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November 11, 2002 Issue

Today's Best Uses of Salary Surveys

Is your annual compensation budgeting process better known as “fall madness?”

Despite all the learned predictions on setting 2003 compensation budgets, many still search for a better “crystal ball” relating to industry-specific jobs. With most of the major salary surveys providing only a past perspective, focusing often on January – March data, organizations find the need to conduct special market surveys. This is especially true in industries with hot jobs, such as healthcare and engineering, where market rates often move two or three times during the fiscal year.

Recently, WorldatWork, the former American Compensation Association, published Market Pricing: Methods to the Madness. This excellent review of tactical and philosophical issues to address in the collection, analysis, and use of market data can be purchased at www.worldatwork.org. This issue of Astronology reviews one chapter from this publication: “Survey Insanity: Collecting the Right Data without Going Crazy.”

The chapter begins with the premise that the primary purpose of collecting market data is to make informed decisions about the organization’s compensation program. They state the primary issues all organizations face are the appropriateness of market data to the organization and the accuracy of job matches. Astron Solutions finds accurate job matching to be the most challenging issue.

In the past, most job matching was accomplished by focusing on job titles, with an assumption that all organizations use the same titles for the same jobs. A receptionist in organization A is the same as in organization B, C, etc. Rather, this is not reality. More often than not organizations begin with a common job base but alter the job to fit the individual incumbent.

The first key decision to make is the survey sources the organization will use. WorldatWork suggests the following factors in making this decision:
  1. Is the survey cost reasonable for the number of positions that you will be able to match and receive data on?
  2. How much time is required to respond to the survey and do we have the support to meet the deadlines?
  3. Is the data received timely?
  4. Who is participating and will the data received be relevant to our organization?
  5. How accessible is the information?
  6. Is the information collected kept confidential?
The next issue to address is identifying the relevant market. WorldatWork and Astron Solutions both focus on three key decisions when determining the appropriate market:
  1. What industries do we compete with for employees?
  2. What is the size of organizations we compete with? How is this identified (revenue, sales volume, employees, hospital beds, etc.)?
  3. What is the appropriate geographic market in which we compete?
These decisions often are not universally applied within an organization, but are job and job level specific. Compensation for senior management talent may span many industries and regions, while entry-level, non-exempt positions may have industry specific and local area implications.

With the market(s) identified, next determine which market data sources will provide the most accurate reflection of each market. An important point WorldatWork makes is “there is no exact market rate for any job.” Further, WorldatWork comments, “as a rule of thumb, salary information is expected to reflect the marketplace within a plus or minus ten percent.”

This is sound advice. Use caution when setting wage rates based purely on the market. This plus or minus of ten percent means there is a potential twenty percent swing (110% to 90% of the market) that must be considered when setting market rates.

The Internet is another compensation issue to address. Employees continually challenge human resources on pay competitiveness. Many organizations use internet-based databases as an inexpensive alternative to capturing market data, and as a source of information when making compensation budget decisions. WorldatWork, along with Astron Solutions, cautions organizations in using this data. WorldatWork suggests asking the following revealing questions prior to using this data:
  1. What is the target audience for the Web site?
  2. What is the data source?
  3. Are the data from employer-based surveys, or from individuals who enter the site?
  4. How is the Web site maintained?
Consider the following when deciding what data are relevant for the organization:
  1. What compensation data need to be collected?
  2. What are the benchmark jobs that data are needed for?
  3. From which labor markets are survey data needed?
  4. Do the data focus exclusively on base pay, or does it include targeted incentive pay?
The key is to conduct a market data needs assessment that will provide information to determine the types of market data required. If the need is to determine an overall compensation structure adjustment and merit increase pool, general industry surveys most likely will suffice. If, however, there is concern regarding specific positions or organizational levels, specific survey sources need to be identified.


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ISSN Number 1549-0467