Managing a Salary Survey Project Patricia A. Meglich, Ph.D., SPHR 2011.

Managing a Salary Survey Project

Patricia A. Meglich, Ph.D., SPHR • 2011

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Key concepts

Session 1:1. Motivation theories.2. External equity.3. Determine the compensation philosophy.4. Purposes of a salary survey.5. Legal considerations.6. Make or buy decision.

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Key concepts

Session 2:7. Planning a salary survey project.8. Designing a survey.9. Collecting data.

Session 3:10. Analyzing and interpreting survey results.11. Adjusting pay scales.

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Learning objectives for Session 1

• External equity.

• Determine the compensation philosophy.

• Purposes of a salary survey.

• Legal considerations.

• Make-or-buy decision.

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Motivation theories

• Maslow’s hierarchy of needs.• Herzberg’s two-factor theory.• Vroom’s expectancy theory.• Adams’ equity theory.

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Equity theory

Inputs Outputs

Inputs Outputs

vs.

Focal individual Referent others

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Rebalancing the equity comparison

• Decrease your inputs:> Stop working overtime.> Take longer breaks.> Don’t offer ideas or suggestions.

• Try to increase your outputs:> Ask for a raise.> Look for a new job with higher pay.

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Equity considerations

• Internal equity:> Job evaluation – relative worth of jobs

within the organization.> Parity between jobs.> Parity between individuals in the same job.

• External equity:> Market data – relative position in the

marketplace.> Attract and retain quality talent.> Competitive position.

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External equity

• Objectives:> Attract talent.> Retain talent.> Reward desired performance.> Cost-effective, affordable.

• Compensation philosophy:> Competitive position.> Compensation mix.

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Compensation philosophy

• Competitive position:> Lead: Consciously pay more than the

competition.> Lag: Pay less than the competition.> Match: Pay roughly the same as competitors.

• Compensation mix (entitlement vs. performance):> Fixed pay component.> Variable pay components.> Indirect rewards:

• Employee benefits.> Intangible rewards.

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Competitive position

• Lead the market:> Pay in excess of the going rates.> Provides the organization with ample supply of

applicants, decreases turnover, prevents unionization attempts.

> May lead to higher overall labor costs.• Lag the market:

> Pay below the going rates.> May be due to financial inability to pay at market.> May require increased non-financial rewards.> Can lead to higher turnover, lower productivity, and

lack of applicants.

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Competitive position

• Match the market:> Pay levels relative to the existing marketplace.> Most commonly adopted strategy.> Requires continuous monitoring and reactivity to

changes in market (playing “catch-up”).> Leads to acceptable talent acquisition and retention.

• Combination approach:> Different strategies are used during different

economic conditions.> Different strategies used for different jobs within the

organization.

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Compensation mix

• Fixed pay:> Base salary

• Variable pay components:> Productivity bonus> Skill- or knowledge-based pay> Performance bonus

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Compensation mix

• Indirect rewards:> Mandatory benefits> Voluntary benefits> Intangible rewards

• Challenging work• Autonomy• Feedback• Supportive work relationships

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What is a salary survey?

A salary survey is the systematic process of collecting information and making judgments about the compensation paid by other employers.

Milkovich, Newman and Gerhart, 2011

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Purposes of a salary survey

Establish or adjust pay levels. Establish or adjust pay mix. Establish or price a pay structure. Analyze pay-related problems:

Employee turnover. Union organizing activity.

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Purposes of a salary survey

Estimate competitors’ labor costs. Decide where to locate an operation:

New operations. Expanding operations.

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Legal considerations

• Anti-trust issues:> Sherman Antitrust Act of 1890.> Purpose of the survey.> Collusion among participants.

• Privacy concerns:> De-identify information.

• Labor union considerations:> “Prevailing wage” issues.

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Make-or-buy decision

• Investigate off-the-shelf options> Consulting firms:

• Mercer Consulting

> Trade/industry groups:• National Telecommunications Cooperative Association

> Professional organizations:• Society for Human Resource Management

> Government data sources:• Bureau of Labor Statistics

> Ad hoc research:• Common websites

– Salary.com– Payscale.com

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Evaluating vendor surveys

• Background of the survey vendor.• Scope of the survey.• Survey methodology.• Number of participating organizations.• Number of incumbents represented.• Effective date of the survey.

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Make-or-buy decision

• Does the situation warrant a customized survey?> Unique internal labor considerations.> Unusual external labor conditions.> Time considerations.> Cost considerations.

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Activity 1 – Investigate benchmark job pay rates

• In this activity, students will research and analyze benchmark jobs in two different geographic areas.

• You will use publicly available data, assess the quality of that data and incorporate it into your results.

• Finally, you will make a recommendation to the management team regarding where the company should locate its new facility.

• Good luck!

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End of Session 1

• This concludes Session 1.• Assignment for Session 2: Complete the activity.

> Groups of 4-5 students.> Research pay rates for six benchmark jobs:

• Two geographic areas.• At least two different sources.

