The hidden costs of over-leveling
And a new feature in Compa to help you avoid it
Leveling is at least twice as important as market percentile.
You can see it on the margin between levels for US software engineering base salaries:
The difference between the P3 50th and 75th percentiles is $20k and the difference between P3 and P4 at the 50th percentile is $40k — twice as big.
The cost difference scales.
Imagine two companies each hire 1,000 software engineers at the following distributions:
Company A hires fewer senior engineers and more mid-career engineers.
Company B hires the same number of engineers overall, but far more at senior levels.
Now let’s plot each company’s total base salary spend at each the 50th and 75th percentiles. How much does each scenario cost?
Company B spends ~$17 million more than Company A at either the 50th or 75th percentile due to its more senior level weighting.
Note also that Company A spend at the 75th percentile is equal to Company B at the 50th percentile. With more disciplined job levels, Company A can hire the same number of people as Company B with much higher salaries for the same cost.
Finally, note that the combined effects of market percentile and level distribution compound — more senior levels at the 75th percentile cost $33 million more than disciplined levels at the 50th percentile.
Avoid leveling mistakes
So how do you know if your level distributions are market competitive?
We launched a new feature in Compa at the beginning of this month to answer that exact question:
In Compa, you can now see how your levels match to the market, but also how your distribution of offers across those levels compare to the market distribution.
Here you can see how this (fake) company Lilac’s offer distributions across eight levels compare to what the rest of the market is doing — almost phase shifted up.
It could be a matching issue.
It’s amazing, though unsurprising, how inconsistently companies match to legacy surveys, usually (but not always) unwittingly. We want to make it easy to avoid this high-cost error for Compa users.
Or maybe it is indeed title inflation.
That is a much more challenging problem to solve; but the ROI is big. I’ve been there, ask me about it over a beer. 🍺
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