Traditionally, compensation models have been shrouded in secrecy, with the employer holding all the cards. However, a few big changes over the past five years have left companies off-balance and unprepared to compete for talent effectively.

There are several factors at play:

1. More jobs are becoming highly specialised as technology advances and “micro-industries” evolve. As a result, it is harder to compare one candidate to others in the market, when there may only be a sample size of two or three with the same, precise qualifications.
2. It is no longer uncommon for a single team to be distributed across the world. Because of this, determining salary is no longer as simple as calculating the relative cost of living in your geography. Physical location may no longer be the primary factor that drives pay for a specific job.
3. Increasingly, a talent market transcends not only geographies, but also multiple industries. While leading technology firms hired software engineers, a myriad of posted software engineering jobs are legion at financial, aerospace, and energy companies. Likewise, large churches and religious organisations now compete with established entertainment companies for producers and highly experienced creative professionals.
4. Employees and candidates are more informed than ever about what they’re worth thanks to social networks and online compensation services. And, as younger employees fill more positions in the workplace, they tend to expect more transparency from managers about the way their compensation has been determined. Because of this, employers need to be better prepared to back up their compensation offers with real data.

In the end, and in part due to the factors above, the single biggest driver of compensation today is not the job title, but rather a specific candidate’s own skills, achievements, and capabilities. Increasingly, these skills are most valuable when they are documented or certified.

In many industries, the required skills are constantly evolving, so some credentials that are hot today weren’t in demand several years ago. Because of these factors, it’s no longer good enough for hiring managers to play it by ear or approach compensation as a dark art.

This requires a cultural evolution for companies that used to rely on gut feel when it comes to compensation. Firms that want to attract somewhat elusive highly skilled and highly desirable professionals need to get serious about getting pay right.

For positions that are in demand — such as many IT and engineering jobs — hiring managers may find they need to pay 10 to 20% more than they anticipated to attract the right employees. And in some cases, these people are being lured from industries that are completely different from yours, and thus have different expectations about pay.

While it is important to price your jobs according to your compensation budget, it is more important to understand various attributes will drive different pay requirements. Employers need to become more precise about their offers to attract and retain the right talent. Analysing real-time data from many markets on an ongoing basis will ensure you are educated on the realities of who you are looking to attract.

And when you find the right person, you’ll know how much to pay at the exact moment in time the offer is being made.

See: 10 Reasons Your Top Talent Will Leave You

Source: HBR