Of course, it may be that your compensation program is flawed, but it’s more likely that the survey the employee is referencing is flawed or inappropriate, says Brown of Effective Resources, Inc., who delivered his tips at a recent BLR-sponsored webinar.
It may be a bad survey that just wasn’t done well, or it may just not match the employee’s job or circumstances. Brown outlines the criteria that make a survey acceptable. We must know, he says:
- The source of the data
- The number of participating companies
- The number of incumbents for each data point
- The effective date of the data
- The data demographics
Brown suggests that you share your criteria with your employees, and let them know that if the survey doesn’t meet these criteria, it can’t be considered.
Unless we know the critical components of the survey, we will not consider it reliable in determining “the market.”
Continue to invite survey sources, says Brown. You might find some new ones.
Always insist on quality data before using survey data as the basis of any compensation decision.
Brown’s hints on good survey work:
- Use more than one source to smooth out data bias. Not that data are bad, but participants often represent something that is not a perfect match—wrong size, national in nature, etc.
- Use industry-specific data for jobs that are truly industry-specific.
- Age data to a common point in time. Look at the number of months between the survey and its use date. Then look at the annual rate, e.g., 3%, and prorate. The calculation is pretty simple on an Excel spreadsheet.
- Use a spreadsheet to capture your work and make future updates a breeze.
- Be sure to capture the survey job number, job title, and any demographics. You’ll often want to go back to the survey, and since you have already done the matching, that makes updating much easier.
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- Determine which surveys are best suited for your company and stick with them. (That way, you can see trends over time, Brown says.)
- Look for your data preferences—in order: weighted average, median, mean (average). Brown looks for the weighted average first.
- Review your market data at least annually even if you don’t think you can move the ranges.
- Review market data for technical or hard-to-fill jobs at least twice a year. This could be, for example, a clue to retention problems.
- Don’t use a survey more than 2 years old unless you have no other options.
Market Pricing Techniques
Remember, says Brown, that there will hardly ever be a perfect match to your job! Use common sense. If your job is a little “bigger” or “smaller,” adjust the market data by up or down 10 percent to 15 percent.
Document why you make these moves. “It was a good match, but our job has no supervisory responsibility, so we moved it down 10 percent or 15 percent.”
Ideally, invite your managers to confirm your matches, but don’t show them the dollars. They will get sidetracked.
Updating Your Pay Structure
Updating your pay structure is easier if you use an Excel spreadsheet, says Brown. Then, when you want to adjust range midpoints by market change, it is simple. For example, if you are 6 percent under the market on average (2 years behind, adjust range midpoints 6 percent.
Then determine who’s below minimum, who needs what sort of bump, and what the overall cost would be to correct the situation. If you have this on a spreadsheet, set it up so you can change the percent. Then, if management says that’s too much, you can just reduce the percentage of the increase until it matches management’s budget.
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When calculating geographic differentials, says Brown, consider the following:
- Use a reputable source for geographic differential data.
- Use salary differentials when building a pay structure for a given site or area.
- Use cost-of-living differentials ONLY when relocating someone.
- For large numbers of locations, group the differentials in workable groups.
- Update at least every 24 months.
In tomorrow’s Advisor, Brown on how to deal with salary compression, plus an introduction to the all-things-compensation-in-one-place website, Compensation.BLR.com.