Picture the scene;  you’ve just completed a presentation to senior management, complete with analysis and recommendations for next year’s compensation program.  Now you stand ready for the question and answer session.  Now is the time to defend your proposals.

With a carefully blank expression on his face your COO poses a single question . . . why so much?

Justification Or Excuse?

But you’re prepared.   You’ve anticipated the question.   You know that properly answering the “why” question is your once-a-year opportunity to make your mark, show off your CCP designation and help direct the reward programs for your organization.

So chances are you won’t respond with, “because that’s what everyone else is doing.”  Uttering that lame comment would suck the air right out of the room – and likely your career with it.   So you won’t say that.  However,  just between us, would that actually be the truth of it?  Are your recommendations based on the unique status of your own organization’s external competitiveness, internal equity, overriding Compensation strategy and financial affordability, or have you simply parroted what the Compensation surveys report that everyone else is supposedly doing?   Have you pushed the EASY button and followed the all-powerful “common practice?”

Beneath the simple question above your senior leadership is really asking whether your proposals set a course to  simply follow the pack, or do they lead toward solutions crafted for your organization’s own needs?  Follow the crowd or strike out your own path?

Are your recommendations for the company’s compensation programs a compilation of “everyone else is doing it” rationale, or are those proposals based on what you feel is necessary for your own organization – regardless of the “average?”

Are Decisions Being Made For You?

Is your view of presenting competitive programs a reaction to the behavior of others, or because certain tactics also make sense for you as well?

• Raising Salary Ranges: surveys will report the projected average increase in salary range midpoints for next year.  But how does that figure relate to the competitiveness of your own situation?  Do your ranges need a similar adjustment?  What would you recommend if you didn’t have a survey whispering in your ear?

• The Average Spend: if survey sources report a projected average spend of 3.0% for next year, is that your recommendation as well?  And when responding to the why question, what else do you have to offer as justification?  Does the 3% make sense for you?  Can you afford it?

• Pay Decisions: is the survey source a reliable indicator you can point to as the prime reason for making individual or group pay decisions, or are external sources only one aspect of your analysis, one element of your reward program strategy?  If the market says $47,512 does that figure become your new competitive target?

So before you make that next reward presentation ask yourself whether your decisions and your recommendations are adding value to the organization.   Or was your analysis complete once the survey data suggested a common trend?  Once you saw the answer.

The easy way is to point at others, to argue the common sense of common action.  However that strategy bespeaks more of a Compensation Administrator than one who is charged with overseeing the proper design, competitiveness and effectiveness of the company’s reward programs.

To be fair, sometimes what everyone else is doing is the right action for you.   I suppose that’s why so many companies are doing it.  Then again, the reported “average” may be no more than an arithmetic exercise that is less a strong trend than rather a convenient manipulation of data points.  Who’s to say?

So be careful before you sign on to tactics decided upon by other companies.  That nameless average of common practice is not responsible for your organization’s compensation programs.  You are.  And you’d better have a better reason for your proposals than that’s what the survey said.

Photo courtesy of pmarella

Company management is always asking, “what is the market value of our jobs?”   But just how precise does your market pricing analysis really have to be?  To what extra lengths will you go, or should you go,  to increase the level of precision in your analysis, and would that effort prove worthwhile?   Does the appearance of a more precise figure bring meaningful results for you and for your management?

For example, would you consider that a market rate of $47,512 is an accurate reflection of current national trends for the subject job, or is that figure simply an arithmetic average that looks precise?  Would you fall on your sword over the accuracy of your analysis?

Regardless of need, how precise can you be?

The competitive “marketplace” is an imprecise animal, not often well defined and subject to numerous variations and interpretations.

• One survey doesn’t use the same companies as the next survey.

• The job matching spectrum swings from easy (benchmark) to difficult (unique jobs).

• Surveys provide different mixtures of industries and revenue (size).

• Weighted Average / Average / Median / 50^th Percentile formats are not always consistent, and they are not the same.

• International data is often a shadow of what is available in the U.S.

