Sample Market Pricing Methodology

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Document Header

Field	Value
Document Type	Market Pricing Methodology
Category	Base Compensation
Title	Market Pricing Methodology for <Company Name>
Company	<Company Name>
Version	<Version Number>
Effective Date	<Effective Date: <Date>>
Last Review Date	<Date>
Next Scheduled Review	<Date> (annually, or sooner if market conditions materially change)
Document Owner	<Owner Title: e.g., Director, Total Rewards>
Approver(s)	<Approver Name/Title> and <Approver Name/Title>
Geographic Coverage	<Country/Region/Global>
Confidentiality	Internal - HR/Total Rewards governance document

Purpose and Objectives

• Define a consistent, auditable approach for determining market-competitive cash compensation for jobs at <Company Name>.
• Establish clear standards for selecting surveys, matching jobs, calculating market composites, applying geographic differentials, aging data, and setting market reference points.
• Support the design and maintenance of pay structures that align with business strategy, internal equity, and compliance requirements across <Country/Region>.
• Enable informed decisions by HR Partners, Talent Acquisition, and People Leaders while minimizing pay inequities and unmanaged risk.
• Provide a documented basis for periodic review, governance, and continuous improvement of market pricing practices.

Scope and Applicability

In Scope

• All regular employees of <Company Name> in <Country/Region/Global>.
• Base pay market pricing for benchmark and non-benchmark roles, including job families such as <Engineering>, <Operations>, <G&A>, and <Sales>.
• Salary range design, maintenance, and updates derived from market data.
• Geographic differentials and currency conversion rules for market data.
• Annual market review cycles and off-cycle triggers (e.g., material market movement).
• Special methodology adaptations for Sales Incentive roles, Critical Technical roles, and Executives.

Out of Scope

• Variable pay plan design (e.g., bonus targets, commission mechanics).
• Equity compensation valuation or grant guidelines.
• Job evaluation methodology and leveling frameworks, except where necessary for job matching.
• Union/collective bargaining compensation structures subject to separate agreements.
• Country-specific legal pay requirements not addressed in general methodology; these are managed in local addenda.

Applicability

• This methodology applies to Total Rewards, HR Business Partners, Recruiting, and Managers involved in compensation decisions for employees covered by the base compensation program.
• For countries with specific statutory or market practices, consult local compensation addenda owned by <Local HR/Total Rewards>.

Guiding Principles

• Market relevance: Use reputable, aged, and validated survey data to represent the cost of labor for comparable roles.
• Internal equity: Align pay decisions with job size, scope, and internal relationships, not solely external benchmarks.
• Simplicity and transparency: Use clear and repeatable calculations that can be explained to stakeholders.
• Governance and auditability: Ensure documentation, approvals, and data lineage are retained and reviewable.
• Compliance: Observe pay transparency, anti-discrimination, and equal pay laws in all applicable jurisdictions.
• Pragmatism: Where perfect market matches are unavailable, use logical proxies with documented assumptions.

Definitions and Key Concepts

• Market data: Aggregated pay data sourced from third-party compensation surveys representing comparable jobs and employers.
• Market composite: Weighted combination of multiple survey data sources to produce a single market reference point for a job.
• Market Reference Point (MRP): The target market percentile used to anchor compensation decisions; often the midpoint for a salary range.
• Market position: The target percentile relative to market (e.g., P50, P60, P75) by segment (e.g., core vs. critical roles).
• Benchmark job: A role with a well-defined scope and strong market data coverage used as a reference point.
• Non-benchmark job: Unique roles without direct market matches that rely on leveling, proxies, or regression models.
• Geographic differential: Factor that adjusts market data to reflect location-based cost-of-labor differences.
• Aging (trend) factor: Adjustment to bring older survey data to a common effective date using an annual movement rate.
• Range structure: Defined salary ranges with minimum, midpoint (MRP), and maximum for each grade.
• Compa-ratio: Employee pay divided by range midpoint, used for pay positioning and analysis.

Data Sources and Survey Selection

Survey Vendors and Data Quality Criteria

• Surveys must be from reputable vendors such as <Vendor Name>, <Vendor Name>, and <Vendor Name> with robust job descriptions, sample sizes, and validation protocols.
• Data must reflect the intended peer group by industry, size, and geography for <Company Name> (e.g., <Technology> sector, <Revenue>, <Employee Count>).
• Survey cuts should prioritize relevant talent markets (e.g., enterprise software talent in <Country/Region>).
• Preferred data elements include base salary, target total cash, and where available incumbent counts and standard deviations.

