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Making Cents of the Dollars A Guide to Understanding Salary Surveys. February 25, 2004. Presented to the Intermountain Compensation and Benefits Association . Agenda. Introduction Composition of a Survey Data Elements Defined Market Pricing Survey Considerations Delivery Methods

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making cents of the dollars a guide to understanding salary surveys

Making Cents of the DollarsA Guide to Understanding Salary Surveys

February 25, 2004

Presented to the Intermountain Compensation and Benefits Association

agenda
Agenda
  • Introduction
  • Composition of a Survey
  • Data Elements Defined
  • Market Pricing
  • Survey Considerations
  • Delivery Methods
  • Organize It!
  • Conclusion
composition of a survey
Composition of a Survey
  • Survey Statistics
    • Participants
    • Industries
    • Locations
    • Revenue Sizes
  • Compensation Data
    • Base Salary
    • Bonus
    • Total Cash
    • LTI
    • Total Direct Cash
composition of a survey4
Composition of a Survey
  • Compensation Practices
    • Average Base Salary Increases
    • Average Salary Structure Increases
    • Details on STI Plans
    • Details on LTI Plans
  • Benefits Practices
    • Plans and their Prevalence
    • Cost of Benefits
composition of a survey5
Composition of a Survey
  • Survey Selection Objectives
    • Choose surveys that are representative on a number of factors.
      • Like participants (Industry/Size/Location/Etc.)
      • Like jobs represented.
      • Timeliness of the data (Effective date).
      • Sample size of the survey.
composition of a survey6
Composition of a Survey
  • Scope of the Data
    • Industry
      • General
      • Healthcare
      • Finance
      • High Technology
      • Manufacturing
    • Geography
      • National
      • Regional
      • Local
    • Revenue
      • Sales
    • Organization Type
      • Corporate
      • Division
      • For-Profit
      • Not-For-Profit
    • Employee Size
composition of a survey7
Composition of a Survey
  • Jobs Represented
    • Executive
    • Managerial
    • Professional
    • Technical
    • Hourly
    • Sales
  • Effective Date – Compensation data are typically reported as of a certain date in time.
  • Aging Factor – A recommended percentage to advance salary data when pricing a job to a point other than the effective date of the survey.
data elements defined
Data Elements Defined
  • Common Data Elements
    • Base Salary – Current annual compensation.
    • Bonus(Short-Term Incentive) – Additional annual compensation received above Base Salary for the pervious year.
    • Bonus Percent – Additional compensation from the previous year expressed as a percentage of another compensation element (typically Base Salary).
    • Target Bonus – The expected 100% bonus payout for the current year.
    • Total Cash – Total of all annual cash data.

Hint: You should always compare “apples to apples”.

data elements defined9
Data Elements Defined
  • Other Data Elements
    • Sales Quotas - Details on sales goals.
    • Base/Target Incentives – The mixture of guaranteed salary (Base) and “at risk” pay (Incentive).
    • LTI – The value of stock options or any similar award that extends over a period of a years. Often includes a performance qualifier.
    • Total Direct Cash – The sum of all annual cash and the value of any long-term incentives.
data elements defined10
Data Elements Defined
  • Weighting
    • Company weighted?
    • Employee weighted?
    • What is “Simple” weighting?
  • Population
    • All employees?
    • Reporting employees?
data elements defined11
Data Elements Defined
  • Common Percentiles
    • 10th percentile - the 10th percentile is the data point that is paid higher than 10% of the measured sample.
    • 25th percentile - the 25th percentile is the data point that is paid higher than 25% of the measured sample.
    • Median (50th) percentile - the middle rate in an ordered data set; i.e., half the observations fall at or below this number and half at or above.
    • 75th percentile - the 75th percentile is paid higher than 75% of the measured sample.
    • 90th percentile - the 90th percentile is paid higher than 90% of the measured sample.
    • Mean (Average)- the average is the central tendency of a population.

Hint: Choose surveys that target your market position.

data elements defined12
Data Elements Defined
  • It is important to note the following when interpreting survey data
    • Differences in the measures of central tendency (mean and median) typically are less with large survey samples. But as samples get smaller, even these statistics can be adversely affected.
    • A large difference between mean and median can be the result of a sample that is skewed high or low by a few unusual cases. Means are affected by such skewing, medians are not.

Hint: Generally, median is the most reliable data point.

market pricing
Market Pricing
  • What is Market Pricing?
    • The process of identifying pay levels for specific jobs in a define external market.
  • Why do we need Market Pricing?
    • To assess the competitiveness of your pay levels relative to other organizations competing for the same human resources.
    • Hire, retain, and motivate your employees. To reduce the risk of losing key employees to outside opportunities.
    • To maintain a reasonable payroll.
    • Pay people right – Not only against the market, but also to be consistent with your company’s philosophical position.
    • Give managers a benchmark for internal pay levels.
market pricing14
Market Pricing
  • Why do we need Market Pricing?
    • Keep the company’s compensation programs competitive with its peers or the local job market.
      • Peers: Companies providing the same service. This may be local or national competition given the level of the job being market priced.
      • Job Market: Local organizations providing different goods and services, but needing many of the same skills.
        • Accountants
        • Network Engineers
market pricing15
Market Pricing
  • The first step is Job Matching, which is often a combination of art and science.
    • Job matches should be based on job content.
    • You cannot match on job content unless you know your jobs.
    • Even hybrid jobs can be matched to survey jobs, if results make sense in relation to other data.
    • Do not force a match. If necessary, create good market values around a problem job and then “slot” it.

