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Measuring Compensation Against the Market

Topics: Comp Strategy
Compensation is the single-largest expense for the majority of companies. It helps your company recruit and retain talented personnel and therefore can be seen as an investment in your company’s success. As with any investment, a plan for how much you’re going to invest, along with when and where you’re going to invest, is essential. As a financial planner once told me, If you’re thinking about your investments individually and not as part of a bigger plan, you may as well be throwing darts at a wall of balloons and hoping you hit one that holds the jackpot.

The same is true when it comes to compensating employees. You can pull a random number out of the air for each new employee that comes through your doors, but that’s not a smart method of investing. As hiring managers, we tend to look at a few factors to determine compensation, like experience, previous pay and skill level. However, we sometimes overlook our most valuable investment tool: market comparison.

What is the competition doing?
Just as it’s vital to stay ahead of the competition when it comes to sales and innovations, your compensation package should at least be keeping up with the competition, if not exceeding. You can certainly look at what the best (and worst) companies are offering, but there’s no better way to measure than looking at your closest competitors. Which companies are recruiting heavily and successfully in your industry? Those are the companies you want to know about.


It’s great to know about the latest compensation trends, but what impacts you the most are the companies who want your employees and potential candidates. Are you paying less than what your competition will pay? In addition to your general competitors in the industry, you also need to know about your competitors in terms of geographic region. What are employers (of all types) in your city, state and surrounding states offering? Factors like this become a significant consideration as candidates decide where to apply and where to accept a position.

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Don’t get distracted by the big picture
It’s certainly beneficial to see the big picture and know what’s going on in the market in general, but In your comparison, think as specifically as possible. Start with what geographic areas and companies are offering, then drill down and look at specifics, such as what the average is for a specific job or a certain number of years of experience. You can do this by utilizing a vendor that supplies compensation information, such as PayScale. Using a vendor places all the information you need for a market comparison, both general and specific, in one place.

Gathering all this information without the help of a software vendor like PayScale or other outside sources can be time-consuming and still may not provide you with all the information you need. However, it’s always a good idea to keep your ear to the ground, browse through job offerings for salary ranges and talk to your network of HR professionals about compensation trends in their business.

The truth is, you want to pay employees competitively so that you get talented people, but without breaking the bank. Offer too little and employees will go elsewhere, but offer too much and not only does the cost outweigh the reward, but also your bottom line suffers. Comparing your compensation package against the market helps you determine what that magic number is so you can structure compensation offers accordingly.

What’s your most valuable tool for keeping up with compensation trends in the market? Let us know in the comments section below.

Are you sure you’re paying the right amount to keep your employees from going to your competitors?

What are the consequences to your business if you lose your most valuable recruits or employees?

Get a FREE salary report from PayScale to see how much to pay to keep them.

Jessica Miller-Merrell
Read more from Jessica

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