Chapter 8: Compensation and Benefits Surveys

Overview: This textbook chapter teaches you how to select salary 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 pay 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 pay information by using salary surveys. A salary survey is a compilation of wage data collected from other organizations that are perceived as comparable to your organization. This comparability is achieved with a job matching process using survey benchmark job descriptions and internal job descriptions. 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 with regard to guidelines that govern conducting salary surveys. Regardless, the most common analysis activity in compensation administration is the collection, analysis, and use of information on compensation paid by other employers.

This emphasis on compensation surveys should surprise no one. Analysis at both theoretical and practical levels would suggest it. Compensation and benefits comprise the total price of labor services, and because labor markets are different from other markets, both employers and workers must search for information and choices. An important target of employer search is "market rate", 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.

SALARY SURVEY PURPOSES

Salary surveys serve a multitude of purposes.¹ To start with, salary surveys are used for the strategic purpose of determining the pay level of the organization. This decision directly impacts the kind and quality of the organization’s work force, most importantly its labor costs. Since all organizations pay their employees' a salary that depends mostly upon the job, salary surveys are used to establish the wage differentials between jobs. This is an essential aspect of establishing the organization’s salary 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 salaries and the need for specific skills. In addition, salary survey data can be used to help decide the type of compensation and how it will be delivered - that is, the ratio between base pay, incentive pay, and benefits.

In the end, the ultimate goal of using salary surveys is to identify the market rate that 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 the market rate for comparable work and it provides the organization with a competitive work force.

While the main purpose of salary surveys is to answer questions about an organization's external competitiveness, they can also aid in answering questions about internal equity that arise in pay decisions. Accurate salary survey data is crucial to salary increase planning, a process that occurs yearly in organizations. Salary 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 evaluating employee benefits, cost-of-living, or salary level is to determine the market rate 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 salary survey.

DIMENSIONS OF SALARY SURVEYS

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

The numbers represent the following dimensions of a salary survey:

1. The job. Salary 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 salary 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 several different types of accountants.
2. Cash compensation. What is included in the compensation reported? In this case there is a choice among base salary, incentive pay or total cash compensation, which is the sum of base pay and incentive pay.
3. Pay Period. While most salary surveys report annual salary some use shorter time periods, such as monthly. Many surveys report trade and non-exempt (e.g., eligible for overtime) level jobs using an hourly rate.
4. Average Pay. Two major measures of average are used in salary 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, you can change the survey mean results to the survey median. Note that there is a 10th, 25th, 75th and 90th percentile column on either side of the mean. This shows that there is not a pay rate for the jobs in the salary survey 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 tenured employees.
6. Labor Market Determination. The location, size, and industry all have an impact on the labor market rates.
7. Planning Date. It is important that all data is synchronized to the date the organization is using to make salary decisions. This process is explained more fully later in this chapter.
8. Salary Trend. This is the percentage by which pay is 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 or 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 align 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 which job content is to be used for comparison with the market (benchmark jobs) and whether the jobs in the salary surveys you choose to use are comparable to your organization's jobs.

Job analysis can be a very formal process or quite informal, but the objective is to collect complete and accurate information. 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 salary surveys. Figure 2 is an example of a job description or brief in a salary survey context.

Data Analyst

Alternate Titles
Statistical Analyst, IT Data Analyst, Analyst Data.

Overview
Assesses complex data systems and programs in support of ad-hoc and standing management or customer requests.

Creates programs, methodologies, and files for analyzing and presenting data.

Examines data quality, applications, and functions.

Produces output and sustains operations.

Researches new data sources and analytical tools.

Contributes to new product development and improvement in product delivery and presentation.

Develops awareness of and familiarity with issues and events affecting the organization, departments, or customers

Uses and supports database applications and analytical tools.

Uses timely and appropriate participation of users in data collection and query systems.

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 at 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 salary surveys, there are 25 to 30 benchmark jobs 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 just a few jobs for a customized one-time 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 HR leaders.
• be jobs that some organizations fill from external labor markets.
• include jobs that you are having trouble hiring or retaining talent for.
• in all cases be important jobs for the organization's operations.

Market Comparison. The main market consideration is whether the job is matched to one that is common in the labor market. 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 salary from the salary surveys can be taken as the going market rate.

