The market median pot of gold

08th August 2016

Staff member Samantha

Samantha Gee

Why pay benchmarking is not the answer

Are we reward professionals victims of our own success?  Convince managers of the value of pay benchmarking data and they soon demand more and more of the stuff. 

I started my reward career advocating the market median.  I used it to bring clarity to reward strategies, objectivity to pay conversations, and simplicity to reward modelling.  Perfect!

But I fear it’s gone too far.

It’s now become the answer.  A pot of gold we are all searching for.  It doesn’t take a statistical genius to realise that once you achieve the market median, it will inevitably move out of reach as others strive to do the same.

Pay benchmarking data is simply a collection of decisions made by other companies, about other people, in similar but still different roles.   

Those other companies will be different to your company.  They will have varying levels of performance, different budgets, and different reward strategies and employee deal to you.

Those other people will be different to your employees.  They will have varying levels of skills and experience, varying levels of performance, and be doing many different versions of the ‘benchmarked role’.  

But decision-makers often like the market median a little too much. 

It can be hard work to convince remuneration committees not to pay executives the market median and instead interpret the data in the context of the company and the individual in question.

And there’s often quite a debate to be had with clients who want to ‘bring everyone up to the market median’.  This will only escalate costs in the long run as some exceed the median but no one is paid below.

The market median, along with the upper and lower quartile, simply provide a useful indication of a competitive range of salaries. 

Use it to ensure your overall spend on pay is where you want it to be at a company level.  This is a ‘market median pay stance’.

And then use it to create competitive pay structures to guide the right decisions taking account of factors such as job content, value of role to business, individual skill level, performance and of course affordability.

I know the market median is tempting.  A pseudo-scientific way of getting an answer to a tricky decision.  An answer that is safe from discretion and requires little people management skill.  

But the market median is what it is.  A mid-point in a series of pay decisions made by other companies, about other people, in similar roles.   That is all.

It’s not golden.

Photo by Voyages etc…

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