Meanwhile, the market itself is a moving target, never static, always changing, and the use of aging factors to bring it up-to-date will add a degree of guesswork.   For icing on the cake many practitioners round their analysis to the nearest Currency 100, in order to emphasize the “pulse” of the marketplace.   A minor distortion, I’ll admit, but exactitude is often an illusion anyway.

Each of us, in our respective roles, needs to ask of ourselves, what degree of precision is necessary?   Not what is attainable, but what is necessary to achieve our goals.  Is it sufficient to report the pulse, or does your organization require a digital thermometer that slices whatever data is available to a much finer degree?

When survey data is not robust (limited participation and scant industry and / or revenue segments) the extra effort expended in the search for precision can result in short cuts, assumptions and questionable (stretch) job matches – all to deliver a data capture anomaly that has only the appearance of exactitude.

Remember that the average of two survey sources doesn’t necessarily indicate a market trend, but only an arithmetic average – in effect, a splitting of the difference between two credible, or incredible figures.  That’s not a sign of anything.

A useful rule of thumb to consider is that any incumbent figure within +5% to -5% of a reported “market rate” is close enough to be considered as “on target.”   There are some who think that figure should be 10%, but to my thinking that leaves too wide a range for a so-called “going rate.”

Caution:  lots of analysis – paralysis jockeys out there advocate increasingly precise techniques to zero in on what they call your true market rate.  Toward that end several vendors have built a business model around encouraging organizations to slice and dice available information, trying to define and refine exactly what a “market” is, what jobs are exact matches and after a fashion how their singular survey source is the answer to your needs.

Part of that marketing strategy is to use custom designed evaluation techniques and their proprietary job matching system.  Such a strategy effectively marries the organization to the vendor, as one cannot easily co-mingle proprietary language and techniques with methodologies used by other survey sources.  Apples and oranges.

The hunt for precision can deliver less perceived value

Sometimes the pressure to report ever more refined analysis might actually result with the opposite effect; weakened credibility as the figures face challenges.

• When too few companies are reporting data.

• When having to stretch survey descriptions to match unique job content.

• When dealing with locations having volatile inflation spikes.

• When management doesn’t need to “dot the I and cross the T.”

At the end of the day, what does the client or your company management desire from your view of the competitive marketplace?  Chances are they simply want an understanding of approximately what the job is worth.   To gain a “ballpark” figure that could be used in planning, in recruiting, in assessing their reward programs.  You won’t have to report $47,512 to paint that picture.

On the other hand a simplistic sore thumb analysis is not an effective solution either, but instead let me suggest that a balance of time, effort and cost be used when conducting market analysis.  The key question is, what level of precision is really necessary?  What level will deliver credible results?

Do you really need such analytic exactitude to make a business decision?

I think you don’t, no matter what the over-analyzers suggest.  But then again, it may be rocket science in your organization.

Have you ever found yourself in a situation where the competitive market price for your sales employees didn’t make sense?  Where the numbers didn’t add up?  Usually it’s the incentive piece that has you double-checking; you’re expecting an incentive value of 25% or 30% of base pay, and the survey reports much less.  How can you report those figures back to management?  Your credibility, as well as that of your data source, would be under serious question.

An uncomfortable feeling, isn’t it?

Management wants to see competitive total cash compensation.  At the end of the day what a reasonably performing sales employee should be paid.  How much should we be paying someone for hitting their quota figures? That total cash amount would include the incentive portion added to base salary.   But sometimes the market picture isn’t quite that clear.

A distorted view

Surveys typically report incentive amounts that were paid out, vs. a target or expected amount.  Which is okay, because the large amount of respondents within the survey tend to average out the better vs. weaker performers (high incentive payments vs. low) to present a reasonable approximation of target.  Which in turn is helpful when comparing your company targets against market realities.

However, to find a useful incentive figure presumes that the respondent payments represent an overall average.  And nine times out of ten that presumption is valid.  For sales jobs though, there is the likelihood that a much broader swing of actual payments would depress the average payment figure to something less than what the plan designers had intended.  Employees receiving little or no incentive would be counted along with those who have hammered their plans and received very generous awards.  The survey will report zero incentive payments in the results.

