Salary Surveys

Salary Surveys

Go to the textbook on pages 163-166 to better understand salary surveys. Then, click this link: to review the types of data gathered in a salary survey. Explain how the information is relevant to a total rewards package for an organization.

NOTE: In your response, adhere strictly to the discussion topic’s requirement. Do not forget to read the guidelines for responding to discussion topics covered in the Student Center.

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     9 Salary Surveys: A Snapshot Market data obtained from salary surveys create the foundation for a viable compensation strategy. When combined with economic statistics and business strategy, they create the infrastructure of an organization’s salary practices. Just as DNA provides information used to construct, identify, and operate the human body, market data obtained from salary surveys are used to construct and operate organizations’ pay programs. Market data evolve from salary surveys that are compiled and analyzed periodically to determine how well the company pays relative to the market. How the company statistically analyzes, charts, and uses the data is a function of its corporate compensation strategy. Then, pay is delivered to employees through base salary and bonus/commission programs and maintained using salary administration guidelines and other pay delivery systems. Critical to this effort is effective communication of all components of pay to earn the most satisfaction from employees, and, ultimately, high productivity and success for the company. THE BIG PICTURE Where do salary surveys fit in? Why do we use them? An organization has many resources to achieve its goals. Even though these resources include land, material, capital, and people, it is only people who make decisions about and do things with the land, material, capital, and the people. An organization’s goals are accomplished only through people. Hence, the major challenge of any organization is to attract, retain, motivate, and align the types and numbers of people it needs to achieve its goals. This is accomplished through a value exchange—a situation in which the company and the employee give value to the other in exchange for value received to achieve their respective self-interests. This notion can be summarized by the phrase, “Value given for value received.” Figure 9.1 shows some of the items involved in the exchange. FIGURE 9.1 Value exchange pie charts. Many items given by the employee to the employer are not quantitatively measurable, but they are present and are very important to the company. The items from the employer to the employee may differ from one employee to the next with regard to what is of value. Indeed, even the relative size of the pieces differs among employees and individuals during a lifetime. For example, a relatively new employee may value growth opportunities more than an employee near retirement. Likewise, an individual might feel pay is very important today but tomorrow, when a new baby joins the family, benefits become more important. This shows that pay is just one component of the exchange. When an employer decides how much to pay an employee, several factors usually are considered: Business strategy. Internal value of job/skill. Market pay. Individual factors. Experience. Education. Performance. Contribution. Skills. Balance with benefits, stock, work environment, etc. What the company can afford. Compensation philosophy. Desired market position. What the company wants to pay for. The focus of this chapter is market pay. What the market pays for a job or a skill isn’t the only factor in deciding the monetary worth of a job or skill, but it’s a key one. Salary surveys provide important information in the decision-making process of deciding pay. DEFINITION AND PURPOSES A salary survey is a statistical description of what organizations pay for certain _____. “Jobs,” “skills,” “experience,” “education,” or any combination of these could fit in that blank. Surveys have three main purposes: Identify a company’s market position and form a basis for a salary increase budget. Create a salary structure or structures. Develop targets for individual pay levels. Some desired features of a salary survey include: Desired jobs, companies, and locations. Good job descriptions and job matches. Large amounts of data, screened data, and data integrity. Confidentiality. Flexibility. Sound survey design. Easy data submission. Useable and user-friendly results. Interpretation. Timeliness. Availability of special analyses. Value received for cost. Helpful and knowledgeable customer service. Responsiveness. Continuous improvement. Because of the importance of surveys, many companies use some surveys for analysis—primary surveys—and other surveys for reality checks—secondary surveys. Secondary surveys may not have the right companies or locations, but they provide an important perspective. Surveys can solicit and gather information via telephone, mailed hard copy questionnaires, e-mailed or web-based electronic questionnaires, and personal interviews. An organization, a large third-party consulting firm, or a boutique third-party consulting firm can conduct the survey. BENCHMARK SURVEYS The remainder of this chapter focuses on benchmark surveys (surveys that describe what companies pay for certain jobs). Other types of surveys not covered are skills surveys, which measure what companies pay for certain skills, or maturity surveys, which measure what companies pay for experience and education in certain work areas. Which Jobs to Survey Several criteria act in concert when deciding which jobs in your organization to survey. The jobs that should be surveyed: Span levels in the organization. Span functions. Span families. Have a large number of incumbents. Are mission-critical. A sufficient number of jobs with a sufficient number of incumbents should be surveyed to make a compensation practitioner feel comfortable that he or she has surveyed enough to achieve the survey’s purpose. Specific numbers are decided on an individual basis, but some rough guidelines are: Number of jobs matched—one-third to two-thirds of jobs. Number of employees in matched jobs—one-half to three-quarters of employees. Of course, the more jobs, the better but time and budget constraints often are limiting. Further, some jobs may be so unique that there is no similar job match in any other organization. Remember: The quality of job matches is more important than the quantity of jobs surveyed. Survey Job Descriptions Job descriptions for surveys vary from short paragraphs to a full page and often include an organization chart or description of reporting relationships. Jobs that tend to be standard among organizations often can be described briefly, such as an assembler or a file clerk. New jobs or jobs that are similar but have a high degree of variation tend to be described more fully, such as a marketing development manager. Regardless, the survey job descriptions should have the main