Survey List and Default Weights

• Default weighting balances coverage and quality:
  • Primary survey (e.g., <Vendor Name A>): 40 percent
  • Secondary survey (e.g., <Vendor Name B>): 40 percent
  • Tertiary survey or aggregator (e.g., <Vendor Name C>): 20 percent
• Weights may vary by job family where coverage differs, subject to Total Rewards approval.

Effective Dates and Data Currency

• All survey data are aged to a common effective date of <Date> using an annual movement factor of <Percentage> (e.g., 3.0 percent) unless otherwise specified by <Country> addendum.
• If multiple survey editions exist, use the most recent published cycle and document the edition date.

Job Matching Methodology

Matching Principles

• Match to job content, not titles. Prioritize scope, responsibilities, typical qualifications, and decision-making authority.
• Prefer matches within plus/minus one level of <Company Name> job grade where possible.
• Avoid over-matching to higher-scope roles or under-matching to narrower-scope roles; document judgment calls.

Matching Criteria and Thresholds

• A valid match should meet at least two of three criteria:
  • Content similarity: 70 percent or greater alignment in core duties.
  • Level equivalency: Within one grade or one career level of <Company Name> job.
  • Market prevalence: At least two independent surveys with acceptable incumbent counts (e.g., 20 or more incumbents).
• If a single perfect match is unavailable, use a blend of proxy matches (e.g., combining platform engineer and site reliability engineer data for a DevOps Engineer).

Matching Steps

1. Review the <Company Name> job profile and confirm job family, sub-family, and career level.
2. Identify candidate survey jobs based on content, scope, and required qualifications.
3. Confirm peer group filters (industry, size, geography) on each survey cut.
4. Validate level alignment using survey leveling guides and internal job architecture.
5. Select two to four high-quality matches per survey when available; document inclusions and exclusions.
6. Record selected survey jobs, weights, and notes in the market pricing worksheet.
7. Route the match set for peer review by Total Rewards before final pricing.

Market Composite Calculation

Calculation Overview

• For each job and location, compute a weighted composite of aged survey data at the target percentile (e.g., P50 for core roles).
• Use base salary for base-pay ranges; use target total cash for incentive-heavy roles where appropriate (see Special Considerations).

Example Composite (Base Salary, Local Currency)

Survey Source	Percentile	Aged Rate	Weight	Weighted Value
<Vendor Name A>	P50	62,000	0.40	24,800
<Vendor Name B>	P50	64,500	0.40	25,800
<Vendor Name C>	P50	60,000	0.20	12,000
Composite MRP				62,600

• The Market Reference Point for this job equals the sum of weighted values (62,600) at the target percentile.
• If a survey reports total cash only, convert to base by removing the target incentive percentage where appropriate and documented.

Percentile Selection Rules

• Core roles: P50 target, with +/- adjustments allowed up to P60 based on scarcity, business criticality, and retention risk.
• Critical/scarce roles: P60 to P75 target where talent competition is demonstrably intense.
• Early career pipeline roles: P50 target to maintain affordability and internal equity.
• Executives: See Special Considerations; may require broader peer groups and governance approval.

Aging (Trend) and Currency Conversion

Aging Method

• Annual movement factor: <Percentage> (e.g., 3.0 percent).
• Monthly compounding for partial-year aging:
  • Months since survey effective date: <Number>
  • Monthly factor: annual factor divided into monthly equivalent
  • Aged Rate = Survey Rate multiplied by (1 plus monthly factor) to the power of months
• Document any deviations when market-specific trend data or vendor guidance differs.

Currency Conversion

• Convert market data into <Home Currency: <Currency>> or local currency depending on program design.
• Source exchange rates from <Vendor Name or Treasury Source> as of <Date>; maintain a log of rate tables used.
• For recurring conversions, use rolling monthly averages to reduce volatility; document approach in the pricing file.

Geographic Differential Approach

Philosophy

• Pay to the cost-of-labor in each location where <Company Name> hires and competes for talent.
• Use location factors derived from survey data or third-party models aligned to <Company Name>’s footprint.