The Labor Market

The next step is to determine the relevant labor markets for the chosen jobs. 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 with your organization in selling the same or similar goods and services. Learning the pay rates of product market competitors sets a ceiling on pay that keeps your organization from having to raise product prices and becoming uncompetitive.² Thus the salary 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 should be targeted. 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 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 salary 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 methods will be examined in this chapter starting with choosing salary surveys produced by others.

CHOOSING SALARY SURVEYS

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

Salary 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 company-sponsored 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.

There are thousands of available surveys. Such voluminous data collection suggests that an enormous need exists. Why are salary, 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. Salary 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. The third is that salary 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 State Workforce Agencies (SWAs), it publishes an Occupational Employment and Wage Statistics (OEWS) survey with estimates for approximately 830 occupations. Secondly, the BLS publishes a National Compensation Survey that provides measures of employer costs for employee compensation, including wages and salaries, and benefits, compensation trends, and the incidence of employer-sponsored benefits among workers.

Government efforts have contributed greatly to salary survey techniques. But most employers, even while using government occupational-wage statistics, do not find them sufficiently timely or specific to fill their needs. The greatest testimony to the 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 spending over $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 collect survey data. The Internet brings computer technology and survey software into the office. Survey questionnaires are 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 salary 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 salary 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 Consultant Surveys. This is the major source of salary 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 compensation analytics firm and provides survey data and analyses via its Assessor Series.

ERI's flagship product is the Salary Assessor®, which provides consensus salary ranges for almost 14,000 position titles 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 with adjustments for education, skills, certification, and shift work. The Salary Assessor tool 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, bonuses, and equity awards for more than 1,000 executive and managerial position titles as well as a Nonprofit Salary Survey Assessor™ that compares executive compensation at non–profit organizations.

Evaluating Salary 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 consider in making this decision.

Organizational Support. The salary results of a salary 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 the survey source having data that is appropriate for the organization's needs. For instance, if the source provides just average wages for jobs and the organization's pay level strategy is to pay at the 65th percentile level, the data does not fit. This highlights the need to develop a plan, before ever starting to collect salary 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 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. Organizations vary considerably as to how the data is collected, analyzed and presented, and how much support they 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, although provided with considerable lag in published results. 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 salary 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 the customers for the data and whether the data is central to the site or is presented in order to sell something else. In addition, the site should provide information about participants 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 pay rates presented as the market rates by salary surveys. Where did this raw data come from? For instance, does a survey on the Internet have data that is not collected on the Internet, or is it collected from people visiting 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 analyzed.

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 adjustments.

Methodology. In determining whether to use a particular survey, one of the most important things to know is how the survey organization analyzed the data. 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 five 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 market rate for free or for a nominal sum. A compensation consultant could well cost into the thousands of dollars for a complete salary survey of all or most of the organization's jobs. 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 pay 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 salary 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 salary 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. If the two descriptions are 70% the same, they can be considered a match. You are looking for 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 market rates or whether you must pick the most likely job. It is possible to adjust market rates where the organization's job is somewhat above or below that of the salary survey as we will discuss a little later.

Extract Data

For each job the salary 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 an average calculated with some data points contributing more "weight" than others in the survey. For example, salaries reported from small companies may be weighted 10% and large companies 50%. 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 pay 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 newly hired or long tenured, their salary should be different from the average of the salary survey.
• Job Levels. Some jobs have levels, such as beginning or senior levels, with substantially different salaries.
• Organization size. Larger organizations tend to have higher pay levels than smaller organizations
• Salary Spread. Knowing the 10th and 90th percentiles can be helpful. A more sophisticated measure of salary dispersion would be the standard deviation.

For further information about extracting data see Chapter 5.

Aging Data

Your salary surveys were most likely conducted at different times making comparisons difficult. To correct this, all the surveys need to be aged to a common date. The most appropriate date is when you plan to implement the new salary structure. This can be done by adjusting the salary 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 most jobs increase in value at different rates.

Weighting Data

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

• Compensation Strategy. Salary 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 a higher number of participants and data points are better than those with small numbers. This is particularly true if the number of data points 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 be used for a number of purposes, in particular salary planning, market pricing, salary structure evaluation and individual salary adjustments.

SURVEYS CONDUCTED BY THE ORGANIZATION

Some organizations conduct their 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 salary surveys. This section of the chapter will outline the steps needed to develop a salary 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 defining the information the organization needs to collect, to achieve the purposes of collecting pay 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 time and effort.

