What is Market Pricing?

In the world of compensation, the term market pricing refers to the systematic process of determining the “market value” of jobs using internal and external compensation data sources, followed by the development and maintenance of pay ranges.

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Here, we’ll explore some market pricing basics, including the role of both traditional and novel data sources, as well as the strategic advantages and challenges of implementing market pricing programs.

The Value of Market Pricing

At its core, market pricing helps organizations ensure their compensation programs remain competitive and efficient by comparing internal roles against similar positions in the external market. However, the practice involves much more than simply matching job titles and salaries—it requires careful analysis of job content, market conditions, and organizational strategy.

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In today's dynamic business environment, market pricing plays a crucial role in attracting and retaining top talent. Organizations conduct market pricing exercises to benchmark pay, establish pay ranges, support pay equity and pay transparency, inform offer decisions, and adjust compensation strategies as market conditions change. Effective market pricing helps companies balance the need to be cost-effective while remaining competitive in key talent markets.

Finding Quality Compensation Data Sources Is Key

Traditionally, market pricing exercises have relied heavily on compensation surveys conducted by third-party providers. These surveys collect compensation data from participating companies, including information on base salaries, bonuses, equity, and other forms of pay. Companies typically participate in multiple surveys to get comprehensive coverage across their job families and geographic locations.

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However, traditional survey data comes with some significant limitations. Most notably, there's often a considerable time lag between when data is collected and when it becomes available for use. Survey data can be anywhere from 6 to 12 months old by the time companies access it, which is particularly problematic in rapidly evolving industries or during periods of significant market volatility. This lag can force organizations to make market pricing decisions based on outdated information, potentially undermining their ability to compete for talent.

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Another challenge with traditional surveys is the quality and relevance of job matches. Job titles and responsibilities vary significantly across organizations, making it difficult to ensure accurate comparisons. Companies must often blend multiple survey matches or make subjective adjustments to account for differences in job scope or requirements, introducing potential inconsistencies in pricing decisions.

Real-time compensation data sources can provide more current insights into market movements and emerging roles that may not yet be captured in traditional compensation surveys.

Real-Time Data is Transforming Market Pricing

Given these challenges, real-time market data has emerged as a valuable complement to traditional surveys when completing a market pricing exercise. Real-time data sources include persistent and automated connections to HRIS, ATS, and equity administration systems, which is how Pave operates our benchmarking tools, along with information from job postings, crowdsourcing, and professional networks.

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These sources can provide more current insights into market movements and emerging roles that may not yet be captured in traditional compensation surveys. Real-time data is particularly valuable for understanding hot skills premiums and rapid shifts in market rates for specific talent profiles (e.g., new artificial intelligence and machine learning jobs). The benefits of incorporating real-time data include:

• More timely insights into market trends and emerging roles
• Better understanding of geographic pay differences
• Ability to spot rapid changes in market rates
• Insights into competitor hiring patterns
• More comprehensive data for niche or highly specialized roles

Market Pricing Basics

While there isn’t one right way to conduct a market pricing project, compensation professionals often follow some or all of the work steps below when they do an analysis for the first time:

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• Job Documentation and Analysis
  • Review existing job descriptions to ensure they are current
  • Document key responsibilities, required skills, and experience levels
  • Identify job families and career levels within each function that need to be “priced”
    
    
• Data Source Selection
  • Identify relevant data sources based on industry, geography, and company size/stage
  • Ensure data sufficiency for statistical validity
  • Evaluate data effective dates and aging methodologies when dealing with surveys

• Job Matching
  • Compare internal job descriptions to data source job descriptions
  • Match internal positions to data source positions with at least 70% job overlap
  • Note any scope differences that may require adjustments
  • Record job matches by data source for future reference

• Data Collection and Normalization
  • Extract relevant data points (e.g., salary, total cash, equity) from data sources
  • Adjust for labor markets using geographic differentials
  • Age data to a common effective date using specified aging factors if using surveys
  • Document data sources and adjustment factors used

• Market Pricing Analysis
  • Pull key statistics (mean, median, percentiles) from data sources for each pay element
  • Review data for outliers or inconsistencies
  • Compare data across multiple sources for validation
  • Weight data if using multiple sources
  • Document sample sizes and statistical reliability

• Range Development
  • Determine your target market position (e.g., median, 60th percentile, etc.)
  • Calculate range minimums and maximums using desired pay range spreads
  • Review for gaps or overlap between levels
  • Smooth progression between ranges
  • Document range calculation methodology

• Internal Equity Review
  • Compare proposed ranges to current incumbent salaries
  • Analyze impact on internal reporting relationships
  • Review gender and other demographic pay equity implications
  • Calculate cost impact of any needed adjustments
  • Document findings and recommendations

After completing your company’s first market pricing exercise, future updates usually require less work. For example, you may not need to re-match jobs if your data sources remain the same year-over-year.

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Connecting Market Pricing to Your Business Strategy

However, market pricing isn't just about collecting and analyzing data. Organizations must also consider their own compensation philosophy and strategy. This includes decisions about where to set your target position to market (e.g., aligning pay to the market median or targeting a higher percentile), how to define the width of pay ranges (e.g., +/- 15% of median), flexibility for hot jobs or critical skills, and how to balance external competitiveness with internal pay equity and cost pressures.

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As noted, data quality and consistency can present ongoing challenges in market pricing. Thus, organizations must carefully validate data sources, understand methodology differences between surveys, and ensure they're making appropriate comparisons. This often requires significant expertise and judgment, particularly when pricing unique or hybrid roles.

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Market pricing also needs to account for total rewards, not just cash compensation. This includes benefits, flexibility, career development opportunities, and other factors that influence the total employment value proposition. Organizations increasingly need to consider how these elements affect their market competitiveness and adjust their pricing strategies accordingly.

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Finally, the globalization of workforces and the rise of remote working add new complexity and operational hurdles to market pricing. Organizations must decide whether to price jobs based on employee location, company location, or some hybrid approach. They also need to consider how different geographic pay strategies (e.g., using market tiers) will affect their ability to attract talent and maintain internal equity.

Pave is Here to Help

Despite these challenges, market pricing remains essential for maintaining competitive and cost-effective compensation programs. Companies that combine traditional survey data with real-time market insights, while maintaining a clear compensation strategy, are better positioned to make informed decisions about pay. This balanced approach helps organizations stay competitive in their key talent markets while managing compensation costs effectively.

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As the pace of change in talent markets continues to accelerate, organizations will need to become more sophisticated in their market pricing approaches. This may include greater use of predictive analytics, more frequent market adjustments, and better integration of various data sources to provide a more complete picture of market conditions. 

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This is where Pave comes in. To learn more about how Pave can take your company’s compensation market pricing process to new heights, request a demo today.

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