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August 19, 2010
Benchmarking Pay Grades

In a BLR webinar entitled "Pay Grades and Salary Increases: How to Build a Competitive, Equitable Compensation System in Your Workplace This Year," Dan Kleinman, principal of Dan Kleinman Consulting enumerated four steps to benchmarking pay grades in current market conditions:

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  1. Identify benchmark positions. Make sure that the job descriptions and analyses for these positions are absolutely up to date.
  2. Gather and analyze pay survey data. Turn to published salary surveys (Mercer, Watson Wyatt, Gartner, WorldatWork, etc.), online salary data (Payscale, BLS), association/trade organization surveys and similar sources.
  3. Review the survey comparisons and consider pay grade changes as appropriate. A silver lining of recessionary times is that workers understand why you might be changing pay levels and grades right now. They may not like it, but (more than they would in flusher times) they realize today's economy has thrown many compensation rules out the window. Now's also a good time to build more flexibility into your pay grades. For example, can you add extra steps within specific grades to account for workers who are gaining new skills, completing training or certification programs, or hitting performance targets? Also, take a closer look at tough-to-grade jobs such as highly skilled technicians, sales reps, and managers.
  4. Make these reviews an ongoing practice. You won't always have the "cover" of a rough economy to make these changes, but it still pays to make these pay grade reviews a habit. Consider doing an annual update using selected benchmark positions, with a full-blown study every two to three years or so. Try to use the same survey sources for consistency, and remember to calculate market averages and compare them to the closest midpoints within your pay grades to see how you stand.

Dan Kleinman is the principal of Dan Kleinman Consulting (www.dankleinmanconsulting.com), a California-based compensation and human resource consulting firm. For the past 18 years he has served a broad spectrum of regional, national and international companies providing compensation, performance, organizational planning and reward-system design services.

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