This creates a distortion, effectively low balling average incentive compensation (and total comp), as well as altering the view of competitive marketplace incentive targets.  This scenario is especially problematic when the sampling of participating companies is more scant than robust.

For example, if your sales job pays 40% of base salary for on-target performance, you would be somewhat concerned to see that the market reports a 20% incentive being paid for a well matched comparison.

Now look to your own organization.  How many of your sales employees achieve 100% target?  Does your average payment (including all sales employees) approximate the target payment percentage from the sales compensation design?  Likely your own number is markedly less.  If it’s not, then perhaps your sales targets are too easily achieved.

This reporting situation is made more awkward (to explain) when instead of a compensation analyst it’s a wannabe HR generalist flipping pages through a survey and writing down as gospel whatever number they find.

So what is a survey user to do?

Be careful to check whether your survey source(s) is reporting paid incentive, target incentive, or both.  When using multiple surveys remember that blending target amounts with actual paid incentives (which may be unavoidable, based on survey formatting) may distort your results, at least somewhat.

So if the results you get look a bit squirrely, you need to use a little common sense before making any competitive pronouncements.  The same sense you would use when reading results from a good year’s performance (economy flying high) vs. bad results (the great recession).  Both can distort how the market relates to your plan design and target total cash.

You might wish to factor in an adjustment percentage (5% or 10%) when assessing market results against your plan design target.  To counterbalance the impact of the zero payments.

Or leave it alone, but don’t forget to tell (and periodically remind) management that the incentive cash figures for sales employees are likely lower than what your own organization is experiencing – and what are common practice plan designs.

So have a care when market pricing your sales staff.  And keep an open eye on whether the sales job incentive figures make sense.

When you first look to purchase compensation surveys for your international population, it’s going to be a real wake-up call.  For those accustomed to only US surveys you will find that the available data in many countries is more limited than what you’re accustomed to seeing, as are the number of companies involved.  What won’t be reduced though is the expense.  Quite the opposite.  If you have multiple countries to deal with, your budget for credible compensation data will likely become a multiple of your US experience.

When I worked overseas my budget for compensation surveys was 3-4 times my previous US budget – and I only had to worry about Europe.  What a shock that was – spending much more while receiving less.

Each country is a separate USA, a unique national entity having country-specific labor laws, employment regulations, tax structure, competitiveness challenges and variations of economic strength.  For each you will need a country-specific survey to assess the local competitiveness of your employees.

International HR practitioners will need to adjust their thinking to react effectively in smaller countries, where the working population is limited and so is the number of survey participants.  It will be difficult to slice data by geography, industry or employee segment, as the data points grow smaller and smaller with each criteria.  For example, a well-regarded Mercer survey for the Netherlands showed 81 participating companies, while the US survey totaled 500.

Availability of locally-grown survey data is another challenge.  I have tried to locate such sources, even those provided only in the local language, in order to create a greater “buy-in” sense from management, but with limited success.   As a result even global companies with non-US headquarters tend to use the multi-national consulting firms.

Accessing International Resources

Should you require information for international compensation practices, below are a number of useful sources, each of which can be tapped via a Google search.  Note: many of the non-US sources focus on limited employee segments or functional areas, which may limit their usefulness during a general search.

Towers Perrin                                    Mercer                                 Compensation Research (UK)

Culpepper                                           Hewitt                                  CSi Remuneration (Aus)

AON Consulting Group                  Hay Mgmt Consulting     VenCon Research Intl (Ger)

Radford (high tech)                         McLagan (Finance)          Economic Research Institute (ERI)

IPAS (high tech)                                TymWork (Sw)                  Western Management Group

Taylor Root (UK)                               CFA Institute                      Euro Comp (Western Mgmt)

Federation of European Employers (FedEE)                         Executive Resources Ltd (ER Limited)

Watson Wyatt                                   Birches Group                   European Remuneration Network (Ger)

Organization Resource Counselors (ORC)                              Ernst & Young

PricewaterhouseCoopers            Croner Reward (UK)       Robert Walters (UK)

Baumgartner & Partner (Ger)     Interconsult Ltd (UK)      Australian Institute of Mgmt

Should you only have a few positions (2-3) in a given country you can reduce costs through individual job pricing, vs. the purchase of an entire survey.  Having more than a few positions though, would render this tactic economically unfeasible.  A few notable sources (though others from the above list may also be able to help):

• Birches Group
• ORC
• ER Limited

Another effective strategy for reducing costs is to age current survey data forward, coupled with the use of biennial purchasing.  However, when using this strategy have a care to limit its use to countries with stable economies.  Using such standard growth figures would miss the mark in countries showing greater volatility.

