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Dodging the Analysis Paralysis in Compensation

Editor’s Note: Workspan Daily will be reproducing a monthly Compensation Café blog post for the benefit of our readers and to encourage further discourse on topics vital to compensation professionals. New to WorldatWork? Please feel free to join the discussion in our Online Community or send your thoughts to workspan@worldatwork.org.

In order to effectively manage reward programs, compensation practitioners and their senior management leaders need to understand how competitive those programs are. In making that determination, though, just how precise does the analysis have to be?  To what lengths should one go to increase the level of perceived exactitude in the analysis, and is that effort worthwhile?  Does the effort to squeeze out greater precision bring more meaningful results?

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In other words, what's the additional value of dotting the "I's" and crossing the "T's"?

As compensation professionals will tell you, the competitive “marketplace” for reward program surveys is an imprecise animal, subject to numerous variations and interpretations.

  • One survey doesn’t use the same company participants as the next survey. Who do you believe?
  • The ability to match job descriptions varies from precise to broadly similar roles. Strange titles are a constant challenge.
  • Surveys provide different mixes of industries, geographies and revenue and always exclude many non-participating organizations.
  • The use of weighted Average/Mean/Median/50th percentile formats isn't standardized.
  • International surveys often fail to provide enough information.
  • The process of completing survey questionnaires is often not followed or as carefully conducted as one would hope.

In addition, the market is a moving target as population changes, organization shifts and adjustments in employee pay are considered. This means that you’ll need to be careful of “aging” factors, such as adjusting data from date of collection to the current or some future date. Also, do you "round" figures to the nearest 100 units of annual currency? Is that distorting data?

Pick a Number?

Do you think that a market rate of $47,570 for a job is an accurate reflection of current trends, or simply an arithmetic average of data that looks precise? Would you fall on your sword over that figure?

Using three different surveys would likely provide three separate figures. Let’s say your sources report $45,723, $47,612 and $49,375. If cost, time and effort are not factors to consider, then you could keep going, searching for that common denominator by purchasing another survey source or double and triple checking your job matches. But do you think that the extra source, the extra time and effort will substantially change your initial analysis, or are you simply looking to protect yourself? 

Are you playing a defensive game to divert potential challenge?

For most of us, a quick and straightforward analysis suggests that approximately $47,500 is reasonable enough. While not advocating a sore thumb analysis, I do suggest that you use a balance of time, effort and cost when conducting market analysis. What you really need is to understand the market; that’s the key learning point. Repetition is sometimes just that, more of the same with little increased value.

And what degree of precision are you being asked to provide? Are your instructions to feel the pulse of the marketplace, to get a sense of what is being paid out there?  Or do you need a more precise result? Is your audience demanding more?

Is the Market a Number?

What is that market? Anything within +5% to -5% of a “market rate” figure is close enough for me. Others believe that variable should be 10%, but in my view that leaves too wide a range that could distort your intent to provide the so-called “going rate” trend.

Caution: You can find any number of analysis paralysis jockeys out there who advocate increasingly precise techniques to zero in on what they call your true market rate. Just remember that many vendors have built a business around encouraging organizations to slice and dice whatever information is available, trying to define and refine exactly what a “market” is paying, what jobs are exact matches and, after a fashion, what numbers you can rely on.

Part of their marketing strategy is to use custom-designed evaluation techniques and proprietary job matching systems. Use of such a strategy effectively marries the organization to the vendor, as one often can’t use proprietary language and techniques (the system) with other survey providers — without the risk of comparing apples and oranges.

The Leadership Perspective

From a senior leadership perspective, do you really need that depth of precision to make a business decision?

I think you don’t.

There’s a place for precision and a place for trends to get a feel of the pulse. Usually senior management wants to gauge the big picture — the overall strategy and its implementation status — letting professional specialists deal with tactical issues and details.

Have a care in your efforts to be precise, because when you give senior management too many details they tend to dive in almost as a defense mechanism, as if they are expected to ask questions. Where they might otherwise have nodded their heads at key points in your presentation, you can instead find yourself immersed in detailed analytics that can bog down the decision-making process.

Management wants your professional judgment. They don’t want you to defer opinions to what a survey says. Use survey data as a backup, as anecdotal information to assist the decision-making process.  Don’t feel that you always need to lead with it.

Standing back and pointing at figures is like leading with your chin in a fight.

You won't like the results.

About the Author

Chuck Csizmar Bio Image

Chuck Csizmar CCP is the 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.

This article was first published at Compensation Café on Sept. 15, 2020.


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