Use data that makes sense for you!

Contrary to what some “experts” allege, market data is not a solution; it is a tool, and only one of the tools necessary for an effective compensation program. There is no perfect source of competitive compensation data, and you can be sure that anything you get on the internet for nothing is worth just that.

Survey data – take it with a grain of salt

Each source of information has its strengths and weaknesses, and effective labor market research requires balancing the sources used against your needs. Some things to look at in considering surveys:

  • Surveys conducted by the major consulting firms tend to include the largest firms as participants, thereby resulting in a bias toward larger, higher-paying organizations. These surveys, while very professionally done, will typically show market rates far above those found in broader based studies.
  • “Survey aggregator” programs, currently popular, are not actually surveys, but use surveys to populate models which then “predict” pay based on a variety of factors such as industry, time in position, location, organization size, etc. While the concept is wonderful, any model is only as good as its source. Some of these programs attempt to predict pay using variables for which data is rarely collected (e.g., years of experience), or predict pay by zip code without having a single source of data. In some cases, these “predictions,” while known to be erroneous, might be the only available source. When this happens, it is wise to take the data with a grain of salt.
  • “Self-report” surveys, or those in which individuals provide their own pay and get comparative results in return, are subject to manipulation and are generally highly inaccurate and not representative of the real market. ElementOne does not use this type of survey in its analyses.
  • Be careful when considering the data provided by any organization that has a “stake” in what the data says. For example, “surveys” provided by recruiters almost always show pay higher than other surveys of the same sample. Given that recruiters are often paid according to the salary of the people they place, they clearly have a stake in a higher outcome. Similarly, educational institutions who advertise “earn a degree from our school and you’ll earn a higher salary” might be suspected of selective reporting of data on their graduates’ compensation.

Data that makes sense for you

ElementOne’s approach is to collect as much information as possible, from as many credible sources as possible, to focus on the data that is most relevant to your organization and is the most reliable for ongoing use.  For every job in the organization, we look to the compensation philosophy and the nature of the market to ensure that the data we collect captures:

  • The geographic area relevant for recruiting and retention
  • The industries in which you compete, or for which experience is important
  • The size and resources of competitors

It is better to have less data that is more accurate than to have data for every job. In our experience, as well as that of many other compensation professionals, a compensation program using an internal equity component (i.e., job evaluation) can be highly accurate in targeting pay using data on only one-third to one-half of the jobs in the organization.

ElementOne does not typically develop pay structures based solely on market data, but we can help your organization test the effectiveness of its market-based structures. Or we can provide competitive data for positions that are “market-driven,” such as executives or highly compensated professionals (e.g., health care providers, attorneys, research scientists).