Method

• Base city tiers: <Tier 1 Cities>, <Tier 2 Cities>, <Tier 3 Cities> with example differentials such as 100 percent, 92 percent, 85 percent of the national reference.
• Apply differential to the MRP and entire range for that location.
• For fully remote roles, align to the employee’s assigned work location or a designated market anchor per policy.

Example Differential Application

Location	Differential	MRP (Local)	Adjusted MRP
<City A>	100 percent	62,600	62,600
<City B>	92 percent	62,600	57,592
<City C>	85 percent	62,600	53,210

Market Positioning Strategy

Positioning Targets

• Default target: P50 for most roles.
• Critical skills list: jobs designated by <Business Unit> and approved by Total Rewards may target P60 to P75.
• Differentiation requires documented business rationale and CFO/HRLT approval for structural shifts.

Guardrails

• Range midpoints should not exceed P75 without CHRO approval.
• Individual pay management should consider compa-ratio ranges:
  • Typical hire range: 0.90 to 1.00 of midpoint for fully qualified talent.
  • Strong market premium hires: up to 1.10 with justification.
  • Maximum of range: 1.20 unless approved via exception process.

Pay Structure Design and Use

Structure Architecture

• Global grade framework with grades <G1–G15> mapped to career levels (e.g., Entry, Intermediate, Senior, Lead, Manager).
• Each grade has a range minimum, midpoint (MRP), and maximum.

Range Construction Parameters

• Default range spread by level:
  • Non-exempt and early career: 30 to 40 percent spread
  • Professional/individual contributor: 40 to 50 percent spread
  • Management: 50 to 60 percent spread
  • Senior leadership: 60 to 80 percent spread
• Midpoint progression between adjacent grades: 8 to 12 percent for early career, 12 to 15 percent for mid-career, 15 to 20 percent for senior grades.

Converting MRP to Ranges

• Given an MRP and a target spread, calculate minimum and maximum:
  • Minimum = MRP divided by (1 plus half of spread)
  • Maximum = MRP multiplied by (1 plus half of spread)
• Round ranges to nearest <Currency> increment (e.g., <Amount>).

Range Maintenance

• Adjust ranges annually by market movement of <Percentage> to <Percentage> based on composite trend and affordability.
• Off-cycle adjustments allowed for hot jobs or new locations with documented evidence.

Special Considerations: Sales, Technical, and Executive Roles

Sales Roles

• Price Total Target Cash (TTC) at P50 to P60 for core sales roles using sales-specific surveys from <Vendor Name>.
• Define pay mix (e.g., 60 base / 40 variable) and ensure base MRPs align with TTC targets and plan design.
• Validate quota crediting and on-target earnings competitiveness by segment (e.g., SMB, Enterprise).

Critical Technical Roles

• For roles such as <Machine Learning Engineer> or <Cloud Security Architect>, consider P60 to P75 targets in key markets.
• Use specialized cuts (e.g., high-tech peers, venture-backed size cohorts) and broaden peer group if needed.

Executives

• Price total direct compensation with multiple peer cuts and governance oversight.
• Engage <Compensation Committee> and <External Consultant> as required by policy.
• Pay mix and long-term incentives are out of scope; align executive base salary to market per this methodology.

Pricing Frequency, Triggers, and Review Cycle

Standard Cycle

• Annual market refresh effective <Date> aligning with the compensation planning calendar.
• Update survey library and geometric means each cycle; re-age to common effective date.

Off-Cycle Triggers

• Documented market movement exceeding <Percentage> since last cycle.
• New locations or material changes in hiring strategy.
• Regulatory changes affecting pay transparency or wage floors.
• Acute retention pressures with evidence from offers-to-beat and attrition metrics.

Data Validation, Outliers, and Exceptions

Data Integrity Checks

• Confirm consistent job codes, grades, and locations across surveys.
• Cross-check sample sizes; deprioritize cuts with fewer than 10 incumbents unless coverage is limited.

Outlier Treatment

• Exclude survey data points beyond plus/minus two standard deviations where reported.
• If distributions are skewed, prefer medians (P50) over means.

Exceptions Process

1. Requestor completes the Market Exception Form citing rationale, proposed positioning, and risks.
2. HRBP and Total Rewards review data, internal equity impact, and budget.
3. CFO or CHRO approves exceptions beyond guardrails or where ranges require structural change.

