I. Introduction
Compensation is what employees
receive in return for the work they performed. However, it is more than the
monetary payments since included in compensation are the additional benefits
given to the employees (Kleiman, n.d.). These additional benefits may be in the
form of pay vacation, pension plan, pay sick days, insurance and even employee
discounts on company owned products. The compensation practice of the company
has a great effect on its competitive advantage since employee compensation
affects the operating budget of the company. At the same time employee
compensation affects the productivity of the employees. Controlling both these
factors to the full advantage of the company is a challenge for any
organization.
In recent years, the compensation of
the companies has increased dramatically due to the benefit costs. The Society
for Human Resources Management has reported that benefit eats about 39% of the
total payroll for the year 2001 and 37.5% for the year 2000. In general, this
increase is seen in the rise of health benefits; which enjoys a 12% increase
annually (Kleiman, n.d.).
With such dramatic increase in
employee benefits, companies must then be able to balance the increase of these
costs with the productivity of its employees. This is imperative for a company
aiming to gain competitive advantage. And when the cost of compensation
increases the employers must find a way to offset these costs in order to have
its targeted profit.
There are laws which regulate the
compensation practices, such as the Equal Pay Act, Employment Income Security
Act and Fair Labor Standards Act. The employer must understand and subscribe to
these laws in order to provide fair compensation to its employees. However,
there are several factors which affect the prices of goods and services and the
company cannot simply raise its price to create a perfect balance. Some of
these factors, such as exchange rates, fierce competition and cheaper foreign
labor, are beyond the control of the organization. The organization then is
left with this challenge and unless it meets the compensation demand of the
employees and yet remain profitable, it has no choice but to outsource or
layoff its employees.
Compensation also has a significant
effect on hiring of employees. If the organization or company’s compensation is
not competitive, it runs the risk of losing the best workers or employees. Top
applicants will reject the inadequate compensation and will seek better paying
companies or organizations.
This may not sound so important for
some of the employers who are at present satisfied with its workforce but the
current trend in US
workforce, the retirement of the baby boomers, indicates that competitive
compensation will play a significant role in the company’s future growth.
At
present, employers must find a way to hire and retain the highly skilled and
most productive workers in order to compete with other companies and survive
the slacking economy and commerce. In
order to achieve this employers now use Market Surveys in determining employee
compensation.
II. What is Market
Survey
Market Survey is the tool used by
employees in achieving external competitiveness in terms of compensation in
relation to other organizations or corporations similar to its own. To be
competitive a company or organization must learn what other companies or
organization pays it employees. This is important in creating pay rates that is
highly competitive. This is done by conducting market survey and market survey
analysis.
A.
Market Survey and Pay Policy
The
first step of the process is acquiring a salary survey. The salary survey will
give the company the information on pay rates given by other companies, its
competitors mostly, for benchmark jobs[1]
(Kleiman, n.d). Some companies do this
by gathering information that is already available, such as the market survey
provided by the Bureau of Labor Statistics and trade association surveys. Other
companies however require a more thorough and comprehensive survey and so they
hire consulting firms to conduct its own survey.
Once the standard practice has been
identified, the next step for the company is to set its own salary and
compensation standard. The organization or company must then determine how
competitive it must be (Kleiman, n.d.). This is particularly important when it
is setting its pay policy since the market rate must be considered. Creating
the right pay policy is particularly important since if it is set too low then
the company will suffer recruitment and great turnover and if it is set too
low, the company’s profit will definitely suffer, which will result in later
lay offs and higher prices.
Thus the company must create a pay
policy that it can afford and yet at market rate. Most companies pay at market
rate although there are other companies which can afford to pay above the
market rate. These companies are called market leaders and they hire the best
employees. Companies who pay lower than the market rate, on the other hand, are
called market laggards. These companies are the ones which cannot afford to pay
its employees a competitive rate due to budget constraints. In order to make
the employees stay with the company and to attract applicants these companies offer
profit sharing or productivity equals salary scheme. Now, company must conduct
a market survey in order to establish its position or desired position in the
market. This is important in the company’s long term and short term goals.
At the same time, the company must
have a market survey in order to create a pay policy that fits its strategic
plan (Kleiman, n.d.). If the company’s strategic plan for instance is profit
sharing, it must then create a pay policy for profit sharing. Again, it must
consult its market survey data in order to set a most competitive, reasonable
and desirable profit sharing scheme.
B. Market Survey and Salary
After establishing its pay policy, the company
or organization must then price all the jobs. Companies must then start
establishing how much it want to pay its employees for all the jobs by again
considering the available data from the market survey. Since the market survey
generally reflects only the benchmark jobs, the company must then analyze the
market survey in order to set the rate for the non benchmark jobs. The company
must establish its own pay policy line [2] in
order to set the rates for the non benchmark jobs.
C.
Market Survey and Employee Contribution Equity
The market survey is also important
in the company’s achieving of employee contribution equity[3].
In order for the company to have its employees feel that they are fairly paid
for the work they render, the company must have its pay range for all pay
grades equivalent to the employees’ contribution to the company. The pay range
is generally set based on the market rate’s midpoint range. Thus consulting
again the market survey is essential. This will generally help the company in
setting the spread of the range from the mid point. For instance, the market survey
will indicate that the present trend is the spread of 10 to 15% for production
workers, 35 to 60% for professional and lower management positions while it is
60 to 120% for the top management positions (Kleiman, n.d.)
