Creating a compensation plan can seem overwhelming, but in order to hire and retain good employees, it is necessary for companies to prioritize. A great first step is to perform a Market Wage Analysis. This will be the foundation of how you form your compensation plan.
What is a Market Wage Analysis?
A Market Wage Analysis is used to find appropriate data and form the most accurate pay ranges for positions. Basically, this is the comparison of compensation data for the roles in your company. Research is important so you know what others offer for the same roles you are trying to fill. Various factors go into how you set your compensation plan, but supply and demand will likely be the biggest contributor. Companies tend to pay more for candidates that are in high demand, desirable, and harder to find. If the person you are looking for is in higher demand, then similar companies will raise pay to attract them first.
Below is a list of key points to follow as you complete your analysis. These ideas will help ensure your company is on the right track to compete with other businesses in the hiring process.
There are a few characteristics that can influence wage, and since each role is unique, it’s important to cover all bases. Make sure your research is done within markets that are similar in size, region, and trade. The cost of living where a business is located affects pay. For example, if a company is located on the West Coast, pay could be higher when compared to companies in the Midwest. Higher compensation can be affected by location, specialization in niche areas, required certifications, and/or requirements to work with certain materials and machinery.
The size of a company and what a business can comfortably provide affects wage as well. Larger companies with hundreds of employees potentially have more funds for compensation versus companies that are smaller in size. Be sure to research the areas that are comparable to those of your business.
Create a Competitive Pay Range
Decide on how competitive your company is going to be with compensation. Do you want to be below, at, or above where your competitors are? If you cannot be at or above a competitor’s pay – think of how else you can stand out (bonuses, benefits, commission, etc.). For pay, find a minimum, middle, and maximum amount to create pay banding for each position. This range of compensation incentivizes growth and development for candidates. This can be helpful when a novice employee interviews for the role because the potential to grow is encouraged through the pay range.
Continue to Research
Research should be done quarterly for open positions, and annually for other current positions, to help stay on top of competitive rates and trends. There is always a chance the market can change, and it’s best to stay on top of it. Appoint someone to this task and set a reoccurring note on a calendar for the research to be regularly conducted. A large amount of time should be spent in this area to stay ahead.
The graphs shown below display the national wage growth over the last two years in the manufacturing and construction industries.
A Market Wage Analysis can be challenging and time consuming, but it is important so you can attract and retain talent.
Investigate the various markets your business is in, create a competitive pay banding to incentivize growth, dedicate time for continuous research, and create a plan that works best for the company. For additional assistance with recruiting, reach out to Enova today!