The Cost of International Operations

Too many HR practitioners and their Managers fail to take into account the expenses involved in keeping their international compensation programs competitive, especially where the organization has a small employee footprint.  For companies new to the international scene, and for those with small populations in several countries, the shock of survey costs could be daunting.  Many times the result is a reluctance to purchase the data, in some cases letting matters on the ground continue to fester – potentially overspending and / or creating debilitating equity problems for themselves.

Call it the cost of doing business, but if you’re going to maintain effective operations overseas, and you want to provide a competitive reward package (of course you do!), it would be unwise to shortchange the process by guesstimating or otherwise trying to make-do without credible information.

The cost of surveys is a fraction of the possible financial impact that could result from retaining non-competitive reward programs.

It hasn’t been that many years ago that the term “business casual” was coined.  To many business leaders though, the phrase meant no more than wearing a red tie, and perhaps only once a week.

Well, that was then.  Today, attitudes and customs are quite different, and typically much less conservative.  For example, it is not uncommon in some circles for male employees to forgo the use of socks within an office environment.  I know, because recently I visited such an office and saw for myself.

But is this clothing revolution a global phenomenon, where everyone is doing it, or are there minefields of differing customs out there, waiting to trip up the unwary business traveler?

According to a new global survey (Ispos / Reuters), clothes still do make the man – or woman.  Depending on where an employee lives, putting a best foot forward – at least at work – is still key to upward mobility and career success.

Or sometimes not.

As you might expect though, customs of acceptance have evolved – though not in a uniform fashion.  Researchers have found that attitudes about the use of proper attire in the workplace differ from country to country, which leads to some interesting and diverse attitudes about perceived workplace “slackers” and “achievers.”

Have you ever arrived at a meeting dressed for the Boardroom, only to discover everyone else wearing collared shirts and slacks?  Awkward, isn’t it?  A scenario you would wish to avoid.

Europeans have been found to have the most casual attitude when it comes to work clothes.  Only 27 percent of Europeans reported that they wore traditional business clothes to work (jackets and ties for men, dress suits for women).  People in Hungary might be the most casually dressed workers in the world.  Only 12 percent of Hungarians reported that they wore “business clothes” to work, while 46 percent said they thought clean and pressed shorts were appropriate office attire.  On the other hand, workers in India might be the best dressed, with nearly 60 percent of survey respondents reporting that they wore business clothes to work.

Many workers worldwide no longer equate dressing well for work with what they consider success.  Approximately 40 percent reported that they wore casual business clothes to work.  However the same percentage of respondents said that people who wore such casual attire in the office would probably not be hired or promoted into senior management positions.  Additionally, 66 percent of respondents believed that senior managers should always appear better dressed than their employees.

For many then, conservative dress is never out of style.  In some circles (usually non high tech) casual dress may even give the “perception” of a lack of professionalism.

Workers in India held the harshest views for people who wear casual clothes to work.  Nearly 60 percent of Indians described casual business dressers as “slackers”, and 64 percent said that such casual dressers would never reach senior management positions.

For a contrary viewpoint, in Central Florida business casual is often the proper attire, across the organizational hierarchy.  In fact, wearing a tie would cause co-workers to stop and stare.

When it comes to bosses wearing casual clothes in the office, Swedes appear to have the most lenient attitudes.  Only 27 percent of Swedish respondents reported that they believe that wearing casual clothes on a regular basis would hinder workers from attaining high-level jobs.

