Market Pay Disruption: Where is it Taking Us?

Anyone remotely connected with the ritual of market pricing (which is probably a majority of those reading this blog) is being confronted with a new reality.

This ain't your daddy's labor market.

Compensation surveys no longer show jobs making predictable and linear (if slow) strides forward in their "going rate."  Year over year market price movement is increasingly all over the map.  Market compensation for some jobs is going up, sometimes way up.  For other jobs, market compensation seems to be flatlining.  And for still others, market compensation is (gasp!) going down. 

This is no post-recessionary blip.  This, I'm afraid, is the new normal.  And signs indicate that the new normal may be just getting warmed up.

All of this throws the traditional realm of pay management into a bit of a tizzy.  Standard operating procedure with a market-based compensation system (still the most popular approach out there - at least in the private sector) links base salary opportunity/salary grade to market price.  Jobs, at least in theory, move up or down in the pay hierarchy or scale when market value rises or drops.  This approach, however, is built upon the assumption that significant, nonlinear market pay movement is the exception, not the norm. 

When technologies, business models, competitive advantages and even whole organizations can ascend or fail with the kind of speed we're seeing today, it shouldn't come as a surprise to us that the value of certain roles and skillsets can also rise or fall quite rapidly. 

The question is: What do we do about it?

The technology and tools are now available to track and analyze market pay data in almost real time.  That's good, but I'm not sure that gets at the real issue here.  The crux of the challenge is how we use this information, what kinds of decisions and actions we should take in response to market pay disruption.

I don't claim to have the answers, but a few thoughts come to mind.

Many writers here at the Cafe have talked about the need to shift from an emphasis on market mimicry and "sameness" to designing and implementing programs that reflect more precisely what our organizations circumstances demand.  Congruent to this is the need to move to evidence-based reward management, where we focus more of our analytical muscle on understanding the business impact of reward choices and practices. 

Bottom line: We can't and shouldn't simply yank our programs (and employees) around in a simplistic, knee-jerk response to what's happening in market job values.  This reality must be filtered through an informed understanding of what your company must do to succeed, and what people practices are most likely to deliver the talent base you need to get there.  Then, and only then, will we be in a position to make the right calls.

Can we get there? Perhaps market pay turbulence will prove to be just the boot in the butt we need to make the change.

That's what I think.  You?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a wide range of client organizations.  Ann was recently named President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and has joined the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares. 

Creative Commons image "Pillar Rock Surfer too close danger Morro Bay CA" by mikebaird

Comments

[Chris Dobyns]

Good posting. So, what Ann states is unfortunately unsettling - but true. Our organization believes that without the emergence of the next big product/service here in the Third Industrial revolution, that labor will continue to exist in excess supply for the foreseeable future. While it seems like we can't and shouldn't simply yank our programs (and employees) around, we're wondering whether that's exactly what we may need to do - as we've been advocating a shift toward "keeping faith" only with that narrow (disciplinary, not high-performing) segment of our workforce which represents our true competitive advantage. We think that we'll just need to live with the outcomes, on the assumption that we can dip into the available labor supply in other areas whenever we need to - since that supply will (always) seem to be there.

[Ann Bares]

Chris:

Thanks for sharing your point of view and experience here. Again - not that I have the answers here - but it sounds like your organization is doing what I advocated at the end of the post ... filtering the data through the prism of what you must do to maintain competitive advantage. That may indeed be to protect that narrow segment of your most valuable players and leave the rest exposed to the vagaries of market turbulence.

[jacque vilet]

If you want to talk about key skills coming and going --- remember Y2K? COBOL programmers were paid like kings as their numbers were scare and their skill was needed to avert computer meltdown when the clock clicked to 12:01am on Jan 1, 2000.

The difference between then and now is that we knew back then it was a short-term thing. Some companies hired them as contractors, some FT with same salary as other programmers + premium, etc. It was a pretty crappy ending though. Companies no longer needed them and well it got pretty messy.

This issue of not being so dependent on surveys/competition echoes what CEOs said in a Mercer survey --- that they didn't give a hoot what was competitive --- just don't let the key/critical people leave.

This is tough for HR who as a function is probably the most risk averse of all functions in a company. Very tough (and very uncomfortable) to let go of the "let's spread it around" viewpoint.

[E. James (Jim) Brennan]

Some animals are more equal than others, said George Orwell. Likewise, smart outfits understand how to distinguish between vital and useful and easily replaced. Although the term has fallen into disrepute due to excessively limited use, "discrimination" is actually an important management tool.

As I posted here 4/16/13, everything that can happen IS happening, so you can pick any trend you want. Might as well pursue that one that meets your greatest need!

[Karen Baker]

Ann I wonder if you are bugging my office. My team and I are updating salary structures and are unsettled by the market data. In addition to what you shared we are finding the delta between long-service incumbents are falling significantly behind new hires. In my career I have not seen such a difference. We know the average salary increase hovers around 3-5% but job changers are getting 12-15%. Wonder what your take is on this added dynamic.

[Vidal F.]

Thanks Anne - great article and well pointed actually.
I personally don't think this is something new, at least in my industry (O&G) and certainly not in Technology.
But I agree that the "pace" of the market fluctuation is much faster than it was just a few years ago, perhaps due to the so called "globalization" and the pressure on organizations to reduce cost, maximize profits and keep sustainability swiftly trying to keep up with the market conditions. Highly Skilled Labor is shorter than it ever was – but core/critical skills have changed a lot, and this is putting a lot of pressure on leaders, specially HR to not only attract and develop the best, but to keep them from jumping ships – Our rewards policies will have to be as flexible as ever and bend-over-backwards to stay abreast and compliant.