A Useless Analysis?

I don't get it.  Can someone help me understand a bit of compensation reasoning?  Why are some organizations interested in what others 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 recommend raising their midpoints based on survey data that projects what other companies might do?  Is that metric as important as what is being paid for positions, or what the average merit spend might be next year?  How does a projected average salary structure movement relate to any company's situation?

Can you envision recommending to senior management that midpoints be raised by X% simply because a survey said that 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 reports 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 the 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? 

Practitioner Consideration

When are the estimates for these projected midpoint movements made, and how accurate are they?  They're 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 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 slightly different rate.  For example, it's likely that management pay is growing at a faster rate than that for hourly employees.   Suggesting that only a single number would reflect what’s happening with your entire population would distort the reality of those 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, "Employee," per Southern Methodist U.

Comments

[Joe Thompson]

Chuck,

Another Cafe contributor, Chris Dobyns, has also raised the point that even within a salary structure segment (e.g., exempt professional), some jobs may be moving at significantly different rates than others. Simply looking at the aggregated projected increase does not tell the tale and even further distorts the reality.

Perhaps when surveys started reporting the projected increases there was a more compelling rationale or hypothesis for including the data.

[Dan Barber]

Agreed. How other companies may be setting their structures is completely irrelevant. I have ignored that data point for 30 years, and frankly submitting that data to surveys receives scant attention.

What survey vendors need to ask is, Are you planning to make any significant structure adjustments, and why? That would yield some insight into to what extent companies may be materially altering structures to meet market demands.

[Zac Parsons]

I think one of the tough things that survey administrators deal with is response rate. They go from a relevant question that an insignificant amount of people will take the time to answer (what premiums are you setting for segments of your positions?) to a tangentially relevant (if not irrelevant) question that's much easier to answer (ergo will keep response rates high).