Three Pay Patterns

Three pay patterns seem to exist in North America today.  

As the economy has struggled, some firms continue with business as usual attitudes, ignoring outside market changes while continuing their traditional practice of steady pay increases.  Others shut down tight, freeze salaries and cut payrolls.  Still others take a middle position, moderating their raises and responding in a temperate and intermediate manner.   They each may report increase rates of 5%, 0% and 2.5%, respectively, in pay increase surveys.  Don’t forget that point, because how those numbers are handled is important.

Divided practices and inconsistent behaviors are real.  Only last year, a Harris poll reported tremendous differences in pay increase practices.  At the same time that a significant block (almost half) is standing still, we also see other employers frantically searching for new methods to retain critical workers.   Variations like that create terrible problems for total rewards professionals who give recommendations and make decisions according to survey results.   When enterprises do not grant pay increases, they frequently do not respond to pay increase surveys or at best supply a “none” answer to the question.  Such answers (if even noted) can skew the results.  Some survey firms report “no increase” populations, while others simply compute the average or median increase rate of those who GAVE increases and ignore the silent non-responders.

In this 21st Century, few salary surveyors still ask the ancient question about the interval (“how long since the last increase?”) involved.  It is relevant, because a 4% increase granted after four years of frozen pay is not really the same as a 2% increase given every year or a 3% increase budget allowed in alternate years.  Besides that, the question of what’s going on at employers whose practices are not reflected in the survey observation sample always remains unanswered and can be extremely problematic.

From a statistical standpoint, a random sample of a significant population sample should yield reliable results; but pay surveys today very seldom meet that standard.  Surveys of major highly profitable employers with secure income streams will not produce the same answers offered by small struggling enterprises operating in deeply troubled areas.  Total reward professionals are confronted with the same challenge that faced the blind men trying to describe an elephant.

Everyone has a different perception.  Each is right, from their perspective.  But that is not the answer your top management wants to hear.  They frequently demand a clarity that simply does not exist.

In the end, total reward professionals will be challenged to temper increase survey findings and predictions of changes with explanations of the underlying meaning of the metrics.  Absolute numbers should rule rather than the relative velocity of change comparisons.  What it takes to attract, engage and retain your scarce-skilled critical performer is far more vital than the percentage rate by which some group moved from its previous position.  Stick to real verifiable realistic absolute numbers displaying present reality rather than vague relative comparisons from past history, in order to enhance your opportunities to both survive and thrive.

 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.

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Comments

[Jacque Vilet]

Here's to reality! And even today's reality is only good for one day. Comp professionals have enough to do just coping with that.

[Jeffrey Haynes]

The classic film Rashomon (beyond being an amazing piece of art and story telling) is another example of multiple perspectives...

http://www.imdb.com/title/tt0042876/

Great post and excellent points on the machinations of comp surveys....

[E. James (Jim) Brennan]

Thanks for the feedback, Jacque and Jeffrey.