Job titles don’t determine pay, nor does the external market, really. It is internal equity that matches or exceeds market mandates.
Despite claims referencing the outside competitive market, no two employers pay precisely the same rates for any one job. While organizational chart rank has a strong correlation with compensation, no one particular internal status relationship precisely matches the outside world.
Parallels exist, but survey comparisons are always imprecise. Every job title tends to describe functional area of competency and level of responsibility. But how those levels of responsibility relate to an internal value system of status, reporting relationships and compensation are still up to each employer ... and each does its own thing.
Most pay rates generally follow external competitive market mandates, to a certain extent, although people are constantly frustrated when they try to match free market dynamics with internal status clustering. Outside reality is never exactly the same as inside practice. The external competitive marketplace usually operates in ways that have very little in common with your enterprise's historical traditions and past preferences for setting and maintaining internal peer relationships. For one thing, the external world changes a lot faster; it also shows no respect for unique enterprise tradition. When past internal advantages have continued long enough to be assumed permanent infinite entitlements, the movement of the outside world become secondary to perpetuating organization-specific peer equity considerations.
Once compensation reaches a level sufficient to attract, retain and engage competent talent, internal peer relationships typically prevail beyond that point. If you lose good people and can't get competent replacements for the same price, then everything shifts upwards. When pay increases for one job, all others seen as peer positions tend to benefit also. That rising tide created by external circumstances lifts all boats floating in the same pool. Letting one set of occupations move upwards while others long considered comparable languish becomes unthinkable.
As long as internal compensation exceeds the market-clearing rate, no one will protest ... except maybe:
- customers watching prices rise;
- taxpayers funding the generous practices;
- owners who see their profit margin threatened;
- sales people challenged to develop new markets;
- designers ordered to find cheaper production methods;
- workers displaced by to automation or offshoring; or
- behavioral economists questioning irrational decisions.
Outside conditions only become relevant when they undercut routine maintenance of the inside status quo. Regardless of the fact that you can find adequate replacement talent at lower rates, it is considered unacceptable heresy to threaten historical peer relationships by allowing internal pay to sag in line with outside reality. Habit can overwhelm the best intentions.
The obsession with relative internal continuity seems troublesome for the long run. We may be marching in lock step towards disaster. Or do you see it otherwise?
E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR and consulting roles in most industries, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.
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