Generally speaking though, the higher up you are in the company’s structure, the greater the reluctance to “dress down.”  One Business Unit Head acquaintance in Europe suffered through so many shocked looks when he once wore jeans to work, that he never repeated the experience.

So what’s the takeaway from the survey data for the business traveler?  When in doubt, ask ahead.  Don’t assume.  Getting the lay of the land in advance is always smart thinking.  As a rule of thumb though, remember that you can always dress down by taking off the tie or power jacket, but the opposite won’t work nearly as well.

More than a few times I’ve stood in front of a podium, either discussing the intricacies of Compensation Management with practitioners and business leaders, or trying to instruct HR Generalists so that those who didn’t give a hoot about Comp could pass a SHRM certification test.

A question that often comes up during such sessions is a matter of strategy;  whether a company’s pay structure should lead or lag the competitive market.  What do companies do?  That’s an interesting question, even from those new to the profession – though often it’s asked because someone thinks the question will be on the test.

But now that I’ve raised the issue here, how would you answer for your organization?  Lead or lag?  Or is there a strategy at all?

Definitions

At first blush the concept is straightforward; if you Lead the market your pay structure (salary range midpoints) are targeted to be better / higher than the competition.  Conversely, to Lag the market is to provide less in midpoints than the proverbial going rate.

But is the decision that simple?  That black-and-white?  Isn’t the market a moving target?  Aren’t other variables also at work?

For those with a conscious strategy, many choose to pin their market competitiveness to a certain calendar date, either the first of the year, midway or the end.   Their goal is to position themselves to either lead or lag the market as of that target date, which means that their competitive situation would fluctuate before and after.

Let’s take a closer look.

• Lead-Lead:  If you want your pay structure to remain ahead of the market for the entire year (i.e., certain industries, skilled workforce, limited labor pool, etc.), you peg your midpoints to be competitive throughout.   By targeting the end date, December 31st you will stay ahead of the game even as the market slowly catches up.  You will lead the market for both the first and second six months of the year.

• Lag-Lag:  On the opposite scale, if you’re satisfied to remain behind the market for the complete fiscal year (i.e., certain industries, less skilled workforce, abundant labor pool, affordability issues, etc.), you peg your pay structure to be competitive (matched) only for one day, the first of the year.  From January 2nd onward your structure then slips behind the market, falling ever further all the way through to December 31st.  You will lag the first six months and even more so for the second six months.

• Lead Lag: A common practice is to split the difference, because you’re not too worried over six months of slippage.  So you peg your structure to July 1st.  You will then lead the market for the first six months, then lag the market by an acceptable amount for the second six months.

So now you can answer that test question.

The Real World

Often times though, you won’t have much of a choice, no matter what strategy you aspire to implement.  Because where you stand today versus the competitive market may limit your options to take corrective action.  For example, if your midpoints are 10% behind as you plan forward into the next year, trying to move toward a lead-lead approach would be a herculean task indeed.  You would have to advance your midpoints beyond normal annual progression to shorten the gap (normal structure movement percentage plus a catch-up adder).  The size of your movement could create potential compa-ratio issues (employees falling much lower in their salary range) that you might not have the budget – or management will – to correct.

And explaining to an experienced employee why they have suddenly fallen low in their salary range is always an awkward affair.  Thus you will likely be stuck with a variation of the status quo for awhile, on account of the difficulty you’ll experience trying to make improvements (increasing competitiveness).  It can be done, but to avoid disruption  it would take a phased approach over several years.

Conversely, in our example you could let your structure remain behind the market, because that would require little in terms of painful action.  You simply make a smaller annual adjustment, or none at all.  Though how you would handle the employee relations fallout is a different matter.

So going back to the answer from the podium, companies usually strategize and implement an approach if they already have a pay structure close to the market.  If not, the choices will be limited because of the costs involved in making a correction.

Sometimes that choice, to lead or lag the market, is made for us, and we’re left to make the best of it.

I don’t get it.  Can someone help me understand?  Why are some organizations interested in what other companies are planning to do with their midpoints next year?  I presume that’s the case because there are surveys out there compiling and reporting such data.  But who really cares?  Aside from anecdotal information I have never understood the importance of this reporting.