On salary increase, market survey
again plays a significant role in fair compensation and salary increase. By
consulting the market survey data, employers can offer their employees a more
fair salary increase which can address the time of when the increase should be
given and why such rate of increase is given to one employee versus the other.
This is demonstrated in the Pay Action 7 of the University of Virginia.
In their Pay 7 or PA 7, the employees are assessed based on the following
factors: pay history, length of total state service, qualifications, job
content and individual performance contribution, position of the employee’s pay
in the competitive market range, pay relative to similar jobs at the UV and pay
relative to average market salary for similar jobs outside the university (Equitable
Compensation, 2007).
The
seven factors give sufficient justification for pay adjustments or increase.
The pay and increase is determined not just by comparing the rate within the
jobs in the university but also within the similar jobs outside the university.
Their Office of Compensation Management constantly increases its market survey
library so it was able to create the PA7 for its employees.
The
PA7 was well received by the employees that the University even submitted it to
the Virginia State Department of Human Resources Management for classified pay
adjustments and will soon be applied to the in-band adjustment process of the
University (Equitable Compensation, 2007).
Other
companies are similarly developing their own pay and increase programs to show
their employees the fair compensation given by their companies. This eliminates
the possibility of false assumptions from their employees. At the same time,
this gives the employees a clear measuring program why they receive the salary
rate they are receiving.
D. Market Survey and Creating of Other
Benefits
At present, there is a significant
raise in employee benefits and this creates changes in what is otherwise a
simple compensation. Thus, companies or organizations are now adapting to the changes
in order to be more competitive and dynamic. These companies are offering
different pay schemes, benefits and incentives such as skill-based pay and “at
risk compensation”. At the same time, these allow for more flexibility for the
company and it enables them to operate more productively. By creating a more
flexible workforce these companies can maximize its resources.
Now in order for the company to
offer these different benefits and pay schemes that is competitive, it must
then conduct a market survey. With the data gathered from the survey, the
company can then offer a more competitive scheme that it can afford.
III.
Satisfaction vs Compensation as Revealed by Market Survey
In
a recent survey conducted by one of the leading providers of compensation
management solutions, entitled Employee Satisfaction and Retention Survey, it
was reported that there is a great difference between what employees found
satisfactory about their work and how the HR perceived what is satisfactory for
the employees.
Moreover,
there are other important findings from the market survey which revealed the
present situation or trend on employee compensation and turnover. The data,
which would not have been available without conducting a market survey, would
be impossible for the management to learn on its own. Furthermore, the data are
quite important for the companies in determining the trend of its employee
turnover and productivity.
One
of the most significant findings of the market survey is that only 21% of
employees are currently underpaid but 60% are looking for a new job. Employers,
on the other hand believe that only 36% are seeking other employment. Also,
about 66% of the tenured employees are also planning to find new jobs (Mind the
Job Satisfaction Gap, 2007).
These
numbers translate to companies losing their productive employees and excessive
turnover. These companies may hire new employees but the cost alone of hiring
and training new employees will have a significant effect on the company’s
ledger, starting with loss of productivity.
As
for the reason why the employees plan to leave, the survey found that 50% of
employees believe that they are underpaid. However, only 22% of the employees
are really receiving below the market value. The survey found out that one of
the major factors for employees to feel that they do not receive enough
compensation is the present practice of companies of over titling their
employees. Employees are given several titles which lead them to believe that
they should receive more for their jobs.
Another
reason why employees are seeking other jobs is because they do not have a real
idea of the fair market value. Not only do employees feel they are undervalued,
they also feel that other companies pay higher rates than their own companies.
These
are both false assumptions which the company can simply address with the
minimum of effort. However, this and other similar findings are not available
to the companies which do not conduct market surveys. In the present
environment, compensation is no longer confined to fair salary, as demonstrated
by the survey. Employees may be well compensated and yet feel that they deserve
more and should be paid more. And again this show the importance of market
survey on compensation and satisfaction of employees.
As
demonstrated by the University
of Virginia, with the
help of market survey, the company can easily show its companies the market
rate versus his own salary. The problem of false assumptions, which may lead to
great turn over of employees, can then be properly addressed and solve.
Work
Cited
Equitable Compensation: Pay Action
7 is a Systematic Approach to Determining Pay Increases.
2007. UVA Today University of Virginia.
Retrieved 27 February 2008 from
http://www.virginia.edu/uvatoday/newsRelease.php?id=3464
Kleiman, Lawrence S. n.d. Employee
Compensation. Reference for Business
Retrieved 27
February 2008 from
http://www.referenceforbusiness.com/management/Em-Exp/Employee-Compensation.html
Mind the Job Satisfaction Gap: HR
Professionals Underestimate Intensity of Employee Job
Searches and
Employees Fall Victim to "Grass is Greener" Syndrome. 2007.
Salary.com
Retrieved 27
February 2008 from
http://www.salary.com/aboutus/layoutscripts/abtl_default.asp?tab=abt&cat=cat012&ser=ser041&part=Par591&isdefault=0
[1] “Jobs that are performed in a similar manner in all
companies and can thus serve as a basis for making meaningful comparisons
(Kleiman, n.d.).”
[2] “The statistical relationship (i.e., simple linear
regression) between job evaluation points and prevailing market rates (Kleiman,
n.d.).”
[3] “When employees believe their pay fairly reflects
their level of contribution to the organization
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