Chapter 8: Compensation and Benefits Surveys

Overview: This textbook chapter teaches you how to select wage surveys, analyze their usefulness and combine the data to select the appropriate market rates for your jobs, as well as how to conduct a survey for your organization.

Corresponding courses:

73 Analyzing Salary Surveys

BACKGROUND

In the last chapter we discussed the wage level. An important part of that discussion assumes that information about wages and salaries is available to the organization. This chapter moves into the ways in which the organization attains wage information by using wage surveys. A wage survey is a compilation of wage data collected from other organizations that are perceived as comparable to your organization in some regard. Using this information, the organization can determine the competitive market rate for its own jobs. In a way this is a strange process, as it consists of going to organizations that are competitors, either in the product market or labor market or both, and asking them how much they pay for their most valuable asset, people. Furthermore, your organization in turn is expected to willingly share its information with others. This can cause a delicate legal situation, and as we will discuss, needs to be directed by certain guidelines. Regardless, the most common analysis activity in compensation administration is the collection, analysis, and use of information on compensation paid by other employing organizations.

This emphasis on compensation surveys should surprise no one. Analysis at both theoretical and practical levels would suggest it. Compensation and benefits in total are the price of labor services, and because labor markets are different from other markets, both employing organizations and workers must search for information and choices. An important target of employer search is "going wages"; what other organizations are paying for similar labor. The information sought is also of great interest to current employees and potential employees. Most people are likely to accept what the market pays as a fair wage.

WAGE SURVEY PURPOSES

Wage surveys serve a multitude of purposes.1 To start with, wage surveys are used for the strategic decision of determining the wage level of the organization. This decision establishes the kind and quality of the organization’s work force; most importantly its labor costs. Since all organizations pay employees different wages depending mostly upon their job, wage surveys are used to establish the wage differentials between jobs. This is an essential aspect of establishing the organization’s wage structure. This structure needs to be updated periodically as the labor market changes with fluctuations in supply and demand for both labor, in general, and specific jobs. Done over time, the organization can analyze and spot trends in both wages and the need for specific skills. In addition, wage survey data can be used to help decide the form compensation will take; that is the ratio between base pay, incentive pay and benefits.

In the end the ultimate goal of using wage surveys is to identify the market rate, or what other organizations pay for similar work in the external marketplace. This is the goal because most employees expect to be paid at a level that is consistent with that paid in the market for comparable work and it provides the organization with a competitive work force.

While the above purposes focus on the wage surveys to answer questions of external competitiveness of the organization, they can also aid in the internal questions of equity that arise in wage decisions. Accurate salary survey data is crucial to salary increase planning, a task that occurs yearly in organizations. Wage survey data is an important tool in labor negotiations and whenever there are questions about the proper differential between two jobs.

For most organizations, the way to start determining a workable benefit, cost-of-living, or salary level is to discover "going wages" in the area, the industry, or both. The same is true if an organization is trying to diagnose existing, or potential, wage problems. The particular "going wage" used may apply to all organizations in the area, all organizations in the same industry in the area, all organizations in the same industry without regard to area, or some combination. The information is usually obtained from some form of a wage survey.

DIMENSIONS OF WAGE SURVEYS

The end product of using a wage survey is a set of wage rates for each job in the survey. In order to arrive at this figure requires that the wage survey has a number of dimensions that allows the organization to figure out what the appropriate figure is. The following figure from the ERI Salary Assessor illustrates these dimensions.

Figure 8-1. A Wage Survey
Figure 8-1. A Wage Survey

The numbers represent the following dimensions of a wage survey:

  1. The job. Wage surveys use jobs as the comparison standard. It is important to ensure that your job and the salary survey are the same or highly similar. For this purpose the wage survey must have a job description or at least a job brief for comparison purposes. Even the job title can be made more specific. Clicking on the job title brings up a page with all the job tiles including 7 different types of accountants.
  2. Cash compensation. What is included in the wages reported? In this case there is a choice among base salary, incentive pay or total cash compensation.
  3. Pay Period. While most wage surveys report annual salary some use shorter time periods, such as monthly. Many surveys report low level jobs using an hourly rate.
  4. Average Pay. Two major measures of average are used in wage surveys, the mean and the median. It is important to know the difference between these measures as they will provide different results. In this example, if you were to click on the survey mean the results would change to the median. Note that there is a 10th and 90th percentile column on either side of the mean. This shows that there is not a pay rate for the jobs in the wage surveys but rather a range of pay for these jobs. This can be changed to any percentile you might need if your organization is paying above or below the market rate.
  5. Experience. These rows show the difference in pay rates depending upon the experience of the worker. This is an important variable if your organization has many new employees or long time employees.
  6. Labor Market Determination. The location, size and industry all change the market wage rates.
  7. Planning Date. It is important that all data is as of the date that the organization is making salary decisions. This process is explained more fully later in this chapter.
  8. Salary Trend. This is the percentage by which wages are expected to change during the year being considered.

ORGANIZATIONAL PREPARATION

All salary surveys are not the same and choosing the proper one is extremely important. In order to do so the organization needs to first collect data on itself to compare with the large number of choices of surveys.

Job analysis and Description

The knowledge of the jobs in the organization is a starting point for just about any Human Resources activity and compensation is no exception. The point where work and the worker come together is the role played by the worker in the organization that we call a job. We need to know a lot of information about these roles/jobs. Such as:

  • What does or should the person do?
  • What knowledge, skill and abilities does it take to do this job?
  • What is the result of the person's performing the job?
  • How does this job fit in with other jobs in the organization?
  • What is the contribution toward the organization's goals of this job?

