of the data will be. What’s the full story at your workplace? Is market-median pricing an essential for you?
Great article Tom! I am however curious to know which company is more successful, and if it’s related to how much they’re paying their employees. Is it safe to assume that the company who is paying their employees more will have highly motivated, hardworking employees and thus yield a higher profit?
William, both companies are successful within their respective industries. Pay, as you would expect, is only one element in determining satisfaction and motivation. In fact, higher pay doesn’t necessarily mean someone is more motivated. There tend to be other more compelling cultural contributors to motivation. Pay should serve as the ‘capstone’ to the successful link between the plan and results.