Learn about the potential drawbacks of relying on market pricing instead of job-content-based evaluation for compensation when recruiting talent in developing countries. Prepare for the SHRM-SCP certification exam with expert insights.
Table of Contents
Question
To recruit talent for a new venture in a small developing country organizational executives suggest that HR use market pricing instead of job-content-based evaluation. Which is a potential disadvantage in this compensation strategy?
Answer
Internal positions may not match market data. Market pricing is a process that companies use to determine the market rates for a particular position. Substituting market pricing for job valuation can be problematic in this situation. For example some positions will not be matched with market data and some of the market rates found will not match up well with expected internal relationships.
Explanation
One potential disadvantage of using market pricing instead of job-content-based evaluation for compensation when recruiting talent for a new venture in a small developing country is that internal positions may not match the available market data.
Market pricing involves determining pay rates based on what other companies are paying for similar positions in the relevant market. However, in a developing country, reliable market data may be limited or nonexistent for many positions. This is especially true for a new venture that may have unique roles.
Without good market data to benchmark against, it becomes difficult to ensure that the compensation for each position is competitive and fair. There may be internal equity issues if employees in similar roles end up with very different pay due to inconsistencies in the market data used.
Additionally, market pricing doesn’t account for the specific duties, skills and value of each position within the unique context of the organization. A job-content-based evaluation, on the other hand, assesses the worth of each role based on factors like required qualifications, scope of responsibility, and impact on the business. This allows for a more precise and tailored compensation structure.
While market pricing can be a useful input, relying on it too heavily at the expense of a thorough job evaluation creates risks of misaligned salaries that don’t reflect the true value of each position to the new venture. A balanced approach that considers both market rates and job content is optimal.
SHRM Senior Certified Professional (SHRM-SCP) certification exam practice question and answer (Q&A) dump with detail explanation and reference available free, helpful to pass the SHRM-SCP exam and earn SHRM-SCP certification.