Job analysis is the process of collecting this information in an organized fashion. The purpose of this information is to determine what jobs are to be used to compare with the market [benchmark jobs] and whether the jobs in the wage surveys you choose to use are comparable to your organization's jobs.

Job analysis can be a very formal process or quite informal but that does not mean the information does not need to be complete and accurate. Ordinarily, job analysis is done through interviewing employees and others to answer the questions listed above. There are formalized methods of doing job analysis and these are discussed later in Chapter 9.

In any case you must have sufficient information to compare with the job descriptions that are used by your chosen wage surveys. Figure 2 is an example of a job description or brief in a wage survey context.

Employment Interviewer

Alternate Titles
Employment Recruiter; Employment Representative; Personnel Interviewer; Placement Interviewer; Recruiter; Representative Employment.

Overview
Interviews job applicants to select people meeting employer qualifications.

Reviews employment applications and evaluates work history, education and training, job skills, compensation needs, and other qualifications of applicants.

Records additional knowledge, skills, abilities, interests, test results, and other data pertinent to selection and referral of applicants.

Reviews job orders and matches applicants with job requirements, utilizing manual or computerized file search.

A combination of over one year of directly related training and/or experience is typically required for carrying out the responsibilities for this job.

Figure 8-2. Job Brief, Employment Interviewer
Source: ERI, Economic Research Institute, Salary Assessor

Job Descriptions

A job description describes the job as it is being performed. In a sense, a job description is a snapshot of the job as of the time it was analyzed. Ideally they are written so that any reader, whether familiar or not with the job, can "see" what the worker does, how, and why. What the worker does describes the activities or tasks of the job. How deals with the methods, procedures, tools, and information sources used to carry out the tasks. Why refers to the objective of the work activities; this should be included in the job summary and in each task description. As an aid ERI's Occupational Assessor contains a large variety of job descriptions that can be used if your jobs match their descriptions.

Jobs to be Included

For a number of reasons, compensation surveys do not attempt to obtain information on all of an organization's jobs. First, some jobs are unique to the organization and unlikely to be found elsewhere. Second, many jobs are filled from the internal labor market and market data may not be needed. Third, compensation policy and practice in most organizations are based on a limited number of benchmark jobs.

Benchmark jobs are reference points in the job structure. In most wage and salary surveys, a limited number of them (25 to 30) are chosen to represent the entire range of jobs. It should be noted, however, that organizations placing more emphasis on external competitiveness tend to survey a larger number of jobs, sometimes as many as 80, if possible. If the survey is to be used for market pricing a 50% rule is appropriate.

Benchmark jobs are selected on a number of criteria. They should:

  • represent the entire range of jobs in the organization or as determined in the purpose of the survey.
  • be numerically important in terms of surveyed firms having them and in terms of organizational positions.
  • be readily definable.
  • be relatively stable in content.
  • represent good reference points in the job structure in terms of difficulty and responsibility.
  • be well known to managers and labor leaders.
  • be jobs that at least some organizations fill from external sources.
  • include jobs that you are having trouble hiring or retaining.
  • in all cases these jobs should be the most important to the organization's operations.

Market Comparison. The main consideration in the market is whether the job is matched to one that is common in the labor market. More to the point is that pay data for these jobs are readily available in the surveys chosen by the organization and that this data is seen as comparable, reliable and valid. If the job meets these standards the average wage from the wage surveys can be taken as the going market rate.

The Labor Market

The next step is to determine the relevant labor markets for the jobs chosen above. The relevant labor market may be the organization's product market or the geographical market. The product market consists of the organization’s industry; those organizations that compete in the selling of its goods and services with your organization. Learning the pay rates of product market competitors sets a ceiling on wages that keeps your organization from having to raise product prices and becoming uncompetitive.2 Thus the wage surveys chosen need to match the jobs, industry, and geographical region of your organization. In addition think about these questions:

  • From which markets do we hire employees?
  • To what markets [organizations] do we lose employees?
  • In which markets would we like to compete?

The geographical market helps determine the minimum wages it will take to attract and retain employees to carry out the organization’s work. Both the normal recruiting area for the jobs concerned and the area within which employees have been lost to competitors are apropos. The relevant labor-market area is the area where the labor supply for the jobs is most likely to be found.

The labor supply for some jobs is local, for others regional, and for still others national or international. Most companies confine their wage and salary surveys to local or regional markets. Surveys containing regional, national, or international data are usually secured from trade or professional organizations or from consultants.

Most white-collar and blue-collar employees are hired locally, and the labor-market area is defined as normal commuting distance. For these employees, normal commuting distance, if in question, can usually be determined from the addresses of employees presently filling these jobs.

Technical, administrative, and professional employees are less often attached to the local area. But most often they come from and go to other areas of the state or adjacent states. More and more the market for professional employees is becoming international. Managers and executives also operate in national or international markets. Obviously, local surveys are of limited usefulness for these jobs.

Basically there are two ways to obtain wage survey data. One is to obtain data that others have collected and the other is for the organization to directly collect the data on its own. Both of these methods will be examined in this chapter starting with choosing wage surveys produced by others.

