Cafe Classic: A Case of Over Analysis?

Editor's Note:  In this Classic post, Chuck Csizmar challenges us on a particular "flavor" of our sometimes thoughtless over-reliance on broad market indicators.  A timely lesson as salary budgeting time comes racing our way once again.

I don't get it.  Can someone help me understand?  Why are some companies interested in what other organizations are planning to do next year with their midpoints?  I presume that's the case because compensation planning surveys compile and report such data.  But who really cares?  Aside from anecdotal information (presenting multiple data points) I have never understood the importance of this reporting.To be fair, perhaps my career experience is the exception, as I've never used that data in program analysis, or even reported it.  Or even been asked about it.  But somebody must be using it.  Somebody.

Say what?

I can only guess that I've missed something ; maybe I should have taken another WorldatWork class, because the issue has never arisen from any employer I've dealt with, either as  an inside Compensation practitioner or as an outside consultant.  Which leads me to wonder, do some companies actually recommend raising their midpoints on the basis of a survey that projects what other companies might do?  Is that metric as important as what is being paid for particular positions, or what the average merit spend might be next year?  How does an average projected average salary structure movement relate to any company's particular situation?

Can you envision recommending to senior management that midpoints be raised by X% simply because a survey said that’s the projected average midpoint increase of other companies?  Surely there should be more to the decision.

For me the focal point of survey analysis has always been to determine the competitiveness of current pay practices and established midpoints.  In planning for next year we would adjust those midpoints to either remain competitive (midpoints are already there), to improve our standing (midpoints lag the market), or freeze them (midpoints already pegged above market rates), no matter what a survey reported as projected common practice.  Am I wrong here?  I’ve always thought that my company's salary structure should move in relation to our own competitive positioning, regardless of what anyone else is doing.  Otherwise we could be making improper adjustments - either too much or too little.

And what about the expense involved?  Contrary to what some pundits have assured me from time to time, midpoint growth can create costs.  There’s no free ride.

• When an employee's base pay drops below salary range minimum at the start of the fiscal year, do you cover that amount - or wait until the next scheduled employee review?  The fair thing to do would be to immediately raise the employee to minimum and then (or later) grant a merit increase on top of that.  There’s your extra cost.

• Higher midpoints push experienced employees further away from the internal "going rate" - creating pressure to restore the balance.  Have you ever explained to a long service employee why they weren't being paid at least the midpoint?  Awkward.

Practitioner consideration

When are the estimates for these midpoint movements made, and how accurate are they?  They're really only guesstimates, and many times the survey questionnaire is filled out without due consideration, just to get the form completed and submitted.  After all, most companies won't confirm their new structure commitment until about November (senior management signoff), while the structure movement questionnaires are completed in mid-summer.  How good a guess can you make in August?

Btw, a company's salary structure (grades and salary ranges) is usually segmented along the lines of hourly, non-exempt, exempt professional, and management employees.  To gain a clear picture of your competitive marketplace you should consider that each segment is moving at a different rate.  For example, it's likely that management pay is growing at a different rate than that for hourly employees.  Suggesting that only a single number would reflect your entire population would distort the reality of your multiple markets.

Now I suppose there may well be organizations out there that have changes to their reward programs contractually tied to "market movement" or even structure (midpoint) growth, but do you think there are that many so governed?  And is it a process that helps the organization?

Bottom line, can someone tell me why tracking other organization's guesstimated midpoint movement is a valuable analysis?  I'd really like to know.

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.  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 clowder of cats.

Creative Commons image courtesy of William Whitehurst Corbis

Say what?

I can only guess that I've missed something ; maybe I should have taken another WorldatWork class, because the issue has never arisen from any employer I've dealt with, either as  an inside Compensation practitioner or as an outside consultant.  Which leads me to wonder, do some companies actually recommend raising their midpoints on the basis of a survey that projects what other companies might do?  Is that metric as important as what is being paid for particular positions, or what the average merit spend might be next year?  How does an average projected average salary structure movement relate to any company's particular situation?

Can you envision recommending to senior management that midpoints be raised by X% simply because a survey said that’s the projected average midpoint increase of other companies?  Surely there should be more to the decision.

For me the focal point of survey analysis has always been to determine the competitiveness of current pay practices and established midpoints.  In planning for next year we would adjust those midpoints to either remain competitive (midpoints are already there), to improve our standing (midpoints lag the market), or freeze them (midpoints already pegged above market rates), no matter what a survey reported as projected common practice.  Am I wrong here?  I’ve always thought that my company's salary structure should move in relation to our own competitive positioning, regardless of what anyone else is doing.  Otherwise we could be making improper adjustments - either too much or too little.

And what about the expense involved?  Contrary to what some pundits have assured me from time to time, midpoint growth can create costs.  There’s no free ride.

• When an employee's base pay drops below salary range minimum at the start of the fiscal year, do you cover that amount - or wait until the next scheduled employee review?  The fair thing to do would be to immediately raise the employee to minimum and then (or later) grant a merit increase on top of that.  There’s your extra cost.

• Higher midpoints push experienced employees further away from the internal "going rate" - creating pressure to restore the balance.  Have you ever explained to a long service employee why they weren't being paid at least the midpoint?  Awkward.

Practitioner consideration

When are the estimates for these midpoint movements made, and how accurate are they?  They're really only guesstimates, and many times the survey questionnaire is filled out without due consideration, just to get the form completed and submitted.  After all, most companies won't confirm their new structure commitment until about November (senior management signoff), while the structure movement questionnaires are completed in mid-summer.  How good a guess can you make in August?

Btw, a company's salary structure (grades and salary ranges) is usually segmented along the lines of hourly, non-exempt, exempt professional, and management employees.  To gain a clear picture of your competitive marketplace you should consider that each segment is moving at a different rate.  For example, it's likely that management pay is growing at a different rate than that for hourly employees.  Suggesting that only a single number would reflect your entire population would distort the reality of your multiple markets.

Now I suppose there may well be organizations out there that have changes to their reward programs contractually tied to "market movement" or even structure (midpoint) growth, but do you think there are that many so governed?  And is it a process that helps the organization?

Bottom line, can someone tell me why tracking other organization's guesstimated midpoint movement is a valuable analysis?  I'd really like to know.

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.  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 clowder of cats.

Creative Commons image courtesy of William Whitehurst Corbis

Comments

[E. James (Jim) Brennan]

You must supply an answer to the pointless question so your boss can be prepared with a response when a more senior executive demands the meaningless insight into what everyone else is doing. It is considered important to followers who plan to obediently fall into line behind the leaders.