Absolutely Relative Increase Rates

Can't understand why folks barrage me with irrelevant questions about what our salary budget increase will be next year.  When I respond that my belt size expanded by 2%, they look at me cross-eyed and don’t seem to find that relevant.  What applies only to me has nothing to do with them, they say.  Well, yeah.  Think about the parallels.

If changes in my belt sizes are not relevant, why should changes in my salary budget be relevant?  Both are related to me and my unique situation and have nothing to do with anyone else’s, other than as a standard of relative change.  Yes, I said “relative change” as in “a metric computed in proportion to a base number.”

Must admit to being fond of analogies like, “with my head in the freezer and my feet in the oven, my overall temperature is perfectly average”; and “I’m very tall, compared to a kindergarten class, but I’m very short, compared to a professional basketball team.”  Belt sizes change quite frequently for pre-adolescent children and tend to stabilize thereafter (in an ideal world).  Notice anything about those comparisons? 

Those statements explain a lot.  They clearly illustrate the faulty logic of using relative standards to make inferences and draw conclusions about absolute facts. 

Absolute statements based on relative comparisons can be highly misleading.  If you lead the market by ten percent (10%) and grant no increases at all (0%) while the overall outside competitive market moves two percent (2%), you will end up continuing to lead that outside market by (horrors) a mere eight percent (8%).  I could live with that, in a down economy; also bet that most boards of directors would consider that a pretty good deal for their shareholders, too.

We live in a world where (maybe):

• one-third of all employers substantially froze salaries;
• another third granted nominal increases due to a great year or to make up for past freezes; and
• the last third is spending money like it was water due to “stimulus” funding or simply because they have been immune from the economic slowdown so far.

In that environment, the definition of “normal practice” is impossible to determine. 

Even worse, some salary budget increase surveys count zeros, some do not and some don’t even ask what you actually did but instead ask what you think you might possibly do.  Only thing I’m certain of:  employers will do what is necessary for their continued existence, regardless of what others may say they plan to do. When push comes to shove, enterprises are probably going to act according to what is best for their own survival.  Although top managements may ask for underlings to supply comparative information for context, they will decide their ultimate course of action according to what is most appropriate for their specific situation, rather than line up behind the mass of lemmings.  They will do what they have to do rather than what some pollster suggests, based on what a limited selected observation sample of fewer than 2% of their competitors opines they might do.  Leaders don’t follow; they blaze new paths.

Nevertheless, they will ask you for those relative metrics before they proceed to craft their own unit-specific alternative.  All you can do is confirm that they comprehend the relative nature of the comparative figures.  Like a compass, it gives them a frame of reference, despite the fact that they will not always want to travel due North, even though that is where the compass needle points.  But, if you don’t know where “North” is, you will be in trouble.  That need for context alone is a good reason for supplying an answer, as long as you clarify that the absolute truth may be relatively meaningless.

Meanwhile, don’t ask me absolute questions about comparing relatives, because I have enough crazy relatives of my own without worrying about yours.

E. James (Jim) Brennan  is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired 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.) and will express his opinion on almost anything.

Image: Creative Commons Photo "Relativity!" by jtbrennan

Comments

[Joe]

Jim, thanks for the post. I sympathetic to your point; I agree overall but I feel is a valuable metric to know nonetheless. So if salary budget surveys are not the answer then what is? I would love a post on what is useful or value added for me to help my business leaders make an informed decision on the salary budget.

[E. James (Jim) Brennan]

Market Index and Pay Policy Line (or Pay Structure) are more important because they are more in tune with absolute reality and determine your relative position against your own objectives. If you know the difference between what the competitive market says and what you pay (Market Index) and how well you maintain your desired position against that market (Policy Line or Pay Structure, such as your degree of external market lead or lag), that will tell you how much you need to budget to either maintain your lead or close your gap.

Knowing the accuracy of your measurement tools and your status against ideal is more important than your rate of change. It's like realizing that the precision of your measurement scale and your actual weight compared to your age/size/sex ideal is more important than how your weight gain or loss percentage compares to the percentage experienced by everyone else in the world. Whether your number is "right" or not depends on YOUR needs and objectives, not those of anyone else.

Of course, top management still will want to know how they compare to others, for defensive purposes if nothing else. But they need to know what it means in context.