CHOOSING WAGE SURVEYS

Choosing appropriate wage surveys is first a matter of knowing where to look for them and secondly evaluating those surveys found to match up with the needs of the organization.

Wage Survey Sources There is no way of estimating the number of compensation surveys made each year. In the U.S. alone, they run over ten thousand per year. They are made by governments, trade and professional associations, consultants, voluntary associations of employers, and individual employers. The Internet has literally spawned thousands of one–time surveys all made possible by software programs specifically designed to collect wage data.

To design, collect, analyze and distribute surveys is very time consuming and expensive. The consequence is that surveys are most usually done only once. The sponsoring organization learns what it needs to know and has no need to repeat the process the next year.

The list of surveys conducted on a periodic basis, however, is not small. Thousands of surveys can be found. This includes national and international salary, cost-of-living, employee benefit and HR practice surveys. The Internet lives up to its promise of being the medium through which previously unobtainable data can be collected.

Such voluminous data collection suggests that an enormous need exists. Why are wage, cost-of-living, and benefit surveys necessary? Part of the answer has already been given: it seems fair to both employers and employees to have wages related to wage rates for comparable work in the area or in the industry. Equally important, the information needed is not available in other ways. Wage surveys can be categorized in a number of ways. One is by cost; from free to very expensive. A second is by the sponsoring organization that collected the data. Thirdly, wage surveys can be categorized by the data collected and the manner of analyzing and presenting the data.

Government Surveys. The US government provides data that is free. The Bureau of Labor Statistics (BLS) publishes occupational-compensation data of two types. Working with the US ETA and Department of Justice, it publishes an Occupational Employment Survey to be used in the determination of prevailing pay rates for immigrants coming in under various laws. Secondly, The BLS publishes a National Compensation Survey that analyzes jobs found in the Federal Government (so that federal jobs are adjusted to be paid competitively).

Government efforts have contributed greatly to wage-survey techniques. But most employers, even while using government occupational-wage statistics, do not find them sufficiently timely and specific to fill their needs. Moreover, all government surveys are by nature, political. The before mentioned OES survey, found at http://www.bls.gov/oes/, does not collect data on "farms" and limits its "highest salary" collected to $65/hour effectively masking much of what happens with salaries. The latter survey, the National Compensation Survey, found at http://www.bls.gov/ncs/home.htm, is a survey of positions found within the federal government and exists solely as a mechanism by which federal government rates can be measured against local area rates (e.g., positions not found in the government are not surveyed).

The greatest testimony to the lack of respect for and questionable usefulness of U.S. government surveys is the existence of thousands of private industry surveys. If companies got the data they needed from state, local and federal surveys, they would not be expending $100 million annually on private salary surveys. Similar statements could be made for benefit, cost-of-living, and international surveys.

Internet Surveys. In the late 1990s, the Internet began to have its effect as a natural medium through which surveys might be conducted. The common thread that dissuades organizations from participating in surveys is the staff time required to complete survey input. The Internet brings computer technology and survey software into the office. Survey questionnaires are built in HTML and posted on the Internet for use in the collection of data. Some surveys still collect this data in the form of fixed length files where data is reviewed both statistically and visually. Some of the newer surveys check input data. If it falls within a preset standard error (range), the data is automatically integrated into the survey. The result is that Internet based surveys can be interactive, real-time, and reflect data gathered up to the minute.

There are a variety of internet surveys. Some are free or cost very little, others are more expensive. Some are operated by organizations devoted to providing compensation information, while others operate them as an adjunct to their main purpose, or even as an advertising tactic. Internet sites also vary in terms of whether they are seeking employers or employees as their target market. Most Internet sites provide data on a job by job basis and limit the data to the average wage for a job.

Professional Organization Surveys. Many professional and trade organizations conduct wage surveys for their members. Data for these surveys are usually collected from the members of the organization so there can be concerns about the lack of diversity of data from this source. These are definitely employee centered surveys which tend to produce high wage rates. There can also be concerns about when the data was collected vis-à-vis when it is available to the members. Many of these organizations will share their data with employers for a fee.

Employer Group Surveys. Employer groups, either geographically based or industry based, operate wage surveys. These are typically operated by Compensation Professionals in the organizations, by local Compensation groups or by local Compensation Consultants under contract to the employers. Those of this type of survey that are timely, can be a very useful tool for the organization. Those people collecting the data usually have the data analysis skills to provide useful data and the data extends beyond just average wage rates.

Compensation Consultants Surveys. This is the major source of wage data for larger organizations. There are a number of major national and international Compensation Consultants who can provide sophisticated wage data tailored to your organization's needs. The quality and cost of data from these sources is high.

ERI's Compensation Assessor Series ERI is a research outsource of survey analyses provided through a number of Assessor Series software programs.

The major assessor is the Salary Assessor® that provides consensus salary ranges for more than 5,000 position titles as compiled from available published wage and salary survey sources. Estimates may be adjusted for user inputs of salary planning date, metro area, industry, and company size. The Salary Assessor software and databases include position descriptions for job matching. Benchmark listings for jobs by industry, as well as multiple area listings for a single job in up to 99 metro areas, are provided in summary listings. The Salary Assessor includes reliability statistics to meet a Daubert challenge. In addition ERI has an Executive Compensation Assessor® that compares salaries and bonuses for more than 400 executive and managerial position titles as well as a Nonprofit Salary Survey Assessor™ that compares executive compensation at non–profit organizations.

