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June 16, 2010
Using Data to Create a Market Pricing Methodology

In a BLR webinar titled "Compensation: Implementing an Effective Market Pricing Methodology," Chris Kelley, founder and CEO of KnowledgePay, Inc., explained how to use available data when adopting a market pricing approach to salaries.

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Once employers have chosen a source of pay data, they must decide how they will use it to support their salary structure. The first question to consider is which elements of the data will be consistently used. For example, a pricing structure might consider base pay data; incentive data, including target versus actual incentives paid; and long-term incentives such as stock options. A market pricing strategy must consider which statistical data points will be used and why.

Having chosen data points, employers must then decide and document methods for handling factors such as aging, blending of jobs across multiple surveys, premiums and discounts, survey frequency, and the job matching process.

Employers must also decide who will have access to the data. When, how and in what context will the data be delivered? Salary data may be shared with Human Resources, executives, front-line managers, and even employees. This is the most underestimated and overlooked aspect of the process, and one that is key to the success of an employer's market pricing plan. In addition, employers should invest heavily in training for line managers. The training should prepare them to effectively use market data and arm them with the data, tools and competencies to handle sensitive discussions with employees.

Employers also must anticipate the data management tools that will be needed to manage all the data associated with a market pricing approach to salaries. Job descriptions will require word processing software. Organizational structure analysis will require software that handles charts. Survey data and job analyses will require various databases. Individual pay decisions must be documented and stored.

Employers should consider contracting with a vendor such as KnowledgePay that can offer a unified platform for integrating job, employee, and external market data.

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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