Market pricing is a process through which pay structures are setting almost selectively by gathering, evaluating, and matching the data on job salary surveys to settle on the payable rates in the external market. In market pricing, use is made of pay survey data to recognize the comparative value of a given job based on other employers is likely to pay for the same job. One of the advantages associated with market pricing is that it links an organization’s pay levels with the activities in the market, without the risk of getting distorted by the “internal” job evaluation process.
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Another advantage of market pricing is that it usually informs the employees that the prevailing compensation system is actually “market-linked”, as opposed to one that has been distorted by internal issues (Mathis and Jackson 87). On the other hand, market pricing is faced with several disadvantages. One of the disadvantages is that it is mainly dependent on market survey data that tends to be limited in terms of scope.
Alternatively, the market survey data could have been gathered through unreliable means. There is also the risk that some of the functions of a given job within an organization can be a bit different in comparison with the ones that have been identified as “matching” the job in the survey. There is also the concern of the scope of the market data, in that it could be from wide-ranging sources. Another disadvantage of market pricing is that tying the levels of pay to market data might result in wide fluctuations depending on the prevailing market conditions.
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Mathis, Robert, and Jackson, John. Human Resource Management (Eleventh Edition). Ontario: Thompson business & Professional Publishing, 2005. Print.
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