Evaluating Wage Survey Sources

The sources discussed above vary considerably as to their usefulness and quality. Which one would be best for you? There is no one answer to this question. This section describes a number of factors to look at in making this decision.

Organizational Support. The wage rates that are the result of using the wage survey are very important to just about everyone in the organization. Employees will see the results in their paychecks. Supervisors and managers will find the results affect their budgets and top management is concerned with total labor costs of the organization. So the method used must appear to be accurate and appropriate to these groups.

Organizational Fit. This question of fit has to do with whether the survey source has data that is appropriate for what the organization needs. For instance, if the source provides just average wages for jobs and the organization's wage level strategy is to pay at the 65% level, the data does not fit. This highlights the need to develop a plan, before ever starting to collect wage data, that outlines exactly what data is needed and for what purpose.

In addition, the jobs that are in the survey need to be ones that are important to the organization. This goes beyond just the job titles, to examining the job descriptions used in the survey, to see if they match the organization's descriptions.

A corollary of organizational fit is Analyst fit. The analyst must be able to understand and know what to do with the data that is provided from the survey. The sources vary considerably as to how complex the data is, how it is analyzed and presented, and how much support the source can or will provide the analyst. This will become more evident further on in this chapter when data analysis is discussed.

Data Provider. The reputation of the data provider supports a high confidence level in the data gathered. The government has a reputation for good data; but provided in an untimely fashion. Professional and trade organizations can vary greatly depending upon how and when they collect data. National compensation consultants have very good reputations for good data, analysis and support provided in a timely fashion.

This question pertaining to the reliability of the data provider is of critical importance when the organization uses the Internet. When getting wage information from the Internet look closely at the purpose of the web site and who is hosting the web site. An important part of this is to determine who the customers are for the data and whether the wage data is central to the site or is presented in order to sell something else. In addition the site should provide information about who is in the sample and its size, as well as information about the methodology used to analyze the data.3

Data Base. The data base provides the figures that underlie the wage rates presented as the market rates by wage surveys. Where did this raw data come from? For instance, in an Internet site is the data from some survey done somewhere, or is it collected from people who enter the web site? Most industry and consultant based surveys clearly indicate survey participants, sample size, types and locations of participants, and how the data was handled.

Job descriptions should be included in the data presented. Without a job description it is not possible to know if your jobs are the same as those in the survey even if they use the same title.

The data output varies from very simple to complex. Internet sites that present "one job at a time" often give just a single average salary figure. Is this a mean or a median figure? Does it include base salary and bonuses? What about benefits? The ERI Salary Assessor provides both mean and median as well as pay percentile manipulation. The ERI Salary Assessor also allows for adjustments in years of experience, location, industry and organizational size.

Methodology. In determining whether to use a particular survey, one of the most important things to know is what the survey organization did with the data it collected; how they analyzed it. Here are some questions to consider about methodology:

  • Does the survey organization have the expertise to analyze the data?
  • How have jobs been matched up in the survey to prevent mismatching? [For instance, in the O’Net survey both technicians and first line supervisors are included in many job families.]
  • Has a single survey been used or is this an aggregation of surveys? If so, how are they aggregated?
  • What statistical processes have been used and were they appropriate? Even simple things are complex. For instance, there are seven different ways to calculate an average. All are correct in their place.
  • Is the data adjusted for when the data was collected? Therefore what is the "effective date" of the data? Is it adjusted for location, industry or any other basis?

Cost. The cost of obtaining wage data may vary from zero to thousands of dollars. Some Internet sites will provide a single wage rate for free or for a nominal sum. A compensation consultant could well cost into the thousands of dollars for a complete wage survey of all or most of the organization's jobs. The best thing to say is that accuracy is important and sometimes "free" isn't the best value. Free data may prove to be very expensive if the figures are high and wage rates in the organization consequently get set above the market rate.4

Costs come not only in money but time. Using a number of surveys requires the analyst to take time to integrate the data into a coherent whole. Some surveys, typically industry or geographical, require the organization to contribute their own organization's data to the survey. This takes a lot of the analyst's time.

DATA COLLECTION AND ANALYSIS

Having selected some appropriate wage surveys it is time to extract data from those surveys and analyze it.

Job Matching

The first thing to do is to look at the job descriptions in the surveys and compare them to your job descriptions. The purpose is to find a match between your jobs and those of the wage surveys. This is a judgmental process; the descriptions are not likely to be exactly alike. You need to find the job in the survey that most resembles yours. The rule is that if the two are 70% the same they can be considered a match. What you are looking for is a match of the work activities along with the knowledge, skills and experience required to perform the job. This step may be the most important one for ensuring you arrive at the going wage for the job.

There are times when you may find two jobs that look like they would match the organization's job. Experts are divided on whether you can look at both and blend their wage rates or whether you must pick the most likely job. It is possible to adjust wages rates where the organization's job is somewhat above or below that of the wage survey as we will discuss a little later.

Extract Data

For each job the wage survey provides some data. At a minimum this would be one or more measures of central tendency. So the first decision might be which of these figures you wish to use. The most common measures are a median [the middle value of the data] or the mean [the arithmetic average]. The mean is reported as either weighted or un-weighted. An un-weighted mean is the average of what the companies in the survey pay. The weighted mean is the average of each person's wage that is included in the survey. A second part of this average is whether it is the average of base pay or of total cash compensation. The latter would include any bonuses.