To be fair, perhaps my experiences are the exception, because I’ve never used that data in program analysis, or even reported it.  But somebody must be using it.  Somebody.

I can only guess that I’ve missed something ; maybe I should have taken another WorldatWork class, because the issue has never arisen from any employer I’ve dealt with, either as  an employee or an outside consultant.  Which leads me to ask, do some companies actually recommend raising their midpoints on the basis of a survey(s) announcing what other companies are doing?  Is that metric as important as what is being paid for particular positions, or what the average merit spend might be next year?  How does projected average salary structure movement relate to my company’s unique situation?

Can you envision  recommending  to senior management that midpoints be raised by X% because that is the projected average midpoint increase of other companies?

For me the focal point of survey analysis has always been to determine the competitiveness of our current  midpoints.  In planning for next year we should adjust those midpoints to either remain competitive (our midpoints are already there),  to improve our standing (our midpoints lag the market), or freeze them (midpoints already pegged above market rates), no matter what a survey reported was common practice.  Am I wrong here?  I have always thought that my company’s salary structure should move in relation to our own competitiveness, regardless of what anyone else is doing.  Otherwise we could be making improper adjustments – either too much or too little.

And what about the expense involved?  Contrary to what some pundits have assured me from time to time, midpoint growth can create costs.  There is no free ride.

• When an employee’s base pay drops below salary range minimum on January 1st, do you cover that amount – or wait until the next review?  Whenever that might be.  The fair thing to do would be to raise the employee to minimum and then (or later) grant a merit increase on top of that.  Extra cost though, right?

• Higher midpoints push experienced employees further from the internal “going rate” – creating pressure to restore the balance.  Have you ever explained to a long service employee why they weren’t being paid at least the midpoint?

When are these midpoint estimates made, and how accurate are they?  They’re really guesstimates, and many times the questionnaire is filled out without due consideration, just to get the form completed and sent away.  After all, most companies won’t confirm their new structure commitment until  @ November (senior management sign-off), while the survey questionnaires are completed in mid-summer.  So how good a guess do you make in August?

Btw, a company’s salary structures (grades and salary ranges) are usually segmented along the lines of hourly, non-exempt, exempt professional, and management employees.  To gain a clear picture of your competitive marketplace you should consider that each segment is moving at a different rate.  For example, it’s likely that management pay is growing at a different rate than for hourly employees.   Suggesting that only a single number would reflect your entire population would distort the reality of your multiple markets.

Now I suppose there may well be companies out there that have changes to their reward programs contractually tied to “market movement” or even structure (midpoint) growth, but do you think there are that many so governed?

So, can someone  tell me why analyzing other company’s guesstimated midpoint movement  is important?  I’d really like to know.

In recent months several of my US-based clients faced challenges overseas regarding high employee separations coupled with difficulty in recruiting qualified staff.   These companies were at a loss to understand the cause of their problems, as each felt that they were already providing a more generous reward package for employees then was normal practice in the US.

A quick study revealed that the clients’ international employees were indeed receiving a great deal more than their American counterparts.  However, in many areas they were in fact being given no more than the minimum benefit provisions mandated by statutory requirement.  They were receiving only what the company was compelled to grant.  How do you attract, motivate and retain quality staff when the message of your actions is that you are only willing to offer what government regulations say you must?

One client bemoaned having to grant four weeks of vacation upon hire, because it was the law, only to find out later that common practice indicated five or more weeks were the norm.   To employees and candidates they offered no more than what they were required.  By ignoring competitive practice they were now paying the price by struggling to build and keep a quality staff.  They had earned a reputation in the local market as a “minimalist employer.”

When American companies first establish operations overseas Human Resources faces a number of challenges that they are unaccustomed to dealing with at home.  Every country is a separate and unique entity, with differences in HR policies, practices, and statutory requirements, each of which must be acknowledged and addressed in order to develop and maintain a successful operation.  On top of that are the vagaries of the competitive marketplace, where the same job is paid differently from Rome to Oslo to Buenos Aires – usually coupled with differing social charges and benefit coverage.

