Beware the temptation to blindly endorse recommendations to apply equal rates of increase. Watch out for signs that the peanut-butter approach may be imposed on your organization. All things are not universally equal, particularly when it comes to relative rates of change.
As employers near the midpoint of the calendar year and begin to plan payroll budget increases for the future, this is an excellent time to remind everyone that change rates are relative and highly variable. It should be clear that few changes are universally proportional. Losing 5% of your weight doesn’t mean your shoe size also shrinks by 5%, too. An 8% pay increase rate required in a red-hot labor market like the Bakken Range of North Dakota does not compel that same rate of increase to be applied in all other regions. The market rates that lag in a depressed community with high unemployment levels might not reflect the appropriate situations elsewhere. Action needed in one place does not automatically mean that same action must be duplicated in every location.
The relative rate of change needed to respond to any new reality should be based on the absolute differences between where you are and where you need to be for individual jobs in specific locations in your relevant industry. Leading the market with some jobs justifies a lower relative increase rate to your higher bases, while lagging the market argues for a higher delta to close the bigger shortfalls in the pay of those positions. Compute your desired rates of increase from the gaps between actuals and targets rather than work backwards from what others have done!
Well, duh! You might say that, if you are a regular habitue of the CompensationCafe where well-seasoned tradecraft experts share thoughts. But the vast majority of the population does not have the knowledge and experience displayed here. Those who blithely assume that professional reasoning will triumph over popular myth should remember that counting on clear logic to prevail all the time is a dangerous gamble. Even top managers can display deficient understandings that may rebound to wreak havoc long into the future. The bad pay decisions of yesterday already haunt your current payroll; and the mistakes of today will become the status quo legacies of tomorrow. No law requires blunders to accumulate over time, however. Recurring problems can be prevented by timely interventions.
Merely issuing a cautionary notice might not be enough. Repeated warnings about the highly variable absolute rates of change by job and major differences by industry often don’t reach the right audience. Decision-makers seeking quick and easy answers are prone to seize upon single metrics of change rather than embrace the enlightened recognition that change is complicated. Yes, we realize that frontier trailblazers didn’t find their way through the mountain passes by focusing on soil details inspected under a magnifying glass, but the need for a wider perspective can be overlooked when a narrowly focused view is presented by a powerful executive. Summarized results from small surveys of a limited sample of observations (especially if the sample is biased or the results are unweighted), can be terribly misleading. What is supposed to happen in a restricted microcosm may be interesting as context, to the extent it is relevant, but it should not determine what is in the best interest of a unique organization.
The message must be shared with the key decision makers. If these warnings about oversimplifications save even one enterprise from a terrible mistake, then we who make compensation recommendations have done our jobs faithfully.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. After over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.