There are in addition other data on each job that may be useful:

  • Percentiles. These are particularly necessary if you have a wage level determination that is higher or lower than the average.
  • Experience. If your organization has a group of employees on a job that is either new or old their wage should be different from the average of the wage survey.
  • Job Levels. Some jobs have levels, such as beginning or senior levels, with substantially different wages.
  • Organization size. Larger organizations tend to pay higher wages than smaller organizations
  • Wage Spread. Knowing the 10th and 90th percentiles can be helpful. A more sophisticated measure of wage dispersion would be the standard deviation.
For further information about extracting data see Chapter 5.

Aging Data

Your wage surveys were most likely conducted and collated at different times making comparisons difficult. To correct this all the surveys need to be aged to a common date. This most appropriate date is the one on which you plan to implement the new wage structure. This can be done by adjusting the wage rates from the date of the survey to the present using average annual salary adjustments that can be found in salary increase surveys. These salary increase figures may need to be collected for different types of jobs within the organization as all jobs do not increase in value the same.

Weighting Data

At this point you have a number of average wage figures for each job depending on how many wage surveys you are using. The question now is whether these various figures should be weighted differently. If not, then the averages can be simply averaged to get the job average. If so, then there are some criteria for determining the weights to apply.

  • Compensation Strategy. Wage surveys that focus upon your organization's industry will probably be seen as more important as the purpose of market pricing is to be competitive. Different jobs may have different weighting in this regard as the appropriate labor market may change by the type of job.
  • Quality of the job match. Those surveys whose jobs look most like your jobs should be weighted higher than ones that are merely acceptable.
  • Quality of Survey. Surveys with higher number of both companies and data points are better than those with small numbers. This is particularly true if the number of cases gets below 10 for any job.

Composite Market Rate

What then is the figure you want to put down for each job? You have gotten an average figure for each job from each of the surveys you are using. You have made sure that these averages are for the same time and have weighted the averages. These averages can now be averaged to produce what is called the composite market rate for each of your benchmark jobs. This information can now be used for a number of purposes, in particular salary planning, market pricing, wage structure evaluation and individual wage adjustments.

SURVEYS CONDUCTED BY THE ORGANIZATION

A further alternative is for the organization to conduct its own survey. This may be for a number of reasons. The most likely is that the jobs important to the organization are not covered by available wage surveys. This section of the chapter will outline the steps needed to develop a wage survey. The steps may be summarized as follows:

  1. Plan the survey
    1. Determine the purpose of the survey
    2. Determine the jobs to include
    3. Determine the markets to survey
    4. Determine the firms to survey
    5. Determine the information to be obtained
    6. Make the schedules
    7. Determine the survey method
  2. Conduct the survey
    1. Collect information
    2. Insure job comparability
  3. Tabulate, analyze, and present results

Plan the Survey

It has already been emphasized that figuring out what information the organization needs to collect, in order to achieve the purposes of collecting wage information, is extremely important. Collecting too much is costly and collecting too little jeopardizes the quality of decision making and may be expensive in terms of labor costs.

Even when an organization decides to conduct its own survey there is much to be said for attempting to interest other organizations in co-sponsoring the effort. If this is possible, the costs may be shared. The joint effort may also result in an informal group of firms that will see the advantage of periodic surveys.

Whether or not other organizations accept co-sponsorship, a steering committee of some of the firms certain to be included is a good idea. These committee members will be helpful in planning the survey and in securing cooperation.

There is also the option of working with a local compensation consultant to do the actual work of running the survey and analyzing the results for you.5

Determine the purpose of the survey. As indicated in the purposes of wage surveys, one conducts a survey for many different reasons. These reasons will determine the shape of the survey including the jobs, markets, and firms to be included and the information to be obtained. It also determines the accuracy needed and the time limits of the survey. Obviously, if information is needed on only one or two jobs, or on an overtime policy, a much less elaborate survey is called for than if a more complete picture of an area or industry market is sought.

Determine the jobs to include. The jobs on which pay data are sought must be selected. As discussed earlier these are the benchmark jobs that represent a sample of all the jobs in the organization. Using the criteria for benchmark jobs, the organization or the steering committee will choose the jobs to be surveyed. Obviously, jobs involving recruitment or turnover problems will become key jobs in the survey.

It needs to be emphasized that these jobs must have accurate and up to date job descriptions. These descriptions are necessary since others will use them to evaluate the comparability of their jobs to yours.

Determine the markets to survey. The next step is to determine the relevant labor markets for the jobs chosen above. As discussed earlier, the relevant market may be the organization’s product market or the labor market. The labor market helps determine the minimum wages it will take to attract and retain employees to carry out the organization’s work. Both the normal recruiting area for the jobs concerned and the area within which employees have been lost to competitors are apropos. The relevant labor-market area is the area where the labor supply for the jobs is most likely to be found.

Determine the firms to survey. Given the geographic area of the survey, the next step is to choose the particular organizations to be surveyed. An attempt is first made to obtain firms in the same industry. Such organizations are more likely to have all of the jobs of the surveying organization and usually have similar wages.

Organizations' hiring similar skills is another criterion. An attempt is made to include firms hiring substantial numbers of employees for the jobs being surveyed.

A third consideration is organization size. Compensation varies by company size. Ideally, the survey will include a balance of organizations of varying sizes. Caution needs to be utilized with very small firms as they may represent non-comparable labor markets.

If possible, organizations selected should have a formal compensation system. Even better would be organizations using pay systems similar to that of the surveying organization.

