Let’s first examine the current employment environment. It’s fair to say that from pretty much every angle, it’s an employee’s job market. Let’s look at some of the stats:
- Unemployment rate is at a 50-year low (3.7% - June BLS)
- 15 states and 12 localities have salary history bans as of April 2019 (HR Dive)
- 53% of workers are not are not engaged in their current job (Gallup, 2018)
- 22% of U.S. workers feel that they’re paid fairly (PayScale CBPR, 2019)
- Higher pay is the number one reason that workers decide to quit (PayScale, 2019)
When unemployment is low, competition for jobs decreases, putting upward pressure on salaries to attract top talent in a small applicant pool. And with more states banning companies from inquiring candidates about their salary history, each applicant can demand the highest salary they can get.
Organizations are well-aware of the current marketing with:
- 66% of all organizations agreeing or strongly agreeing that retention is a growing concern (up from 59 percent last year)
- Nearly half of all organizations saying that the strong job market has increased their turnover rate
- 58% of all organizations saying communicating pay rationale to managers and employees (furthering transparency) will become more important in the next five years (PayScale, 2019)
Clearly the upward pressure on wages is undeniable. But there is more to it. Next year millennials will make up nearly half the workforce, and as a group they look at transparency as a given. Millennials are far more likely than previous generations to look up their salaries online to make sure their pay is competitive. These employees will also look at sites like Glassdoor to evaluate future employers, often shopping as much for employers as they do for jobs. Failure to compensate employees adequately not only leads to the loss of comp-conscious employees but can also cost you prospective employees by tarnishing your company’s rating. Your current employees have a lot of power to affect how the world sees your company; and when employees are dissatisfied with comp and benefits, they tend to be vocal about it.
So, with everything clearly stacked against you, what is the answer? Things are changing, and they are changing fast. How do you keep up?
Through the years, many companies have gravitated to grade-based ranges. This type of salary structure has significant advantages. First, it is far easier to administer than job-based ranges in that jobs are slotted into groups prior to being graded. Grade-based ranges allow you to use market data to determine what grade a job will fall into; and since the same grade structure is used across the organization, it becomes a matrix that you can use to justify internal alignment decisions. But the biggest reason companies go with grade-based ranges is that some jobs do not have benchmark data; and if you have a grade-based salary structure, you can slot these jobs into pay ranges based on alignment with similar jobs. This type of salary structure is extremely popular with larger companies. The more jobs you have, the more grade-based administration is an attractive solution and the more frightening it is to go in the opposite direction - job-based ranges... a separate range for each job.
One disadvantage of grade-based ranges is that they are not very flexible. By grouping jobs into grades, they are then tied together, so that changing the salary range changes the range for all jobs in that grade.
This is where job-based ranges are more flexible and reactive. If you have ranges for each individual job then, of course, you can react in real time to changes in the market without affecting other jobs. In practice, this allows you to compete for talent in hot jobs without being restricted by a salary structure that contains other jobs less-dependent on the market. Also, pricing individual jobs promotes communication between the comp team and managers, facilitating alignment and a better understanding of compensation across the organization.
In today’s market this will be critical for some jobs, but do you throw the baby out with the bathwater and ditch your grade-based salary structure with all its advantages?
Statistics show that there has been a clear move away from grade-based ranges.
It seems, though, that more and more companies are charting a middle course. While smaller companies have no trouble moving completely to job-based ranges, larger companies are reluctant to abandon the advantages that grade-based ranges have afforded them. But it appears that across the spectrum, companies are trending towards a hybrid approach – keeping their grade-based ranges but pricing individual jobs where the market demands it.
So, where do job descriptions come in?
To develop the taxonomy for a grade-based salary structure, you must understand the basic work that people do. JDXpert, via its content and collaboration tools, allows you to muster managers and other stakeholders to assure the validity of your job data while side-by-side views provide an intuitive way to confirm the accuracy of your structure.
But whether your salary structure relies on a grade-based taxonomy or on individual jobs, a clear understanding of what people do is the single most important factor in creating any salary structure. An inaccurate or out-of-date understanding of the work that people do will cause your results to be at best suspect, if not completely flawed; and in today’s war for talent, it can leave you standing on the sidelines.