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
- 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
- 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
- Finally, pricing to the employee often results
in overall compensation practices that fall high relative to the market.
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
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.
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
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
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
In the end,
it’s the blended approach that works best: price the job, consider the employee
More than 2,300 organizations use PayScale's subscription software to:
- Allocate raises. PayScale Insight allows you to allocate raises based on employee performance and labor budget.
- Attract talent. Price jobs based on your local market and competition.
- Retain employees. Get pay right and show them how you did it. Your employees will be more satisfied to stay.
- Drive performance. Get their salary right so they can focus on doing a good job.
- Be confident. With know-how to talk about comp with anyone.
What are you waiting for?