What is Market Adjustment Raise? meaning and best practices
What is a market adjustment raise?
A market adjustment raise is a pay increase given to keep an employee's salary competitive with similar positions in the current job market. Companies use market data and surveys to check if a role's pay is falling behind the going rate. They then raise the salary to retain current talent and attract new hires.
How does a salary market adjustment work?
As mentioned above, a salary market adjustment aligns an employee's salary with the current market value of their position. If data indicates the employee is underpaid compared to others with similar experience, they may be offered a raise to close the gap.
For example, if an accountant's salary is $65,000 but industry data shows the average for that role with their experience is $70,000, the company might offer a $5,000 salary market adjustment to remain competitive.
Why do companies do market adjustment raises?
Companies offer these raises to bring employee salaries up to the current industry standard. If an employee's pay is below this standard, they might consider leaving for a better-paying job elsewhere.
Below are the benefits:
To avoid employee turnover: Adjusting salaries to match market rates can help keep employees from leaving for better-paying jobs elsewhere.
To retain top talent: Losing well-trained employees to better offers can hurt companies, but market adjustments can help by recognizing their value and encouraging them to stay.
To address inflation and cost of living increases: As living costs increase, salaries may no longer cover expenses. Market adjustments help employees maintain purchasing power and feel valued.
To improve overall employee satisfaction: Fair pay is key to job satisfaction. When employees feel their pay matches their skills and market value, they are more likely to be happy and engaged in their work.
To stay competitive: Market adjustments help companies stay competitive by keeping their salaries attractive compared to competitors, aligning compensation with changing job market conditions.
Stay competitive with Compensation Software. Use its tools to price jobs quickly and accurately, and access the information you need for setting pay. The Analytics feature also allows you to create, edit, and share reports that analyze compensation across your organization.
Market adjustment raise vs performance raise
The difference between a market adjustment raise and a performance raise is that the former keeps salaries competitive with the external job market, adjusting for factors such as rising skill demand or industry trends, while the latter rewards individual contributions and achievements within the company, motivating employees to excel.
| Feature | Salary market adjustment | Performance Raise |
|---|---|---|
| Focus | Value of the employee's role in the current market | Individual employee's achievements and contributions |
| Reason for Raise | Salary lags behind market rate for the position | Employee exceeded expectations or goals |
| Determination | Based on external factors like industry trends and competitor salaries | Based on internal performance reviews and metrics |
| Amount | Variable, depends on market changes | Variable, depends on individual performance level |
| Timing | May be budgeted in advance, not necessarily tied to performance reviews | Typically tied to company's performance review schedule |
Best practices in implementing a market adjustment raise
Identify who's involved in the raise process
This is a team effort involving more than just HR. Leaders managing budgets must approve, data specialists provide salary information, and employees themselves play an important role.
Offer a raise that's significant and worth the effort
Offer a competitive raise by researching market values for similar positions. Exceptional performance may justify a bit extra, but the focus is on aligning salaries with industry standards.
With Compensation Software's Job Range Wizard, you can ensure internal fairness and external competitiveness. The tool compares internal pay ranges and actual employee salaries with up-to-date market rates. It also maps pay ranges for each job to the current market rate and breaks down job ranges by pay market for detailed assessment.
Build trust by communicating openly
Transparency is key. Clearly explain the reasons for the raise, such as retaining talent and competitiveness. Explain how the raise amount was determined and be open to employees' questions and concerns.
Customize communication for each employee
Avoid a one-size-fits-all approach. Meet individually with employees to discuss the raise, recognizing their contributions and value to the company. Be ready to address any feelings of unfairness compared to colleagues.
Keep monitoring and adjusting the raise as needed
This is an ongoing process. Regularly review salary data to stay competitive. Consider making smaller, more frequent adjustments if the market changes quickly. Also, ask employees for feedback to ensure they feel fairly compensated.
Compensation Software provides HR-reported market data, which is analyzed and updated monthly by a team of Certified Compensation Professionals. Its straightforward market pricing process also helps you quickly and accurately match and price your company's jobs.
FAQs
Here are some common questions about salary market adjustment.
Are market adjustment raises guaranteed?
No, they are not guaranteed. They're used to aligning an employee's pay with the current market rate for their skills and experience. This can happen if the market value for certain skills rises or if the company realizes they've been underpaying the employee compared to others.
How often are salary market adjustments given?
They are not scheduled like annual raises. They're based on factors like industry trends, skill shortages, or competitor compensation. Some companies discuss them during annual reviews, but they can happen anytime to stay competitive in the job market.
Can salary market adjustments vary by location?
Yes, they can vary greatly by location. The cost of living is a major factor, with employees in expensive cities often receiving larger adjustments to match local expenses. Also, areas with growing industries or talent shortages may offer higher raises to attract and retain skilled workers.
With Compensation Software, you can see how the cost of living and salary differences between locations impact pay when moving an employee or candidate from one place to another.
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