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Pricing to the Employee vs. Pricing to the Job

Blog_header_PricingJobandPerson
Mykkah Herner, MA, CCP, PayScale

As an employee, I’m often concerned with my own value and therefore worth to the organization. As a manager, I was often trying to determine the value of each job to the organization. Now as a comp professional, I focus on a little bit of both: the value of the job itself, but also the value of the employee to the organization.

Pricing to Employees

I’ve seen a lot of companies that price by the employee. Each employee has a unique title based on her or his skills, and as a result they are compensated as an individual employee based on their skills, years, of experience, etc. This strategy can be problematic in a few ways:

  • It opens the door to pay inequity for jobs that are essentially the same. Pricing by the employee opens the door to favoritism by managers, where more popular employees get paid higher than their peers with better performance.
  • Employees may be compensated for skills or certifications that are essentially irrelevant to the work, and in some cases to the organization’s very purpose!
  • The pay structure may become lopsided or non-logical, where employees are compensated at a higher rate than their managers.
  • Finally, pricing to the employee often results in overall compensation practices that fall high relative to the market.

Of course for some cases, pricing to the employee may work and make a certain amount of sense. I have seen this work in small, developing organizations. In these cases, the existing employees are building the jobs as they go, so pricing to the employees’ skills may work. Also, because there tend to be single incumbent roles in smaller organizations, the danger of having pay inequity issues is smaller.

Pricing to the Job

I tend to focus first and foremost on pricing to the job, which means identifying the parameters, roles, responsibilities, skills, education, etc., required to do each job in the organization. I do this for a number of reasons:

  • Pricing to the job creates an emphasis on what the organization needs overall to be successful.
  • It creates the ability to be more strategic and think holistically about what is necessary for the organization.
  • The pay-plan developed for the organization and for each job is the right size for the scope of the position.

Of course just pricing to the job, without considering differences among employee skill-sets and experience also has its challenges. Ultimately it’s a combination of both pricing to the job and accounting for employee contributions that will be most successful.

Putting it all Together

Price out the job first. Develop a range of pay for each position in your organization. Then consider your employee contributions and place them in range based on their skills, experience, knowledge, tenure, performance, etc. Consider these factors at the point of hire, during evaluation periods, and when championing promotions.

Often I will hear a certain anxiety amongst either managers or leaders who are unwilling to create a firm cap to pay ranges. There is a psyche that comes with being capped out, and it should be taken seriously. That said, there are lots of ways to motivate employees, even those that are maxed out in their ranges. Consider a performance-based bonus—for those who cap out, if they continue to meet x,y,z criteria that forward the goals of the company, provide them with an additional lump sum bonus. That way you’re acknowledging that there is a value to the position, and also there is a value to the work being performed by your employees.

In the end, it’s the blended approach that works best: price the job, consider the employee contribution.

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1 Comment

  1. 1 Dale Dvorak 15 Apr
    I am interested in a salary range for an 8-10 million dollar retail furniture store in Marin County one hour north of San Francisco. This is a national multi billion dollar co. expanding its furniture business. I have 20 years direct experience managing this type of operation. and one year of service with the company now.

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