thrust of the job, along with the principal functions or key responsibilities, and the job title should be descriptive. When reporting relationships (e.g., reports to the president) or scope (e.g., revenue of the company or number of direct and indirect reports) are important in valuing the job, these factors should be included. If certain qualifications or certifications are required (e.g., master electrician’s license), these criteria should be included. Use caution when describing education and experience requirements. With education, rather than stating, for example, that a college degree is required, instead state what that degree represents, such as “the theoretical knowledge of the field or discipline is required,” because someone may have gained the needed knowledge through experience. This is the “or equivalent” notion of formal education. With experience, remember that when a description says, for example, “10 years of experience,” it usually means experience with increasing levels of responsibility. However, you may have an incumbent with one year of experience 10 times over, who is not really doing the level of work in the description. When years of experience are part of benchmark survey job descriptions, it unfortunately directs too much attention on that one factor and not enough on the work described. Which Companies to Survey Part of a company’s compensation philosophy should include a designation of the external reference for compensation program purposes. The reference usually describes other companies defined as competition. Examples include local major employers to compare office and clerical nonexempt jobs or local manufacturers for assemblers. For professional and supervisory jobs, companies often look to employers in their industry and national employers of similar size or revenue in their industry for upper management and executive jobs. Criteria to define a company’s competition include companies that: Do the same thing. Are the same size. Are in the same locations. Hire and lose employees to one another. It is important to ask managers who they think is relevant competition. Figure 9.2 offers some discussion starting points. There may be a situation in which the reference point is not actual competition, but a realistic and stable basis for the compensation program. For example, there is a company near Dallas that draws its employees locally, not competing with the suburbs around Dallas for nonmanagerial jobs. But those suburbs are the only source of survey data, so they are used as a reference point for compensation program purposes. The company decided that not having to commute to the Dallas suburbs was worth about 10 percent, so its average pay is 10 percent below the reference point. FIGURE 9.2 Determining the competition. Data to Be Gathered The type of data needed flows from the survey’s purpose and an organization’s pay strategy. Choices include: Base salary. Total cash (base plus bonus/commission). Equity (stock). Benefits. Typical statistics include: Averages (weighted, unweighted). Percentiles (10th, 25th, 50th, 75th, 90th). Raw data (after decoding to preserve confidentiality). Various summaries of scope data. General information often includes: Current salary increase budget. Policy information. Design information. Compensation practitioners need to decide what they want to seek, or they need to create a survey that satisfies individual needs. More Than Just Salaries The typical salary survey has more than base pay reported on benchmark positions. Because companies manage compensation using a total rewards strategy, there usually is trend information, including general questions about merit budgets, salary structure movement, and benefits provided. For example, the WorldatWork annual Salary Budget Survey includes questions on trends in variable pay, types of incentives, and other popular innovations in compensation. Review the Survey Database Companies often neglect to review their survey database to determine if it is providing adequate coverage of jobs and sampling the right companies and industries. By reviewing the coverage of jobs and looking for alternative data sources, a company ensures it has comprehensive intelligence of the labor landscape. Figure 9.3 illustrates a survey job matrix, which is a useful tool for ensuring the right coverage. Some additional rules of thumb include: Have at least two sources of surveys for key jobs. This provides validation of one survey against another. Review the makeup of the companies included to ensure the competition is represented. FIGURE 9.3 Salary survey job matrix. Be cautious of surveys in which some respondents participate every other year or sporadically; consistent data is important when monitoring trends in pay for critical positions. Don’t look at “base pay only” for jobs that typically are eligible for other forms of variable or equity pay. Ensure salary surveys are supplemented with equity compensation surveys and incentive survey data to get the big picture. Get data from companies in the same industry for technical jobs, but use general industry data for administrative positions, such as accounting, legal, and HR. Review the strategy annually and look for new, improved, or different surveys, if appropriate. While it is valuable to look at trends reported year to year for some surveys, don’t overlook other valuable surveys that might enhance or supplement market analysis. Periodically review the surveys used to ensure that quality and consistency are maintained. Conduct a review of survey results and develop a strategy for participation on a going-forward basis. When to Conduct an Ad Hoc or Special Survey Sometimes it’s impossible to find a ready-made survey that reflects the right jobs or companies—all surveys do not provide everything for every job. This is the time for the company, or a third-party vendor, to conduct a custom survey. Sometimes, special circumstances dictate that a special survey be conducted, such as: The company is relocating its headquarters to a new city. There is a short supply of special skills. There is a dramatic shift in the economy, creating a shortage of certain knowledge workers. A special industry survey is needed for a specific geographic location. Recently, a major financial services company sponsored a special customer service representative survey in one of its markets. There are more than 500 call centers in that specific market, and competition for these skills is tremendous. The financial services company found that paying above market still was not drawing the right kind of talent, so the organization decided to find out what the market really required without having the data “filtered” through a general survey. The company commissioned a third-party consulting firm to conduct a special survey. Confidentiality was maintained for the raw data, but the company was able to select competitors to participate in the survey. This offered first-hand information on a job group that was critical to the company’s success.