The number of organizations included in the survey is very much a function of the purpose of the survey. If only a limited number of firms are adjudged to represent an organization's labor-market competition, including only these firms makes sense. If, however, the objective is to achieve a realistic picture of the labor market in the area (or industry), a representative and balanced sample is called for. The latter approach would require taking a census of establishments in the universe, and then drawing a sample. The Bureau of Labor Statistics follows this approach.

In most surveys made by companies or groups of companies, the participants are usually chosen on the criteria of (1) industry, (2) comparable work, (3) competition for workers and (4) size. In most private-company surveys, the number of cooperating establishments is limited to a small number on the assumption that these organizations represent the pertinent labor-market competitors.

Determine the information to be obtained. This determination is driven by the purpose of the survey. Although it is possible to obtain information on pay and benefits as well as pay policies in one survey, the need for cooperation from other organizations argues against such an approach. A better practice is to make separate surveys of wages and benefits, and perhaps of average wage changes.

Compensation surveys require some information on pay policies and practices to permit interpretation of compensation data; they also require sufficient organization-identification data to permit decisions on organization comparability. The latter information consists of location, industry, size (usually number of employees), and union or nonunion status. Information sought on wage and salary policy and procedures may be limited to general increases, wage structure adjustment, and individual pay change. Alternatively, information on job evaluation plans, number of wage structures, incentive-plan usage, hours and work schedules, as well as general benefit policy may be sought.

The major information contained in compensation surveys is pay information on specific jobs. Here, the major requirement besides job descriptions or job briefs is utilizing careful definitions of the data sought. For example, base rates for regularly employed workers are defined as not including overtime, shift differentials, or non-production bonuses, but including cost-of-living increases. These rates should be reported prior to deductions for Social Security, other taxes, and any employee contributions to benefits.

Directions for calculating base rates for employees on incentive or salary should be specified. Incentive base rates are obtained by dividing earnings by hours worked, increasing the hours to remove overtime premiums. Monthly or weekly salary is reduced to a common period.

Hiring rates should reflect the starting wage rates for particular jobs and classes of employees. Minimum, standard, and maximum rates are usually sought. Actual wage rates may differ from these structure wages as employees may not cover the whole pay range. So these actual rates should be sought, together with the number of incumbents at each. The actual minimum and maximum paid for the job are usually obtained.

Benefit surveys are usually conducted separately. The information sought is quite detailed, but usually applies to all employees or broad employee groups. The purpose is usually to determine the prevalence of benefits and benefit practices rather than costs, but some benefit surveys attempt to obtain the latter as well.

Some surveys are concerned only with wage changes since the last survey. Thus they carefully specify the method of calculating the information sought.

Make the schedules. After it has been decided what information to seek, the next step is making the schedules to be used in collecting the data. The schedules are designed to permit recording the data as conveniently as possible and to permit rapid tabulation and analysis. Normally two schedules are prepared: one for information about the organization and its compensation policy and procedures, another for compensation data. Only one of the former is required per organization. But one wage-data schedule is required for each job included in the survey. A common practice is to present the job description or job brief in the schedule prior to specifying the wage information sought. Figures 8-3 and 8-4 are examples of such schedules. Obviously, both schedules could be shortened or lengthened depending upon the information called for.

Figure 8-3. General Information: Policies and Practices Affecting Compensation
Figure 8-3. General Information: Policies and Practices Affecting Compensation
Figure 8-4. Salary Information
Figure 8-4. Salary Information

Determine the survey method. Wage and salary surveys may be implemented by telephone, mail, visit or group meeting. Telephone surveys may be used to acquire some compensation policy and practice data and wage information on a very few jobs when both the caller and the respondent are well acquainted human resource professionals. Such surveys may be common practice in well-defined industry groups where job comparability has been recently established or can be easily accomplished. But outside such informal networks such surveys can be unproductive or dangerous.

Mailed surveys may be safely used for securing compensation policy and practice data. While this is the most common survey method, assuring job comparability and thus useful compensation data is a continuing problem. Carefully constructing the schedules and utilizing precise definitions help. The quality of the data always depends on the qualifications of the respondent and the general press of business. As in the case of telephone surveys among professionals in the same industry, reliable data may be secured. In fact, organizations surveying a widely dispersed industry may have no other choice. But local surveys, unless job comparability by some other method has recently been assured, should probably not be done by mail.

It is usually agreed that the most productive method of gathering accurate compensation data is a visit by qualified personnel. Because determining job comparability is the key to obtaining useful occupational-compensation data, the visit is best conducted by trained personnel using a standardized data-collection method on site, at least for the original survey. These people can compare the survey job descriptions with company job descriptions. They collect compensation data only after personally verifying job comparability. They can question compensation professionals. They may talk to job incumbents. They may apply a standard job evaluation scale. They interview the proper person to obtain information on wage policies and procedures.

Some compensation surveys, usually local ones, are made in group meetings. The job descriptions or job briefs of survey jobs are distributed in advance. At the meeting compensation professionals thrash out problems of job comparability and provide the surveying organization with compensation data. Although this method seems superior to mailed surveys and is much less costly than visit surveys, some questions about it can be raised. For example, in large organizations with hundreds of jobs, can even the most competent professional answer questions of comparability with survey jobs in the meeting? Also, does high turnover among compensation professionals have any effect on the reliability of the data?

