The right position on the pay market is a key to successful compensation and benefits function in the organization. Setting the right position enables other HR Processes with value added to work and it supports the recruitment, staffing, retention and talent management. The right position on the pay market allows the organization to allocate the personnel costs efficiently and to keep the organization competitive.
When the organization sets the strategic position on the pay market, it has to evaluate several basic questions, which help to set the target position correctly. The decision is not formal as it forms other compensation and benefits processes, has a huge impact on the allocation of the personnel costs and limits the potential for quick changes in the compensation schemes used in the organization.
The main questions to be answered are:
- What do we want to achieve by setting the strategic position on the pay market?
- Who are my competitors?
- What reactions will we see to follow from the competitors?
- How many strategic positions do we need?
- What are the costs of the setting the strategic position on the pay market?
Why to set the strategic position on the pay market?
The modern organizations and modern and effective Human Resources Management are based on setting the competitive advantages. The right and efficient compensation strategy is a definitely the competitive advantage and it cannot work without the strategic position on the pay market.
The modern organizations are based on the talent management, offering the career opportunities and having other HR Processes to prolong the length of employment of the key employees and key job positions. The strategic positioning on the pay market allows the other processes to function properly and keeps the organization healthy.
The recruitment strategy cannot work without the adequate compensation strategy as it can easily miss the goals. The company can target the best potentials on the job market, but the salary offered has to be adequate to the qualities of the candidates.
Knowing your competitors on the pay market
The organization always knows its competitors in products and services. But the organization has to know and understand the competitors in Human Resources as well. They can be different. But employees can see the competition on the job market differently.
Knowing the competitors on the job market is extremely important for Human Resources. HR Recruiters have to analyze, which companies are sourcing the organization and the HR Front Office has to monitor, what companies hire new employees from the organization.
The compensation strategy has to be set as the organization can compete with the competitors on the pay market and the compensation strategy has to be inspired by their compensation strategies. The employees from the competitors working for the organization are usually open to help and they can provide the excellent information, which can save many discussions in determining the right compensation strategy.
Predicting the reaction of the competitors
It is extremely important to have several scenarios describing the reactions of the competitors. When you are the market maker and you change your compensation strategy, you can expect all the competitors will react and you can start costly war on the job market. When you are a niche player and you hire several employees per year from your competitors, they will not react.
In case, you hire just the experts, you can expect, the initiatives to protect the experts and key employees will evolve at your competitors and the price of hiring the expert from the competitor will rise.
One or more pay market strategic positions
Human Resources has to decide, whether it will use just one strategic pay market position for the whole organization or it will identify groups of specific job positions, which will be evaluated and positioned on the pay market differently.
The general pay market position is simple, it is easy to explain, the organization uses just one, but the organization loses the flexibility in the setting of the compensation strategy and this can lead to many exceptions in the compensation policy as the key groups of employees are not protected by the compensation policy in general and the managers will ask for the increased protection by using the exceptions.
The general pay market position can be more expensive than more pay market positions as the system tends to set the system to protect the key employees and the key job positions and the rest of the populations benefits from it.
The costs of setting the strategic pay market position
Money is driving the compensation strategy. Each proposal for setting the strategic pay market position has to be carefully calculated, analyzed and Human Resources has to prepare the predictions and forecasts of the future development.
Setting the strategic pay market position without the proper analysis and calculation is just a hazard with the future of Human Resources in the organization as the top management can be amazed, how expensive the strategic pay market position is.