• BRING YOUR RESULTS TO SESSION 2

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Learning objectives for Session 2

• Debrief results from Activity 1.

• Planning a salary survey project.

• Designing a salary survey.

• Collecting data.

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Planning the salary survey project

• Gather background information:> Compensation philosophy and mix.> Purpose of survey.> Internal job evaluation/pay levels.

• Timeliness of data.• Determine competitor/participants to include.• Select jobs to include.• Decide what information to collect.• Design survey instrument.

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Planning the survey project

• Collect data.• Analyze data.• Determine appropriate adjustments.• Make pay adjustments as needed.

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Background information/timeliness of data

Background information:

• Compensation philosophy.

• Compensation mix.• Purpose of survey.• Legal

considerations.• Internal job

evaluation.

Timeliness of data:• Purpose of survey.• Volatility or

fluctuation in economic situation.

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Competitors to include

• How many:> 6-10.

• Industry:> Industry-specific.> Generic.

• Geographic:> Metropolitan.> Regional.> National.

• Size/age:> Revenue.> Headcount.

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Jobs to include

• Benchmark job approach:> Stable job content.> Common across different employers.> Include sizable number of employees.

• Low-high approach:> Lowest paid.> Highest paid.

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Jobs to include

• Benchmark conversion/survey leveling:> Rely on internal job evaluation to “convert”

to benchmark job data.

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Information to collect

• Organization data:> Identification.> Industry classification.> Financial performance.> Size.> Structure.> Age.

• Total compensation:> Direct compensation.> Indirect compensation.

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Information to collect

• Incumbent/job:> Job description.> Education.> Experience.> Pay range.> Pay rate.

• HR outcomes:> Productivity.> Retention rates.

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Design the survey instrument

• Response method:> Paper and pencil.> Electronic:

• SurveyMonkey.• Zoomerang.• QuestionPro.

• Ease of response:> Don’t over-complicate.> Don’t ask for too much.

• Assure anonymity:> Use of third party.

• Make it worth their time:> Free/discount results for participants.

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Activity 2 – Gantt chart activity

• You will plan the survey project using a Gantt chart.

• Review all steps in the process from Sessions 1 and 2. You don’t want to forget an important step.

• Make a list of all tasks and how long they will take to complete.

• Transfer all data to the Gantt chart.• Good luck!

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End of Session 2

• This concludes Session 2.• Session 3 will ideally be held in a computer lab.

Alternatively, ask students to bring calculators to Session 3.> Data analysis requires calculations and graphing.

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Learning objectives for Session 3

• Collect and analyze data.

• Interpret survey results.

• Construct a market line.

• Discuss dealing with pay issues.

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Collecting data

• Recruiting participants:> Consulting firm or other third party.

• Managing data:> Complete responses.> Contact information.> Deadline.> Aggregated database.

• Resource limits:> Time.> Money.

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Analyzing survey results

• Verify accuracy of job matches.• Deal with outliers/anomalies.• Run statistical analyses.• Construct the market pay line and the pay policy

line.

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Dealing with outliers/anomalies

• Does any one organization dominate?> Perhaps delete responses to avoid aberrations.

• Do all organizations show similar patterns?> Look for trends regarding compensation mix.

• Do jobs tend to fall in the same high-low order in terms of market pay?

• Are there outliers or odd data points?• Questions to consider:

> What difference will it make if outliers are dropped?> What difference will it make if outliers are included in

the analysis?

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Statistical analysis

• Frequency distribution.• Mean: mathematical average.

> Simple mean.> Trimmed mean.> Weighted average.

• Median: middle data point in ordered data set.• Mode: most frequently occurring value.

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Statistical analysis

• Percentile: pay rate that a certain percentage of the salary data is less than.

• Range:> Simple range = highest – lowest value.> Interquartile range (IRQ) = difference between 75th

and 25th percentiles.

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Market pay line

• Plot the benchmark jobs on the horizontal (x) axis and the market rates on the vertical (y) axis.

• Can be drawn manually or developed through a regression analysis.> This analysis utilizes internal job evaluation points to

calculate the regression line.• Excel makes this very easy.

> Enter data in Excel.> Calculate slope and y-intercept.> Create the graphic (plot).

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Market pay regression line

100 150 200 250 300 3500

10000

20000

30000

40000

50000

60000

70000

80000

90000

f(x) = 294.518879415347 x − 12585.2618757613R² = 0.979299574293605

Job evaluation points

Job evaluation points

Linear (Job evaluation points)

Axis Title

Axis Title

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Activity 3 – Analyzing survey data activity

• You will analyze survey sample data by computing measures of central tendency.

• You will then plot the results to set a market pay line.

• Good luck!

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Dealing with pay issues

• Communicate findings to employees.• Above market pay issues.• Below market pay issues.• Job evaluation adjustments.

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Wrap up

• Equity considerations:> Internal.> External.

• Competitive market information.• Designing and conducting a salary survey.• Using survey data to make compensation

decisions.

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End of Session 3; End of Module

• This concludes the learning module on managing a salary survey project.