Choosing to operate under the guidance of U.S employment law and US-based corporate practices is a failed strategy.  Maintaining such a US focus (usually for ease of administration) will bring you grief; grief from your employees, from those you hope to hire, and most of all from local governments whose laws you have ignored or bypassed.

Think how you would feel if elements of your own reward package, policies or procedures were based on European or Asian common practice.   Wouldn’t go over well, would it?

If you decide that your business strategy requires you to maintain a staff presence in a particular country, then I would advise you to treat that operation the way you would its US counterpart; provide competitive terms and conditions that will attract and retain the right caliber of employee in that country – and ignore how their packages might compare with US or other country counterparts.  If you are not willing to make that commitment, from an HR perspective you would be better off not to engage employees in that country.

You’ve seen your company’s want ads and heard the pitch from your recruiters; you offer competitive wages to qualified candidates.  That’s got to be a strong hook for attracting talent, right?

Big deal.

Pay structures are updated based on market trends, so the opportunities offered employees support your retention and motivation strategies, right?

Not enough.

Most employees presume their company is already meeting (or aspiring to meet) the goal of competitive pay.  Companies routinely advertise the practice (“we offer competitive wages”) and candidates in return expect this of potential employers.  But what happens when your goal of offering competitive pay is finally achieved?  Are employees grateful?  Can companies rest in their efforts to attract, motivate and retain?

I’m afraid not.

What doesn’t happen when you offer competitive pay is that your recruitment problems do not magically disappear, your employees won’t be satisfied and your compensation programs have achieved little more than being average – and isn’t that a “C” grade in school?  Is that where you want to be?  As far as aspirations go, it’s only middle-of-the-road.

If your company does pay “the going rate”, that means that approx. 50% of the companies out there are paying more than you.  That’s what average gets you, with half doing more and half doing less.  Is that what your company aspires to achieve?

No one leaves your company for less money – so all you’ll hear from your employees is about how so-and-so is making more somewhere else.  And as employees only hear what supports their own notions –they won’t pay attention to the broader rewards package, just the points that confirm their opinion that your company isn’t paying enough.

The only way to avoid this scenario is being the premier paying company in your market / industry – and can you afford that cost?

Lest we forget, it’s important to differentiate between having a salary structure (grades, salary ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates.  Some describe this as whether the company is “walking the talk”.  I recall a client proud of the fact that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that actual pay practices fell well below their midpoints.

For their part, employees relate to what they are being paid, not the midpoint of a salary range or other such declared “opportunity”.  To them the company’s “competitiveness” is more illusion than fact; especially if they’re experienced and have been with you for awhile.  Thus the company needs to keep its focus on actual pay vs. opportunity pay.

Why don’t employers pay the “going rate”?  Typically it is not a strategy, but a series of practices that evolved over time.

• Some candidates will accept a lower rate than should normally be paid for their knowledge and experience, and managers tend to view this as a cost savings.  Though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road.  One day these employees will change their minds.

• Once you’ve started down the slippery slope of paying some employees below market rates the practice is soon compounded by internal equity.  Managers don’t want to pay similarly qualified new people more than existing employees, so the new hires are offered below market pay.

• Pay-for-performance systems have a hard time keeping up with the increased marketability of employees.  A minimally qualified employee hired at the minimum rate will gain knowledge and experience (and thus marketability) faster than a company’s annual merit system can recognize.  This is compounded when you have to hire a qualified worker and discover that the market requires you to pay more than what you’re paying your more experienced employees.

So, what’s the answer?  Management won’t agree to become the premier payer in your area, so you should consider instilling flexibility into your pay practices.  Consider targeting key jobs (highly skilled, difficult to replace, etc.) and make sure those jobholders are well paid for the market.

Other positions less skilled and more easily replaceable could continue with your “competitive opportunity” strategy.  This approach is akin to ring-fencing key talent, protecting them against poaching while recognizing / rewarding those with the most potential impact on your business.

Bottom line?  Be careful when you claim how your company provides competitive wages.  You may not be correct, but if so – big deal.

What is the competitive market price for a particular position?