Hint: One rule of thumb is to consider a benchmark job a good match if it represents 80% of the survey job, or vice versa.

market pricing16
Market Pricing
  • Information needed about the company job before matching.
    • Duties (Functional description)
      • “Establishes and directs all functions”
      • “Provides technical direction and project management”
      • “Prepares standard reports”
      • “Maintains factory and office areas”
      • “Under direct supervision”
      • “Handles highly confidential data”
    • Scope (Sales, budget revenues, number of employees supervised)
      • Total Sales
      • Department Budget
      • Direct/Indirect Reports
      • Employees Supervised
      • Budget
market pricing17
Market Pricing
  • Information needed about the company job before matching (con’t).
    • Education and Experience (Years of relevant experience/education)
      • “Bachelors Degree”
      • “3-5 years of Wide Area Network (WAN) administration experience”
      • “Experience with enterprise-level HRIS systems”
      • “Masters Degree”
      • “Operational management experience of 5 years or greater”
    • Level of Job
      • Series of job with the same title, but differentiated
        • Duties
        • Experience
        • Education
        • Supervisory responsibility
      • Examples: Accountant, Engineer, Analyst
market pricing18
Market Pricing
  • Find the appropriate “Data Cut”
    • Industry
      • Manufacturing
      • Non-Manufacturing
      • High Technology
      • Healthcare
    • Location
      • City
      • Region
      • State
      • National
    • Revenue Size
    • Organization Type
      • For-Profit
      • Not-for-Profit
market pricing19
Market Pricing

Never undervalue the importance of a job to your organization.

market pricing20
Market Pricing
  • When combining multiple survey sources
    • Know the compensation details of each survey source you intend to use.
    • Know the age of the sources (effective dates).
    • Know the scopes being reported.
    • Do you want to give each survey source equal weight in the final result?
market pricing21
Market Pricing
  • Example of job matching across multiple survey sources
market pricing22
Market Pricing
  • Applying the data from two surveys to arrive at a market value.
market pricing23
Market Pricing
  • Consider using geographic differential data if you cannot find your location.
    • Your local consultant.
    • Geographic differential assessment data is also typically published by survey vendors.
      • Economic Research Institute (ERI)
      • “Boutique” surveys
      • State or local assessments
  • Aging factor sources
    • From the survey
    • WorldatWork
    • Vendor sources (Mercer)
survey data considerations
Survey Data Considerations
  • Other considerations when using survey data.
    • Can I mix company and employee weighted data? Maybe. It depends on the statistical influence of participating companies.
    • Can I mix “as reported” incentive pay and “all employee” incentive pay? Not recommended. Data “as reported” usually means only for those who received, while “all” data are influenced by employees receiving $0.
    • Does cash data always increase annually? No. Factors such as sample size and market conditions can affect the progression of data from one year to the next.
    • Can I age data an additional year rather than purchase a new report. Maybe. It depends on the volatility of the market and the jobs you are pricing.
survey data considerations25
Survey Data Considerations
  • Other considerations when using survey data (con’t)?
    • Can I extrapolate a percentile Total Cash by adding Base and Bonus of the same percentile? No, compensation elements are calculated independent of each other

Look at the counts

delivery methods
Delivery Methods
  • How do survey vendors deliver?
    • Paper Report – The traditional report.
    • CD / Diskette – Electronic, but usually static.
    • On-Line Services – Provide the user with a method of refining survey data to a significant peer group or geographic area.
delivery methods27
Delivery Methods
  • What are some on-line services?

Radford: McLagan:

www.radford.com www.mclagan.com

eComp:

www.ecomponline.com

delivery methods28
Delivery Methods
  • Other than Aon?
    • Watson-Wyatt
    • Mercer
    • Towers
    • Clark Consulting
    • Hewitt
    • Your local vendor?
organize it
Organize It!
  • Using multiple survey sources means you have paper reports, spreadsheets, and Portable Document Files (PDF’s). Is there any way to organize this material?
    • Mercer: Prism
    • Watson-Wyatt: Rewards
    • Aon: CompProASP
organize it30
Organize It!
  • CompProASP allows you to access multiple surveys on-line through one standard interface.
organize it31
Organize It!
  • CompProASP allows you to age, weight, and adjust multiple surveys on-line through one standard interface.
conclusion
Conclusion
  • Understand the basis of reported survey data.
  • Know the scope of the data.
  • Keep your data current, particularly in a volatile job market.
  • Know your job content.
  • Never force a job match.
  • Do not forget the value of the job to your organization.
  • Ask if your vendor can supply more than just a paper report.
  • Use technology to help manage your data.
conclusion33
Conclusion

Thank You!

John Delaney

Email: john_delaney@aoncons.com

Phone: 610-834-2241