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.

Many companies with international operations are reluctant to purchase compensation surveys covering their multiple countries, on account of the cost.  To them it’s like having to survey multiple USAs, no matter the headcount involved.  As discussed in an earlier post, Shock and Awe, the cost of these international surveys can be prohibitive.

For example, if the US-based Acme Manufacturing Company has operations in Germany, India and Argentina, survey costs for these three countries would be 2-3 times the cost of comparable US surveys.  As most compensation experts recommend using multiple sources to better gauge market trends, the cost factor very quickly becomes an eye opener.  The more countries you operate in – well, you get the point.

Hence the hesitation.

However, is putting off a competitive pay analysis a good business decision?   What is gained by keeping ignorant of whether your compensation packages are competitive or not?  Of course, by happenstance you may be lucky and are already providing compliant and competitive rewards.  More likely though, the odds favor that you’re either overpaying or underpaying your employees.

Long term Impact of the Status Quo

Let’s look at the scenarios that can be playing out while you remain unaware.

Over Payments:

• Where local compensation costs are higher than the competitive market, without a corresponding ROI in productivity or performance (more pay is not a 1:1 correlation).  You are wasting money.

• Most employees will not recognize that they’re being paid above average, so any presumed positive perception is only an illusion.

If you’re overpaying, but don’t realize it because you haven’t obtained credible survey data, you will likely presume that everything is okay.  In other words, you’ll think that your pay is on par with the market, when in fact you are paying at above market rates.  How much money (the differential) will you be needlessly paying out on account of this presumption?  Chances are, the cost of finding out – of potentially identifying a key problem – would be a small fraction of the money being misspent.  Is this an efficient use of your reward dollars?  I don’t think so.

Underpayments:

• Employees feel that they are not being compensated fairly

• Your ability to attract the right caliber of employee for your operations will be weakened by low compensation rates

• Employee engagement, productivity, morale, attendance etc. will be less than what they should be, feeding off negative employee perceptions

If you’re underpaying, but don’t realize it because you failed to obtain credible survey data, you may also blindly consider that everything is okay.  After all, anyone who leaves does so for more money, right?  But doesn’t everyone?  So you may not learn much through staff defections.  Have you considered the annualized cost of losing just one experienced staff member?  And should you lose more?

Choosing instead a course of hesitation and delay will not rectify any festering issues; they don’t go away or fix themselves.  Instead, your inaction will worsen the situation and make eventual corrections more painful.

Cost of doing business

Do you remember that ad line, “you can pay me now, or pay me a lot more later”?

While squirming to avoid costs the company might try to obtain free data off the internet.  Good luck there.  Pundits will tell you that the value of free data, even if available is usually less than what you paid for it.

Instead, ask yourself if you would spend a dollar today to save three tomorrow?  That’s the question you must answer, to gauge the economic value of knowing the competitive position of your international employees.

Your financial folks might see it another way.  They might see only a finite dollar amount being spent, against a “maybe” savings estimate.  They will ask you for guarantees you cannot give.  It’s not like buying a machine that will increase productivity, lower production costs, raise profit margins and lower the cost of sales – all measurable.

Would you pay to learn how competitive are your services and product lines?

To make informed and effective business decisions, management requires knowledge of present circumstances, the challenges being faced, the import of the status quo and the implications of change.   When dealing with the single greatest cost to your organization, employee pay, it would be well worth your effort to spend what is necessary to give senior management the proper ammunition for decisions that could drive the business forward.

Yes, it would be well worth the cost.

Have you ever walked out of a store because of poor customer service?  Or felt frustrated because the company representative at the other end of the phone did not seem to care?  Or after enduring a bad experience with an employee at a particular establishment you said “never again”?

Customers react first and foremost to the employee they are dealing with, the one they are facing, whether the transaction is financially significant or not.  To the customer, that employee “is” your company, and these buy / not buy decision-makers will consider the treatment they receive a reflection of your company, for good or ill.

It is worth noting that the person who just caused you to take your business elsewhere is likely one of the lowest paid employees in that organization.   Does that reward / impact relationship make sense to you?  It would seem that the organization does not recognize / reward (value) the impact that their employees can have on customer relations.

Does your company acknowledge and measure the value and impact that these employees can have?  Or is this skill set a compensable factor at all?  Have you ever checked?

Many companies have long ignored the importance of the customer-facing job (non-direct sales) in determining a position’s value to their organization.  They consider education (what you know), experience (how long you have been doing something) and competitive survey data (what others are paid for a certain set of skills) in setting their pay scales.  The fact that the position also has the power of gaining or losing customers is often lost on them as “just part of the job description.”

Some job evaluation systems may give a nod for those facing customers on a regular basis, but such recognition is not often viewed as a critical factor – nor does it help determine where in the salary range the incumbent is paid.

Oftentimes it is the lower paid employee or the position with the least amount of “cachet” that presents the jobholder with the opportunity to influence customer action and reaction.  As an example, the employees most commonly approached by guests at Walt Disney World are the Custodial workers.

Is it not surprising then that these employees can have as great an impact on customer good will and retention as your executives?  Studies have also shown that having a pleasant experience when dealing with a company often outweighs price considerations and marketing glitz.

However that does not mean that you have to pay more to these employees than the marketplace suggests, but it is in your best interest to ensure that they are fairly treated:

• Ensure that actual pay centers on the middle of the range or higher.  Do not risk minimum pay scale workers interacting with your customers.
• Hire well into the salary range.  This is not a time to be cheap.  That dollar you saved today could cause you to lose a great deal more later on.   It pays to remember that it costs a great deal more to gain a new customer than to retain an existing one.
• Modify your performance appraisal process to recognize the customer facing role; attitude is just as critical here as know-how and experience.  Your customers place great value on the smile and pleasant demeanor they receive from your employees.
• Develop a point of pride for these workers, coupled with fair and competitive pay, to encourage that the right caliber of employee applies for these positions.
• Avoid structuring these as “dead end” jobs.   Offer upward opportunities for higher performing employees.
• Listen to them; they are talking to your customers and their suggestions for process improvements – even new products and services – should be considered.

How do you know whether your company is vulnerable?  1) Ensure that these positions are regularly surveyed for competitive pay practices, and then 2) Create a report segmenting the actual pay of your customer-facing employees to determine the average compa-ratio and spotlight the presence of low paid workers.   Then you will know how well you are paying those closest to your customers.

Now we should have a final word about direct sales, which is perhaps the ultimate customer-facing job.   Be careful that your training and recognition programs remember to acknowledge the importance of the customer-facing relationship – beyond an immediate financial impact.  Rewards should not be all about short term results.  A customer made unhappy by your sales rep can decide to; 1) not place an order, 2) limit their order and split their requirements with another vendor, and / or 3) spread a negative comment to their professional associates that reflects poorly on your company.

Each unfortunate scenario reinforces the financial and long term impact of the individual employee.

Such would be a hard lesson indeed.