It’s a simple question.  If you work in Compensation, this is what you do.  And if you’re in the US the survey sources you can call upon are numerous and well stocked with participating companies and benchmark matches – the blessings of a large country.  In fact, it is a common practice to segment the data (report separately) on the basis of industry, revenue size, or geographic region.  In some instances you can further refine your analysis by operating budget, staff size or even years of experience.

For those accustomed to such robust analysis it can be a real wake-up call when asked to conduct a similar analysis for operations in another country.  Suddenly your content-rich environment has disappeared, and in its place you find that the availability of good information can no longer be taken for granted.  Now what do you do?

Your large country database is gone.  Instead, you face a limited selection of survey sources and each offers only a fraction of your normal participant count – a far cry from business as usual.

Such is the key challenge when pricing international jobs – the limited number of companies included in surveys, even by the major vendors.  For example, Mercer Netherlands has 81 participating companies.  So it is not unusual for a market pricing analysis to include only 4 – 5 “matches” – but is that representative of common practice?

If you’re the one on the asking end of the original question, let me share the challenges that your analyst is likely to encounter.

Impact of Reduced Participation

• Limited industry segmentation: reported data will likely cover multiple industries, with limited or no segmentation.  If you’re in either a high or low paying industry, surveys will provide inflated or discounted  information

• Hard to segment by revenue size: to the extent that larger companies pay more than smaller you lose that distinction as well.  This can be especially problematic if you’re a small company.

• Global responsibilities vs. strictly national: the distinction is often blurred between national, regional and global responsibilities

• Combination jobs not well represented: you will find yourself matching against jobs “close to” your own, just to gain a “feel” for pay levels.  If your job content varies from benchmark descriptions, reported data might not capture such idiosyncrasies.

• Poor matches and / or no data when less than 5 respondents: surveys tend to provide an “n/a” when they do not have enough participants.  When you start with limited companies it’s not unusual to find unreported jobs.

• Forget Regional variations:  while it is often the case that certain geographic regions have higher pay levels, the reported data is usually national.  You may assume that participants are in the higher paid region, at your risk.

What to do?

Frustrating, isn’t it?  You can’t very well throw your hands into the air, complain about poor survey quality and move on to something else.  The limitations are there and you have to play with the cards you’ve been dealt.  Management is waiting, wondering what is taking you so long.

Working with limited resources is a test.  Your challenge is to balance an understanding of the subject position, the industry and the vagaries of limited data points in order to determine which figure best represents your position’s competitive value.

To succeed you must utilize subjectivity and your professional judgment to consider the available data and gauge which figures best reflect the job under review.  The correct answer will no longer jump off the page at you.  Compensation has become an art, not a science.

• To improve your matching, consider either the 25^th or the 75^th percentiles instead of the median or 50^th percentile to reflect your position: this can be effective with poor matches, or concerns that the reported job is either larger or smaller than your own.

• You may have to add or subtract from a benchmark job to gain a more appropriate figure for your position.  For example, if your job is a VP but the survey matches stop at the Director level (or converse), you may have to adjust up or down to create a better “guesstimate.”  Note: in such a case don’t forget that the incentive percentages will likely differ as well.

• There is no formula in making adjustments, but changes in organizational level are usually around 15% – 20%.  Within-level description changes are usually around 5% – 15%.

• If dealing with only a few positions you might have greater success by individually pricing jobs through a vendor’s database of multiple surveys, government sources and local surveys.  Vendors like ORC, Birches Group and a few others offer this select service.

• Be careful of the arithmetic exercise (averaging averages, inappropriate matches, assuming numbers, etc.) that delivers a figure you cannot validate later.  Caution: a number is remembered, while often the qualifiers that follow are forgotten.  Make sure that you document such concerns before providing specific data.

All this subjectivity means that your judgment might suffer from more skepticism, even criticism, as you cannot simply point to a survey page and say, “there it is.”

Does all this subjectivity ruin the value of your analysis?  Not at all, as long as you inform management about how limited survey resources have impacted your analysis.  They expect an answer to their question (market value?) and you need do the best that you can with the resources you have available.