From this discussion of survey methods it should be obvious that determining job comparability is the Achilles' heel of compensation surveys. Job comparability can be improved by personal visits, group meetings, use of common job evaluation plans, and use of job-scope data. Despite the higher levels of detailed information permitted by visits and group meetings, the cost and coverage requirements probably ensure that many surveys will continue to be made by mail. Thus survey reliability and validity will continue to depend on the conscientiousness and time pressures of respondents.

Conduct the Survey

It is the survey method that largely determines the steps in conducting the survey. Regardless of the method, however, it is useful to separate the initial contact from the collection of the data. The initial contact is made to ensure the participation of the firms selected for the survey. It usually involves providing information on (1) the purpose of the survey, (2) the jobs covered, (3) the information sought, (4) the survey method, and (5) the report of the results. Participation is invited. Confidentiality of the data is assured. A copy of the report is offered. The latter is usually enough to secure cooperation if the potential participant has a use for the information. Participating in a survey is much less costly than conducting your own.

Collect information. In mailed surveys obtaining compensation policy and practice information, determining job comparability and obtaining compensation data depend largely on the schedules developed. Constructing the schedules with ease of completion in mind pays off in rate of return and ease of tabulating results.

In other survey methods the compensation policy and practice schedule can be mailed back to the surveying organization without loss of accuracy. In visit surveys, they are usually completed before the visit is made.

Insure job comparability. In both the group meeting and the visit survey jobs, comparability is determined by discussion between the representative of the surveying organization and an organization's compensation professional. In the latter method, compensation data may be secured from the payroll department by the surveying company's representative.

Tabulate, Analyze and Present Results

When the data from all cooperating organizations are in, they are tabulated, summarized, and presented in the form of results. All information is edited for comparable terminology and units before tabulation. Consolidating the data involves separate tabulations for compensation data, compensation policy and compensation practice data.

Data Consistency. The data, as a whole, needs to be made consistent from analysis start to completion. The data may have been collected over time and from varied sources so these factors need to be taken into account with the following two techniques:

  1. Trending Data. By definition all data collected is out of date and some, more out of date than others. How can this data be made consistent? As discussed earlier the technique is to trend all the data. This consists of first determining the date that the organization wants the data to represent; the time when decisions will be made using the data. Second, since wage rates change constantly, a change factor is developed. For instance, if wages are estimated to rise 2.5% the next year, then 2.5% is used to age the data appropriately for that coming year. Third, all data is adjusted using this change factor to make it consistent to the chosen date.
  2. Combining Data. When the organization does its own survey there are responses from a number of organizations. These need to be combined to get a single figure. This generally involves weighting the responses to obtain the best figure for the organization. Some criteria for this weighting include weighing highly:
    • Competitors
    • Quality sources
    • Good job matches6

Data Presentation. There are several ways to tabulate and present compensation data, depending on the purpose of the survey. Data summaries in surveys focusing on separate jobs, as is usually the case, differ from summaries in surveys focusing on the job structure.

  • Data summaries by job. In most surveys, data are presented separately for each job. Table 8-5 illustrates the format for this approach.
    Figure 8-5. Data Summary
    Figure 8-5. Data Summary
    One of the advantages of this method is that it permits comparisons between companies, both individually and collectively. Organizations may, if they wish, exchange code numbers and custom-build their comparisons. This method also has the advantage of presenting several measures of actual rates and ranges in one tabulation.
  • Frequency distributions. Somewhat less common is a frequency distribution, presenting the total number of incumbents at each wage rate or class for each job. This is the method used by the Bureau of Labor Statistics in some of its surveys. See Figure 8-6.
    Job: Electronics assembler-repetitive
    $ PER HOUR NUMBER OF EMPLOYEES
    5.15 and under 5.70 33
    5.70 and under 5.90 66
    5.90 and under 6.10 72
    6.10 and under 6.30 94
    6.30 and under 6.50 198
    6.50 and under 6.70 201
    6.70 and under 6.90 450
    6.90 and under 7.10 268
    7.10 and under 7.30 118
    7.30 and under 7.50 79
    7.50 and under 7.70 39
    Figure 8-6. Wage-Rate Frequency Distribution
    This method has the advantage of presenting sufficient detail to permit the user to calculate several summary measures. Other information, such as hiring rates or ranges, can be tabulated in the same way.

    However, this method has the disadvantage of lacking the means of identifying specific company data.
  • Graphs. If the major purpose of the survey is to compare job structures rather than individual jobs, graphs may be used. In this approach, a graph depicts a summary wage line (made up by consolidating all the information in the survey) and a company wage line. The chief advantage of this method is that each organization can compare its wage level and structure with the summary wage line and the wage line of each participant. A disadvantage is the averaging necessary to develop the graph. See Figure 8-7 for an example.
    Figure 8-7. Graphic Presentation
    Figure 8-7. Graphic Presentation
    Compensation policy and practice data. Constructing such graphs is better facilitated when the participating organizations are using the same job evaluation plan, but the method does not depend upon this. Any consistent method of plotting the jobs on the horizontal axis will do.

Compensation policy and practice data. Many variations are possible in the tabulation of compensation policy and practice data. They may be presented in narrative form, or they may be tabulated question by question following the schedule used. For maximum usefulness of wage-survey data it is advantageous to use company codes for compensation policy and practice data. In this way unusual wage positions may be interpreted by reference to compensation policy and practice information.