Documentation, Systems, and Tools

• Maintain job-level pricing workbooks in <System/Repository Name> with version control and effective dates.
• Store exchange rate tables, aging factors, and survey editions with metadata.
• Use <Compensation System Name> to publish ranges; ensure integration with HRIS job codes and locations.
• Retain market data and decisions for at least <Number> years or as required by local law.

Roles and Responsibilities

• Total Rewards
  • Own methodology, vendor relationships, and annual market refresh.
  • Validate matches, compute composites, and publish ranges.
  • Govern exceptions and ensure audit readiness.
• HR Business Partners
  • Advise managers on pay decisions and internal equity.
  • Initiate exception requests with supporting rationale.
• Talent Acquisition
  • Use approved ranges and MRPs in offers; escalate when candidates exceed guidelines.
• People Leaders
  • Make pay decisions within approved ranges and budgets.
  • Partner with HR on exceptions and communications.
• Finance
  • Align market movement and structure costs with budget and affordability.
• Legal/Compliance
  • Monitor pay transparency, equal pay, and data privacy requirements; advise on local addenda.

Governance, Approvals, and Audit

Approval Matrix

• Market methodology changes: Total Rewards owner and CHRO approval.
• Structural range shifts greater than <Percentage>: CHRO and CFO approval.
• Executive role pricing: Compensation Committee approval per charter.

Audit and Controls

• Annual internal audit of a sample of priced jobs across functions and locations.
• Control checklist includes data sources used, effective dates, aging math, currency conversions, and documented approvals.
• Remediation plans tracked to closure within <Number> days.

Implementation Guidelines

End-to-End Pricing Workflow

1. Confirm job architecture: family, sub-family, level, and scope.
2. Select surveys and peer filters; capture edition dates.
3. Identify and validate job matches; document inclusions/exclusions.
4. Apply aging, currency conversion, and geographic differential to each data cut.
5. Compute market composite at target percentile; document calculations.
6. Determine positioning strategy (P50, P60, etc.) per role criticality and policy.
7. Translate MRP into ranges per spread guidelines; round and publish.
8. Conduct internal equity checks; model cost and compression effects.
9. Route for approvals per matrix; record decisions.
10. Load ranges into <Compensation System Name> and communicate to stakeholders.

Internal Equity Review

• Compare adjacencies by grade and family to ensure logical relationships.
• Identify red-circled (above range max) and green-circled (below range min) cases and remediate plan.

Offer and Promotion Use Cases

• Offers above 1.10 compa-ratio require Total Rewards approval.
• Promotions typically move employees to at least range minimum for the new grade; size increases based on merit guidelines.

Legal and Compliance Considerations

• Pay transparency: Ensure posted ranges in <Country/State/Province> align to approved structures and include clear disclaimers on components.
• Equal pay: Maintain job-related, documented rationale for pay differences (e.g., experience, skills, performance).
• Data privacy: Handle survey data according to vendor license terms and data protection laws in <Country/Region>.
• Wage floors: Monitor statutory minimums and living wage requirements; ensure ranges do not fall below legal thresholds.

Metrics and Effectiveness Measures

• Range penetration: Percentage of employees within range minimum to maximum.
• Market competitiveness: Median compa-ratio versus MRP by job family and location.
• Offer competitiveness: Offer acceptance rates and variance to MRP.
• Pay equity indicators: Unexplained pay gaps by protected category, controlled for job-related factors.
• Turnover risk: Voluntary attrition in hot jobs relative to benchmarks.
• Budget impact: Annual cost of range movement versus plan.

Review and Continuous Improvement

• Annual retrospective to assess survey mix, weights, and methodology effectiveness.
• Adjust aging factors, location models, and positioning targets based on outcome metrics and market signals.
• Solicit feedback from HRBPs and Talent Acquisition on usability and clarity.

Change History

Version	Effective Date	Description of Change	Author/Owner	Approver
<1.0>	<Date>	Initial issue	<Name/Title>	<Name/Title>
<1.1>	<Date>	Updated geographic differential model and aging factor	<Name/Title>	<Name/Title>
<2.0>	<Date>	Rebased survey weights and introduced critical skills positioning	<Name/Title>	<Name/Title>

Glossary of Terms

• Aging Factor: The rate applied to bring survey data to a common effective date.
• Compa-Ratio: Employee base pay divided by the salary range midpoint.
• Critical Role: Role designated as strategically differentiating and subject to elevated market positioning.
• Geographic Differential: Adjustment that reflects cost-of-labor variation by location.
• Market Composite: Weighted average of multiple survey data points at a defined percentile.
• Market Reference Point (MRP): The target market value (often P50) anchoring a range midpoint.
• Range Spread: Percentage difference between range minimum and maximum around the midpoint.
• Survey Cut: A filtered segment of survey data by industry, size, or geography.
• Total Target Cash (TTC): Base salary plus target variable cash (e.g., sales incentive or annual bonus).
• Trend Date: The date to which all survey data are aged for comparability.

