We pay our Technical Staff at the 60th percentile of the market. I have the survey’s min and max but must calculate the 60th%ile from the typical 50th%ile.
What is a total rewards professional to do, when commanded to make an impossible calculation?
Knowledge of the fundamental mathematical principles applicable to pay surveys might help avoid this problem in the future. As explained in detail in professional discussions about percentiles, you must possess all the underlying observations to rank them in order to display the 60th%ile. You can’t identify the data point where 60% of the elements fall below and 40% of the observations remain above it, unless you have all the underlying data point observation elements to stack up in a rank-ordered sequence.
The survey provider must share all the data responses or should otherwise report where the 60th%ile point falls. You can't calculate it from survey summaries that lack specific detailed facts. Without each of those observation elements in each survey, it is impossible for you to pay at the 60th%ile of the market unless your survey REPORTS where that point lies. Rather than guess where a different percentILE stands, it makes more sense to simply change your structure policy to pay a certain percentAGE above the mean average or median. The 60th%ile might be 1% above it or 30% above it*. You can't know exactly where it is without having all the observations in hand. If top management bristles at a suggestion that their policy is deficient and should be changed, you could carefully explain that a reasonable estimate is the next best option.
It might be possible to make credible guesses about where the 60th%ile lies in a particular occupation’s ranked scale of values; but such projections can’t be accurate with any degree of precision and will vary by job, too. Some clever comp pros make maximum use of the metrics they DO have, like the median (50th%ile) and the 75th percentile, for example. Simply splitting the difference betwen those two will produce a "generously well above average" policy target without even trying to claim what percentile that guesstimate represents. Using the midpoint between two known percentiles is both practical and defensible.
Here are real numbers. Drawing from an extremely robust dataset encompassing the majority of workers in America, the 60th%ile for a receptionist is less than 2% above the average and almost 4% above the median. Comparable differentials for the 60th%ile for an accountant are approximately 1% higher. Computing the midpoint between the median and the 75th%ile yields a number that stays very close to the 65th%ile.
None of those comparisons are adjusted for industry, location or responsibility level; neither size nor profitablity are statistically predictable pay factors for those benchmark jobs. The spreads cited above won’t necessarily apply to a small survey. Any percentile break point for different jobs in your particular kind of enterprise in your principal location will probably be different, too. Nevertheless, as long as you clearly define your assumptions (i.e. splitting the difference from known values) when making projections, you should be fairly safe from serious criticism. Strong disagreements can be referred to math professors who can mediate the matter as experts or fight the statistical battle for you.
The pay distribution intervals found in even the most robust survey observation samples are not consistent, constant or symmetrical and thus are very unresponsive to formulistic prediction. So any guess will (not "might") produce errors. When the correct answer is impossible because you lack the real data required for precise accuracy, all you can do is apply a SWAG.
What do you think?
*From these analyses, paying 10% above the norm produces a number ranging from the 74th percentile to the 82nd percentile. The rank relationships vary by job, by location and by comparison norm standard (average or median).
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.
Creative Commons image "Numbers and Finance" by reynermedia, courtesy of seniorliving.org