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November 25, 2002 Issue

How Do Anti-Trust Guidelines Impact Market Pricing?

Today continues the last Astronology’s review of WorldatWork’s Market Pricing: Methods to the Madness, this time focusing on anti-trust implications of conducting salary surveys.

For years, a prime function of the compensation section of human resources was verifying the current salary program’s market competitiveness. Many organizations dedicated staff to contact competitors or other organizations deemed to be part of the market database, to obtain current and projected salary information such as average pay, range minimums and maximums, and planned salary adjustments. Many organizations used this method, rather than purchasing published data, to ensure data appropriateness and accuracy. Many compensation professionals are suspect of published salary data and concerned with the lag time in receiving the information.

Some important background information reveals the perils of this process.

Two separate court cases in the early 1990s dealt with conducting salary surveys and sharing salary information among competitors. One involved The Boston Survey Group, a group of employers that regularly traded data. While the data were coded to ensure confidentiality, codes were openly traded. Thus, competitors were able to share confidential salary information.

The second case was a suit brought by nursing groups against the Utah Hospital Association. The suit alleged that the Association, by identifying data provided by competitors in a salary survey, engaged in a form of price fixing outlawed by the Sherman Anti-Trust Act. In 1994, a consent decree was issued stating the hospitals were indeed in violation of the price fixing provisions of the Act and were ordered to stop. The same type of ruling affected the Connecticut Hospital Association. Additional rulings impacted Exxon and the Federal Reserve Bank of Boston.

A key question to answer is how conducting a salary survey becomes price fixing and a violation of the Sherman Anti-Trust Act. According to WorldatWork:

“The Sherman Anti-Trust Act of 1890 was established to ensure competition and eliminate monopolies. However, it has been determined through the courts, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) that conducting your own salary surveys could be deemed anti-competitive price fixing when the element of collusion to ‘fix the cost of labor’ is present. Included in the elements of collusion are the current average pay rates deemed to be historical data combined with merit budget estimates (deemed to be projective of the future).”

To better understand this issue and it implications, the following is taken from statements of antitrust enforcement policy in health care issued by the U.S. Department of Justice and the Federal Trade Commission in August 1996. This document has been used in subsequent court decisions impacting all industry sectors.

“In assembling information to be collectively provided to purchasers, providers need to be aware of the potential antitrust consequences of information exchanges among competitors. The principles expressed in the Agencies' statement on provider participation in exchanges of price and cost information, including the cost of labor, are applicable in this context. Accordingly, in order to qualify for this safety zone, the collection of information to be provided to purchasers must satisfy the following conditions:

the collection is managed by a third party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);
although current fee-related information may be provided to purchasers, any information that is shared among or is available to the competing providers furnishing the data must be more than three months old; and
for any information that is available to the providers furnishing data, there are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data may represent more than twenty-five percent on a weighted basis of that statistic, and any information disseminated must be sufficiently aggregated such that it would not allow recipients to identify the prices charged by any individual provider.

The conditions that must be met for an information exchange among providers to fall within the antitrust safety zone are intended to ensure that an exchange of price or cost data is not used by competing providers for discussion or coordination of provider prices or costs. They represent a careful balancing of a provider's individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing providers to communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees.”

These same guidelines are emphasized in Market Pricing: Methods to the Madness.

Management’s pressure on human resources to provide instant market information will not end. It is difficult for human resources to explain these anti-trust implications when a manger fears losing his or her most talented staff to a competitor. Here are some viable, proactive steps you can take now:

Work with local SHRM, WorldatWork, or other Human Resource organization chapters to offer confidential annual and quarterly “hot job” salary surveys, with the data complied by a disassociated third party.
Work with the local Chamber of Commerce or Industrial Association to develop a similar survey process.
Invite competitors to meet with a disassociated third party to create a confidential survey group.
Incorporate “new salary” questions into your exit analysis process to track where employees are going and for what salary level.
Survey potential employees who reject offers to determine if salary played a part in their decision.

Many professional associations have recently communicated this information to educate their membership, as well as to build their database for future litigation. All involved in the collection and use of market salary data must keep this in mind.

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ISSN Number 1549-0467