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June 16, 2010
The Rise of Market-Based Pricing in Compensation

In a BLR webinar titled "Compensation: Implementing an Effective Market Pricing Methodology," Chris Kelley, founder and CEO of KnowledgePay, Inc., discussed a major shift by employers away from internal job evaluation to a market-based pricing strategy to determine salaries.

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Market pricing is a method for evaluating jobs to determine pay levels. It is primarily focused on the external labor market.

In the past, many employers relied exclusively on internal job evaluations using point factors and job slotting to determine salary. Today, most employers have shifted to market pricing methodologies. Surveys show that between 50 and 80 percent of companies now use market pricing as the primary method for evaluating jobs. Most of these employers use a blend of market pricing and internal job evaluation. Technology companies are more likely to use "pure market pricing."

This shift toward market pricing reflects systemic changes in the employment relationship that have taken place over the past several decades. In the 1970s and 1980s, employers and employees considered employment a long-term contract. Many employment relationships lasted throughout an entire career. In addition, reliable data about the wider employment market was not available at that time.

Today, employers are operating in a free agency labor market. Employees are much more mobile, and employers must compete in the war for talent. At the same time, technology has given employers ready access to data about job pricing. As a result, market pricing has become the prevalent means of determining salaries among today's employers.

Chris Kelley is the founder and CEO of KnowledgePay, Inc. He has more than 20 years of experience working in corporate Human Resources/Compensation, and has led one of the largest implementations of market pricing in the U.S. He also serves as adjunct faculty for WorldatWork, and has been teaching Market Pricing since 2005. Visit his company's website at www.knowledgepay.com.

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