Analyzing Salary Surveys

INTRODUCTION

Effective analysis and use of salary surveys can give an organization the ability to reach the goals and objectives of its compensation strategy. A compensation strategy should be:

• internally equitable
• externally competitive
• personally motivating and engaging
• cost effective
• legally defensible
• flexible
• ongoing
• transparent

The compensation strategy should include:

• desired market competitiveness (e.g. median or mean) at base pay and total cash compensation by job category such as:
• executive
• professional/management
• sales
• administrative/operative
• desired industry, revenue size, and geographic location
• company’s intention to follow a lead, lag, or lead-lag approach to the market place
• job evaluation methodology (such as market pricing)
• salary grade utilization, if applicable
• short- and long-term incentive plan strategy and eligibility guidelines
• salary increase methodology (e.g., anniversary review cycle or a focal review cycle)

Market Pricing

Market pricing is a job evaluation methodology that creates a job worth hierarchy based on the “going market rate” for benchmark jobs in the external marketplace that are relevant to an organization. It is the most common job evaluation method in use today. It may even supplement other types of internal job evaluation programs.

Utilizing a traditional market pricing approach, one salary range per grade is commonly calculated based on the “going market rate” of benchmark jobs to create a salary structure. All other jobs are then “slotted” into the hierarchy based on whole job comparison.

Pure market pricing with ranges within grades has also been gaining in popularity and is responsive to a highly competitive marketplace. When using pure market pricing, companies will typically use the actual market value to establish salary ranges.

The Market Rate

The market rate represents a company’s analysis of the prevailing rate of pay in the external labor market for a defined job.

The "market rate" for a job will be influenced by the following:

• job description (skills, effort, responsibilities, and working conditions)
• job match (job level or years of experience)
• geographic area
• industry
• business size (employee count, revenue, assets, market capitalization)

The competitive market rate is comparable to what other businesses pay for similar work in the external marketplace. By establishing "competitive market rates," an organization should be able to accomplish three important objectives:

1. determine appropriate compensation levels for comparable work for new hires and existing employees
2. diagnose existing or potential compensation issues
3. develop market-competitive compensation plans and salary structures

Major Expense

The cost of labor is commonly the highest expense within a business and impacts an organization's ability to attract and retain top talent. An organization should attempt to obtain an ideal turnover rate. Turnover that is too high is costly and can be disruptive to an organization, but turnover that is too low can create a stagnant workforce. Reliable external market pay data can be crucial to managing an organization's bottom line and an ideal turnover rate.

Overview

This course begins by examining different sources of salary survey data. There are many different types of salary surveys, so it is important to assess the quality of the survey database. Market intelligence can be obtained from the internet, published salary surveys, survey software databases, computer data banks, and even a custom salary survey. You will also be provided with guidance on how to conduct your own salary survey; then we will look at how survey data is actually used by compensation professionals.