Appendices

Appendix A: Default Survey Weighting by Job Family

Job Family	Primary Survey Weight	Secondary Survey Weight	Tertiary Survey Weight
<Software Engineering>	0.40	0.40	0.20
<Product Management>	0.40	0.40	0.20
<G&A (Finance/HR/Legal)>	0.35	0.45	0.20
<Sales (Non-Executive)>	0.50	0.30	0.20
<Operations/Support>	0.40	0.40	0.20

Appendix B: Example Range Construction

• Given MRP = 100,000 and target spread = 50 percent
  • Half spread = 25 percent
  • Minimum = 100,000 divided by 1.25 = 80,000
  • Maximum = 100,000 multiplied by 1.25 = 125,000

Communication to Employees and Managers

Welcome to <Company Name>’s overview of how we determine competitive base pay. We know that pay is personal and important, and we want to share our approach in clear, practical terms. Our goal is to pay fairly for the work you do, reflect the markets where we hire, and support meaningful career growth.

How we use market data We rely on independent compensation surveys from trusted third-party providers to understand what employers pay for similar jobs. We compare the content of our jobs to survey descriptions to make sure we are looking at the right roles, not just matching on job titles. For each role, we typically use multiple surveys and blend them to create a single market reference point. This helps reduce bias from any one source and keeps our data up to date.

What is a market reference point The market reference point, or MRP, is a target value that represents the market for a job, commonly at the 50th percentile (the middle of the market). In some cases, such as jobs that are particularly hard to hire or retain, we may target a higher percentile. The MRP anchors the midpoint of the salary range for that role and location.

Why pay varies by location Pay reflects the cost of labor in different markets. For example, a software engineer role in <City A> may have a different pay range than the same role in <City B> because the local market is different. We use location factors derived from our survey data to adjust ranges up or down for each location, so that pay is competitive where you work.

How salary ranges work Each job is aligned to a salary range with a minimum, midpoint, and maximum. These ranges reflect the typical pay for roles at a given level. When we hire, we consider your experience, skills, and internal equity to determine an appropriate point in the range. Over time, as your skills grow and you contribute more, there is room to progress within the range through our annual compensation process and career development.

When and how we update We review our market data and salary ranges each year. We look at how the market has moved, update our data, and adjust ranges where needed. In fast-changing areas or new locations, we may make off-cycle updates to stay competitive. You may notice range updates do not always result in pay changes; we focus on fairness across the company and individual performance and growth.

Our commitment to fairness We are committed to fair and equitable pay. We regularly review pay outcomes to identify and address unexplained differences. Differences in pay can be driven by job-related factors such as skills, experience, performance, and location. If you have questions or concerns about your pay, please speak with your manager or HR Business Partner. We want you to understand how decisions are made and how you can grow your career and earnings at <Company Name>.

What you can expect

• Clear salary ranges for your role and location posted in our internal tools and, where required, in job postings.
• Annual review of your pay as part of our compensation cycle.
• Opportunities to discuss your development and progression with your manager.
• Transparent processes for exceptions and changes, with appropriate approvals.

Where to learn more You can explore your current range and related policies in <HR Portal/System Name>. Your manager and HR Business Partner can help explain how the range applies to your situation and what steps you can take to grow your impact and advance.

Thank you for your contributions to <Company Name>. We appreciate the work you do and are committed to maintaining a compensation program that is competitive, fair, and aligned with our mission.

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Document Information:

• Document Type: Market Pricing Methodology
• Category: Base Compensation
• Generated: August 22, 2025
• Status: Sample Template
• Next Review: <Insert Review Date>

Usage Instructions:

1. Replace all text in angle brackets < > with your company-specific information
2. Review all sections for applicability to your organization
3. Customize content to reflect your company's policies and local regulations
4. Have legal and HR leadership review before implementation
5. Update document header with your company's version control information
6. At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.