Is It Rocket Science Where You Work?

Company management is always asking, "what is the market value of our jobs?"   But just how precise does your market pricing analysis really have to be?  To what extra lengths will you go, or should you go, to increase the level of precision in your analysis, and would that effort prove worthwhile?   Does the appearance of a more precise figure bring meaningful results for you and for your management?

For example, would you consider that a market rate of $47,512 is an accurate reflection of current national trends for the subject job, or is that figure simply an arithmetic average that looks precise?  Would you fall on your sword over the accuracy of your analysis?

Regardless of need, how precise can you be?

The competitive “marketplace” is an imprecise animal, not often well defined and subject to numerous variations and interpretations.

• One survey doesn’t use the same companies as the next survey.

• The job matching spectrum swings from easy (benchmark) to difficult (unique jobs).

• Surveys provide different mixtures of industries and revenue (size).

• Weighted Average / Average / Median / 50^th Percentile formats are not always consistent, and they are not the same.

• International data is often a shadow of what is available in the U.S.

Meanwhile, the market itself is a moving target, never static, always changing, and the use of aging factors to bring it up-to-date will add a degree of guesswork.   For icing on the cake many practitioners round their analysis to the nearest Currency 100, in order to emphasize the "pulse" of the marketplace.  A minor distortion, I'll admit, but exactitude is often an illusion anyway.

Each of us, in our respective roles, needs to ask of ourselves, what degree of precision is necessary?  Not what is attainable, but what is necessary to achieve our goals.  Is it sufficient to report the pulse, or does your organization require a digital thermometer that slices whatever data is available to a much finer degree?

When survey data is not robust (limited participation and scant industry and / or revenue segments) the extra effort expended in the search for precision can result in short cuts, assumptions and questionable (stretch) job matches - all to deliver a data capture anomaly that has only the appearance of exactitude.

Remember that the average of two survey sources doesn't necessarily indicate a market trend, but only an arithmetic average - in effect, a splitting of the difference between two credible, or incredible figures.  That's not a sign of anything.

A useful rule of thumb to consider is that any incumbent figure within +5% to -5% of a reported “market rate” is close enough to be considered as "on target."   There are some who think that figure should be 10%, but to my thinking that leaves too wide a range for a so-called “going rate.”

Caution:  lots of analysis – paralysis jockeys out there advocate increasingly precise techniques to zero in on what they call your true market rate.  Toward that end several vendors have built a business model around encouraging organizations to slice and dice available information, trying to define and refine exactly what a “market” is, what jobs are exact matches and after a fashion how their singular survey source is the answer to your needs.

Part of that marketing strategy is to use custom designed evaluation techniques and their proprietary job matching system.  Such a strategy effectively marries the organization to the vendor, as one cannot easily co-mingle proprietary language and techniques with methodologies used by other survey sources.  Apples and oranges.

The hunt for precision can deliver less perceived value

Sometimes the pressure to report ever more refined analysis might actually result with the opposite effect; weakened credibility as the figures face challenges.

• When too few companies are reporting data.

• When having to stretch survey descriptions to match unique job content.

• When dealing with locations having volatile inflation spikes.

• When management doesn't need to "dot the I and cross the T."

At the end of the day, what does the client or your company management desire from your view of the competitive marketplace?  Chances are they simply want an understanding of approximately what the job is worth.   To gain a "ballpark" figure that could be used in planning, in recruiting, in assessing their reward programs.  You won't have to report $47,512 to paint that picture.

On the other hand a simplistic sore thumb analysis is not an effective solution either, but instead let me suggest that a balance of time, effort and cost be used when conducting market analysis.  The key question is, what level of precision is really necessary?  What level will deliver credible results?

Do you really need such analytic exactitude to make a business decision?

I think you don’t, no matter what the over-analyzers suggest.  But then again, it may be rocket science in your organization.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Creative Commons image courtesy of cliff1066

Comments

[Chris Kelley]

Chuck,
fantastic post! Unfortunately, we do see people fall into the trap, or the illusion, of precision when trying to do market pricing. Just like in your example of using $47,512...that certainly sounds like there's some laser focus precision there and would be far better received that just saying "47.5 ish".

Something I would add is a reminder to folks that "the market" doesn't pay a single number. Rather, the market pays anything from the lowest low...to the highest high and everything in between. And the people who are paid the values at either end of the spectrum aren't necessarily the ones that are under or over paid.

The job of a compensation professional should be less about trying to calculate the single precise market rate, and more about providing pragmatic, business-oriented guidance about what pay level is most appropriate given the context for the organization they represent.

[Warren Heaps]

Great post, Chuck. False precision is what we call the tendency for comp wonks to seek the absolute perfect market data, even if it requires compromises that render the entire exercise pointless.

As you alluded to in your post, international market data is often harder to come by, and within that category, developing country markets are the toughest. I would suggest that the problem there is the application of North American and European compensation survey practices in countries which cannot support them. Compensation professionals are advised to examine their approaches and consider if alternative ones can provide more meaningful results.

Birches Group offers such alternatives.