The process of pricing job involves identifying the compensation provided by other organizations for jobs similar to yours. When your pay practices are similar to the practices of other organizations competing for the same talent, then your program is said to be competitive, or externally equitable. When we concern ourselves with external equity, we shift our focus from an administrative value system to an economic one. Thus, one should not expect the results of job surveying and the results of job evaluation to match one another. In fact, some small companies bypass the time and expense of job evaluation and go straight to the marketplace to find the wage information they need in order to set pay. This is called a market pricing approach. Some authors say the use of this approach is one of the fastest-growing trends in U.S. industry today. Others assert that it is not an effective method for two reasons. First, most companies have some unique jobs within an organization than they are to similar jobs in the external marketplace. Second, the strategic importance of jobs within a particular company may be misstated if compared only with the external labor market. See Critical Thinking Application 10-A for further consideration of this issue in reference to executive pay.
The principal tool for establishing external equity is salary surveys. Most organizations utilize some sort of survey information in order to approximate the prevalent pay practices in their particular marketplace. Within a traditional compensation program, comparing an organization’s practices to those of the marketplace typically involves three steps: (1) planning the data collection activities, (2) collecting the survey information, and (3) analyzing the information.