Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 27-06-2012
In order to manage reward programs effectively compensation practitioners and senior management need to understand how competitive those programs are. In making that determination, though, just how precise does the analysis have to be? To what lengths should one go to increase the level of exactitude in the analysis, and is that effort worthwhile? Does the effort to squeeze out greater precision bring meaningful results?
What’s the additional value of dotting the “I’s” and crossing the “T’s”?
As you know, the competitive “marketplace” for reward program surveys is an imprecise animal, subject to numerous variations and interpretations.
- One survey doesn’t use the same companies as the next survey. Who to believe?
- The ability to match jobs varies from precise to broad “like roles”
- Surveys provide different mixes of industries and revenue (size)
- The use of weighted average / Average / Median / 50th percentile formats is not always standard
- International surveys often fail to provide enough information
In addition, the market is a moving target as population changes, organization shifts and changes in employee pay are factored in. This means that you’ll need to be careful of “aging” factors, such as adjusting data from date of collection to the current or some future date. My practice rounds to the nearest 100 units of annual currency. Is that distorting data?
Pick a number?
Do you really think that a market rate of $47,570 for a particular job is an accurate reflection of current trends, or simply an arithmetic average of data that looks precise? Would you fall on your sword over that figure?
Using three different surveys would likely provide three separate figures. Let’s say your sources report $46,223, $47,612 and $48,875. If cost, time and effort are not factors to consider, then keep going, searching for that common denominator. Purchase another survey source. Double and triple check your job matches. But do you think that the extra source, the extra time and effort will substantially change your initial analysis, or are you simply looking to protect yourself? Are you playing a defensive game to divert potential criticism?
For most of us a quick and straightforward analysis suggests that approximately $47,500 is good enough.
While not advocating a sore thumb analysis I do suggest you use a balance of time, effort and cost when conducting market analysis. What you really need is to understand the market; that’s the key learning point. Repetition is sometimes just that, more of the same with little increased value.
What degree of precision are you being asked to provide? Are you being instructed to feel the pulse of the marketplace, to get a sense of what is being paid out there? Do you need a more precise result? Is your audience demanding more?
Or is the analysis process up to you?
Is the market a number?
What is that market? Anything within +5% to -5% of a “market rate” figure is close enough for me. Others believe that variable should be 10%, but in my view that leaves too wide a range that could distort your intent to provide the so-called “going rate” trend.
Caution: You can find any number of analysis paralysis jockeys out there who advocate increasingly precise techniques to zero in on what they call your true market rate. Just remember that many vendors have built a business around encouraging organizations to slice and dice whatever information is available, trying to define and refine exactly what a “market” is paying, what jobs are exact matches and after a fashion what numbers you can rely on.
Part of their marketing strategy is to use custom designed evaluation techniques and a proprietary job matching system. Use of such a strategy effectively marries the organization to the vendor, as one often can’t effectively use proprietary language and techniques with other survey providers without comparing apples and oranges.
The leadership perspective
From a senior leadership perspective, do you really need that depth of precision to make a business decision?
I think you don’t.
There is a place for precision, and a place for trends – for a “feel of the pulse.” Usually senior management wants to gauge the big picture – the overall strategy and its implementation status – letting professional specialists deal with the tactical matters and details.
Have a care in your efforts to be precise, because when you give senior management too many details they tend to dive in almost as a defense mechanism, as if they have to ask questions. Where they might otherwise have nodded their heads at key points in your presentation, you can instead find yourself immersed in detailed analytics that can bog down the decision-making process.
When senior management asks a question, office life becomes an “all hands on deck” fire drill of employees rushing about to get the answers – to questions that might not have been asked in the first place if you had played your cards right.
Management wants your professional judgment. They don’t want you to defer opinions to what a survey says. Use survey data as a backup. Don’t feel you always need to lead with it.
Standing back and pointing at figures is like leading with your chin in a fight.
You won’t like the results.