NEW FACTORS AFFECTING SURVEY REPORTING

Two legal issues have arisen in the area of wage surveys, anti-trust and testimony in federal courts.

Anti-Trust Safety Zone

Some organizations have been accused of price fixing based upon wage surveys that they devised and carried out. This has led to government agencies issuing guidelines that result in an Anti-trust safety zone. These are a set of basic steps to follow to ensure that your survey does not violate ant-trust laws. These steps are:

  • Have an independent party, such as a consulting firm, or academic organization, manage the survey. Some exchange of information is allowable without a third party, depending upon the use to which the information is put and the possible anti-competitive effect.
  • Data provided by survey participants must be over three months old.
  • Use at least five survey participants, with no one participant representing more than 25% of the weighted basis of any given statistic.
  • The results cannot identify any particular participant.7

Federal Litigation Rules

In the post 1999 era, the presentation of survey data takes on special importance with the needed addition of rate of error. In 1975, the U.S. Congress passed Federal Rule of Evidence 702 so that a threshold standard for the admission of testimony was established for federal courts. Based on the concept that experts should use methodologies that are "generally accepted" by a discipline's practitioners, the rule states: "If scientific, technical, or other specialized knowledge will assist the Trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise." Following this, the Supreme Court issued an opinion in Daubert v. Merrill-Dow Pharmaceuticals, 509 U.S. 579, 113 S. Ct. 2786, 125 L.Ed.2d 469 (1993) that has become the standard for the admission of "general acceptance." This standard is now adopted by Federal and most State Courts, and where the admittance of expert witness testimony and evidence requires the following two-step analysis. Evidence must be relevant and reliable.

The "relevance" is a subjective judgment and simple logic may be applied (e.g., salary survey data for use in wage analyses). For "reliability" the Court established four separate, nonexclusive tests:

  • illustration that the theory or technique can be tested,
  • data has been subjected to peer review and publication,
  • there is a known or potential rate of error, and
  • there is a level of general acceptance in that particular discipline's community

In March 1999, the United States Supreme Court issued a ruling in the Carmichael vs. Kumho Tire Co. case that further defined when a Daubert reliability challenge applies. In Carmichael, the Supreme Court ruled that reliability must be established in all types of expert testimony, both scientific and non-scientific/technical. The Court held that the role of a trial judge was that of "gatekeeper" regarding both the relevance and reliability of all expert testimony. The Court stated that the Daubert case was not intended to be limited to scientific cases only. Instead, it would/should apply to all fields of expert testimony, including those who utilize surveys.

SUMMARY

Developing, analyzing, and using compensation surveys may be the most common practice in compensation administration. Organizations use compensation surveys as the measurement of the labor market.

Sources

Organizations may choose to conduct their own surveys, or they may use compensation surveys developed by others, or participate in groups that develop wage information. The latter methods cut down on the time expended and may provide the organization with a broader range of information. However, the question of comparability becomes greater with surveys developed by others. These sources vary a great deal in terms of cost, quality and usefulness to the organization depending upon the purposes for collecting wage information.

Survey Development

Given the importance and common use of compensation surveys, planning their design and use is of utmost importance. Developing a compensation survey consists of making a series of decisions on:

  • the purpose of the survey
  • what jobs to include
  • what markets and organizations to obtain information from
  • what information to seek
  • how to obtain the information
  • The most important issue – job comparability
  • Analyzing the data

The major issue in compensation surveys is the comparability of the organization's jobs to those being surveyed. It is difficult to ensure this comparability in any way other than analyzing the jobs in both organizations.

While the process of collecting data through compensation surveys is well defined, the analysis of the data is done in a variety of ways. Every organization uses its own analysis to answer its particular compensation question.

Footnotes

1 Handel, J. & Greiser, D. Salary Surveys, Scottsdale, Az. World at Work, 2000.

2 Trevor, C., and Graham, M., "Deriving the Market Wage: Three Decision Areas in the Compensation Survey Process," World at Work Journal, Vol.9, #4, fourth Quarter 2000.

3 Menafee, J.A., "The Value of Pay Data on the Web: Nominal or Real?," Work Span, World at Work, Vol. 43, #9, September 2000.

4 McAdams, J.B., Mastering Market Data, Scottsdale, AZ. World at Work, 2006.

5 McMahon, J.R. & Hand, J. Measuring the Marketplace: An Approach to Designing and Conducting a Salary Survey, Scottsdale, AZ.., World at Work, 2001.

6 McAdams, Ibid.

7 Parus, B. "Market Pricing: Methods to the Madness", Scottsdale, AZ. World at Work, 2003.

Internet Based Benefits & Compensation Administration

Thomas J. Atchison
David W. Belcher
David J. Thomsen

ERI Economic Research Institute

Copyright © 2000 - 2013

Library of Congress Cataloging-in-Publication Data

HF5549.5.C67B45 1987 658.3'2 86-25494 ISBN 0-13-154790-9

Previously published under the title of Wage and Salary Administration.

The framework for this text was originally copyrighted in 1987, 1974, 1962, and 1955 by Prentice-Hall, Inc. All rights were acquired by ERI in 2000 via reverted rights from the Belcher Scholarship Foundation and Thomas Atchison.

All rights reserved. No part of this text may be reproduced for sale, in any form or by any means, without permission in writing from ERI Economic Research Institute. Students may download and print chapters, graphs, and case studies from this text via an Internet browser for their personal use.

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