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 to include in the survey 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 be included 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 chosen jobs. 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 commonly used. 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 organizations to be surveyed. Firms in the same industry should be the priority. Such organizations are more likely to have all of the jobs of the surveying organization with similar salaries.

Organizations that hire similar skills is another criterion. An attempt should be 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 needed. The latter approach would require taking a census of establishments in the target universe, and then drawing a sample. The Bureau of Labor Statistics follows this approach.

In most surveys sponsored by a single organization 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 salaries and benefits, and perhaps of average salary 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 salary policy and procedures may be limited to general increases, salary structure adjustment, and individual pay change. Alternatively, information on job evaluation plans, number of salary structures, incentive-plan usage, hours and work schedules, as well as general benefit policy may be sought.

The information contained in compensation surveys is focused on pay information of specific jobs. Here, the requirement besides job descriptions or job briefs is utilizing careful definitions of the data collected. 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 pay rates should reflect the starting pay rates for particular jobs and classes of employees. The salary structure minimum, midpoint, and maximum rates are usually collected. Actual pay rates may differ from these structure rates as employees may not cover the whole pay range. So, these actual rates should be collected, together with the number of incumbents at each position. 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 questionnaires. After it has been decided what information to seek, the next step is making the questionnaires to be used in collecting the data. The questionnaires are designed to record data as conveniently as possible and to permit rapid tabulation and analysis. Normally, surveys have two questionnaires: 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 compensation data questionnaire is required for each job included in the survey. A common practice is to present the job description or job brief in the questionnaire prior to specifying the salary information sought. Figures 8-3 and 8-4 are examples of such questionnaires. Obviously, both questionnaires could be shortened or lengthened depending upon the information called for.

Determine the survey method. Salary surveys may be implemented by telephone, online, or group meeting. Telephone surveys may be used to acquire some compensation policy and practice data and pay information on a 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 established or can be easily accomplished. But for the most part, using informal networks to conduct surveys can be unproductive or produce unreliable results.

Online surveys may be safely used for obtaining 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 designing the questionnaires and utilizing precise definitions help. The quality of the data always depends on the qualifications of the respondent completing the survey and the support of the participating organization. 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 online.

The most productive method of gathering accurate compensation data is typically consultation by qualified personnel. Because determining job comparability is the key to obtaining useful occupational compensation data, the consultation 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 appropriate person to obtain information on salary 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 online surveys and is much less costly than consultation 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 survey job comparability 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 consultation, group meetings, use of common job evaluation plans, and use of job-scope data. Despite the higher levels of detailed information permitted by consultation and group meetings, the cost and coverage requirements probably ensure that many surveys will continue to be made online. Survey reliability and validity will continue to depend on the conscientiousness 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 survey 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. With online surveys collect compensation policy and practice information on one questionnaire and use a separate one for determining job comparability and obtaining compensation data. Constructing the questionnaires 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 questionnaire can be mailed back to the surveying organization without loss of accuracy. In consultation surveys, they are distributed and usually completed before the visit is made.

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

Tabulate, Analyze and Present Results

When the data from all cooperating organizations are submitted, 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 such as the time when decisions will be made using the data. Second, since pay rates change constantly, a change factor is developed. For instance, if salaries 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 giving high weighting to:
   • 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 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.

  

  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 pay 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
  7.25 and under 7.70	33
  7.70 and under 7.90	66
  7.90 and under 8.10	72
  8.10 and under 8.30	94
  8.30 and under 8.50	198
  8.50 and under 8.70	201
  8.70 and under 8.90	450
  8.90 and under 9.10	268
  9.10 and under 9.30	118
  9.30 and under 9.50	79
  9.50 and under 9.70	39

  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 pay line (made up by consolidating all the information in the survey) and a company pay line. The chief advantage of this method is that each organization can compare its pay level and structure with the summary pay line and the pay line of each participant. A disadvantage is the averaging necessary to develop the graph.
  
  Constructing 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 questionnaire used. For maximum usefulness of salary survey data, it is advantageous to use company codes for compensation policy and practice data. In this way unusual salary positions may be interpreted by reference to compensation policy and practice information.

FACTORS AFFECTING SURVEY REPORTING

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

Anti-Trust Safety Zone

Some organizations have been accused of price fixing based upon salary 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 anti-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 how the information is used and any 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 pay 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 salary 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 salary 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