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 heard this complaint before? “The Company would rather pay more to a green outsider than give one of us insiders a decent promotion”?

How have you responded?

The reason for the gripe is that, when considering two individuals for the same job the employee on the inside oftentimes will be offered a lower salary than if the company went outside to hire a stranger.  To compound the insult, it is not unusual for managers to ask insiders to train and orient the new ‘wunderkinde” to learn how the company operates.

Aggrieved employees feel that an insider already knows the company, the people, the products / services as well as the relevant policies and procedures.  That knowledge and experience is an advantage, they say, shortening any learning curve and cultural orientation.  And the “fit” has already been established. Taking on the role and responsibilities of the new position and not being paid the “going rate” seems unfair – actually a penalty for being an insider.  It’s as if the company realizes they don’t have to pay as much for an existing employee, that the time spent in the company somehow reduces their market value and limits a willingness to pay a competitive wage.

Some insiders may feel that the technical experience they have gained in their current job could be used in the new position, so that in effect they have already prepared for the new role.

However, the prevailing practice seems to be that, when a company looks to the outside recruiters will be instructed to search for someone who already meets all the qualifications of the job; an experienced candidate who has already performed the job, whose only learning curve would be a short term acclimation to the new company’s policies and procedures.  They can hit the road running.

Outsiders are considered to be free of “baggage”: no biases, preconceived notions or internal social network, and are thus considered more able to become immediate agents for change / improvements within the company.

You should also note: if someone already has performed the subject role the chances are good they are already being paid at or about the competitive or going rate.  If that is the case then the company would be compelled to pay a premium in order to attract such a qualified person.  The offer of employment would likely have to be above the going rate (or above the midpoint in some companies).

Here’s another common office complaint: “I’d be paid more money if I quit and the Company rehired me”

Unfortunately there is some truth to this gripe.  Over time the external marketability of good performers is rarely matched by annual performance awards within the organization.

Merit increases averaging 3.0% (less for satisfactory performance) may not keep pace with competitive wage growth, especially for in-demand skills.  Thus over time a company would find the prevailing external wage greater than what they are already paying experienced people.  And if you have to hire an experienced person you would likely have to pay more than the going rate, thus potentially creating internal equity issues.

You can do the math; if market pay increases at a faster rate than annual performance rewards, employee pay will fall behind.  At some point this will become a serious problem.

The cumulative impact of annual merit increases is a difficult issue to resolve, in that all employees are likely being reviewed at the same time (focal date).  Special treatment requests might create equity or precedent challenges for managers – both of which Human Resources would have warned against.

Managers should therefore take periodic stock of their staff; assess their backgrounds, experiences and performances, with a weather eye toward whether current compensation is both competitive and internally equitable.  To do less would run the very real risk of disengagement and separation – of likely your better performers.

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.

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.

It’s not unusual in the recruiting process for a candidate to balk at the company’s initial offer.  Sometimes in their push back they might say that, having conducted a bit of “research” they feel that their personal value, or perhaps the company’s job pricing, should be greater than what is on the table.

How should a Manager respond?

Back in the day, before the advent of the worldwideweb companies were seldom challenged over how they priced their jobs.  The perceived value of a candidate’s background and experience might be negotiated, and often was, but not the internal value of the position itself.  These days the wealth of information available via the internet offers interested parties an opportunity to attempt their own investigation, to analyze what a company’s job is supposedly worth in the real world.

What do you say when a candidate tells you that your $70,000 job should be priced at $80,000?

What a Manager Should Know

If you haven’t been hit with this scenario yet, consider yourself lucky.  But it will happen.  The challenge could even come from an existing employee, one who feels that they are being undervalued for their responsibilities.

So how good is that “research” you’ve been told about?  Can you take it to the bank, or should it go to the garbage pile instead?  First of all, the online data sources most often quoted are frequently criticized as unreliable (inaccurate), and are seldom used by compensation professionals to base their program recommendations.  These sources often use data provided by the employees themselves, and without adequate filters to assure proper job matches.  Data collection techniques are often challenged by the critics.

Several referenced sources tend to be self-serving, especially those sponsored by firms tied to the staffing industry.  Reporting higher salaries would benefit them in the form of higher fees.

These sources are also convenient and inexpensive, another reason for their popularity.  But quality costs; you get what you pay for.  Here you get straight arithmetic, plain and simple.  The data cannot know the internal importance of a specific job within an organization.  It cannot interpret, cannot assign subjective values the way company decision-makers do when assigning a grade among peers, among like valued jobs.  Thus it is easy to miss the mark by not understanding the company’s job in terms of true market comparators.

So How Should the Manager Respond?

When the time comes and you’re exposed to this under-priced research tactic, step with care.  Your willingness to debate the issue hands at least a partial victory to the challenger, who will no doubt boast far and wide about their successful “strategy.”  So if you engage, be prepared for more of this as word spreads.  Don’t be put on the defensive.

You might consider several possible reactions.

• I didn’t hear you: As suggested above, you could ignore the gambit, refusing to engage in speculation, as discussing the matter gives a degree of credence to the challenger’s viewpoint.  Simply state your confidence that the job has been properly priced – then drop it.

• The push back: You could ask the candidate or employee what their professional credentials are for such research, as your company pays good money for compensation pros to keep you abreast of the market

• Push back II: You could challenge the “research,” but that of course gives more credence to the point being made.  Likely you will not win the argument, as whatever you say would be viewed with skepticism.

• I’ll pass:You could skirt the issue and refer to HR, saying that you’ll “have them take a look.”  this fools no one, but it does give you the opportunity to move the conversation in a different direction.  Note: this will not work with an external candidate trying to negotiate.

Your reality is that the company has already determined the value of the subject job, and will not welcome outside second opinions.  The job will have a grade, salary range and a midpoint – none of which will be changed because someone claims to have done a better job of “researching” how it should be valued.

I’d recommend the “I didn’t hear you” response, and be firm.

Btw, managers and executives have asked me which sources should they use to research the market value of the job they’re interviewing for.  They’re planning tactics for reacting to an employment offer.

Do they really think that the company is going to listen?

I tell them, “don’t do 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.

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.