The Questions We Should Not Be Answering With Market Data

Would you make a critical life decision based on market norms?  Decide to uproot your family for a job opportunity, divorce your spouse or determine the best care approach for an elderly parent based on "average practice?" 

Probably not.  You would want to consider your specific circumstances, your goals and aspirations and your values, among other things.  And you'd want to seek input from those directly involved and/or impacted by the decision.  Data on what other people have done in similar situations may inform your decision, but will not likely determine it.

Similarly, there are questions in the world of compensation design and management that we should not be answering solely on market practice and "competitive norms."  When you fall into the trap of thinking that benchmarking is the most important arrow in your quiver, however, it is tempting to fire it at every question you encounter.

As a consultant, I get a lot of market data questions that really make me scratch my head.  Here are a few of my favorites.

What are the most common incentive measures for management (or sales or professional level) employees in the technology (or contract manufacturing or pharmaceutical) industry? 

I call this one "plan design by market average" and it is not an uncommon approach, particularly with less experienced professionals.  Incentive plan design should always, ALWAYS begin with an understanding of the company's unique business strategy, what it wants to accomplish with the incentive spend and which specific efforts and results (if reinforced) will most likely lead to attaining those objectives.  It should not begin with the average choices made by others in the industry.

How many companies are providing incentives to their nonexempt employees?

While it may be interesting and even helpful to understand the direction of the market here, the decision to make any particular group of employees incentive eligible should not be simply an effort to mimic the crowd.  Are there sound business and talent management reasons to provide incentives to this group?  Are your managers willing and able to take on the communication and coaching activities necessary to establish and reinforce the connection between employee efforts and moving the bar on plan measures -- necessary for success and any chance of return on award dollars?  These are the types of things that should guide incentive participation decisions, not simply the determination of whether everybody else is doing it.

How many companies in our industry position their pay above the 50th percentile (median)?

Whether or not the average company in your industry purports to pay at premium levels shouldn't be the primary factor driving your compensation philosophy.  Rather, is there a strong business case -- for your organization -- which suggests that positioning compensation aggressively for all or some portion of the workforce is necessary?  And likely to deliver a positive economic return?

Do most companies classify this job as exempt or nonexempt?

Yes, let's do crowdsource our FLSA classification process.  This is one of my favorites -- and I will tell you that I hear it a lot.  With all the scrutiny and attention being directed at wage and hour compliance these days, do you really believe that a borderline exemption call could be defended, if it came to that, with data that shows how other most companies have classified that title?  Me neither.

An HR executive (who shall remain anonymous) recently remarked to me that, in his experience, most compensation people are great at benchmarking.  Period.  The implication being that our contribution begins and ends there. 

Let's be better than that!

(And please do share your own versions of questions we should not be answering with market data.  I'll bet there are some doozies out there.)

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a range of client organizations.  Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

Creative Commons image "Finger Wag" by Lara604

Comments

[E. James (Jim) Brennan]

Sorry to see so few comments, Ann, but I suspect there are too many examples to permit a limited selection. Every question asking for "THE right number...," for instance. Or all requests for "the PERFECT answer for all situations." Any inquiry about a single universal solution for all issues is usually doomed to fail. Reminds me of my "Compensation Cookbook" article.

Followers don't lead very often. While a map can give guidance, it doesn't set direction.

[E. K. Torkornoo]

Great piece! It has been said that no country or company ever became great simply by copying others. Yet the herd instinct seems to drive many in management and on boards. My pet peave question when you've come up with a well considered, customized, and creative solution is: Do you know any companies doing (or that have done) that? Worse, you see other companies doing it a few YEARS later and getting rave reviews!

[Dan Walter]

I have to say that nearly every conversation regarding equity compensation plans begins with "what is XYZ doing?".

As you mentioned, my response is often something like "why does it matter?"