10 Ways NOT to Conduct a Market Salary Study

By Becky Regan

  1. Match jobs based on job titles, not job content.
  2. Use bad job descriptions.
  3. Don’t write job descriptions in the first place!
  4. Use data sources that aren’t matches for your industry & jobs.
  5. Don’t educate yourself on the basics of job analysis.
  6. Use salary data information gathered by your employees about what other companies are paying their people.
  7. Use inconsistent statistical criteria, i.e., median or midpoint, and salary range width.
  8. Don’t use geographic appropriate data based on the level of the job.
  9. Let others persuade you that the data you’ve produced isn’t relevant to your company because it’s unique (i.e., your employees deserve to be paid MORE).
  10. Don’t get buy-in from key executives on study methodology from the beginning!

What seems from the surface to be a fairly simple exercise turns out to be anything but! There are lots of technicalities involved in producing a quality salary survey of your jobs compared to the marketplace!

Quality surveys match jobs to market based upon job content, not job titles. Your employees who willingly provide the results of their informal market survey to you have made matches based upon job title only. And they don’t know what the information they’ve received reflects. Is the figure they’re providing the midpoint, actual salary paid, or the minimum or maximum of the salary range? Yet they’ve accepted it at face value, especially if it’s more than they’re currently earning, and they want to know why they are “underpaid.”

In order to make matches based upon job content, it becomes critical to have updated and accurate job descriptions in place. At a minimum, the summary and minimum qualifications of each job should be well documented. Job descriptions have many applications in the world of human resource administration:

* Job content evaluation

* Salary survey exchanges

* Assigning employees to appropriate jobs

* Legal defense and compliance (FLSA, ADA)

* Establishing performance standards

* Organizational design

* Recruiting

* Succession planning/establishing career paths

Even though it is a very time consuming and labor intensive process, documenting jobs and maintaining them through conducting an annual review of jobs is critical to the effective administration of human resources in every organization. Information on job content is usually obtained through direct observation, or through the employee’s completion of a job analysis questionnaire. This exercise can also serve to resolve any discrepancies between the employee and the supervisor in terms of what should be done on the job on a day-to-day basis.

Once the job descriptions have been written and approved, survey sources can be selected based upon matching of industry and geographic data sources. It is critical to get buy-in at this stage by asking key executives what surveys they want to have included in the project, and then explaining the surveys that you believe should also be included, and why. If others are made a part of the process, it minimizes questions when the results are presented and also provides input that can enrich the final outcomes.

When analyzing market data, be consistent in terms of the statistics gathered from multiple sources. Typically, I use the 25th percentile, midpoint, and 75th percentiles of their salary ranges, and the median. The median tends to be a better determinant of market rates than the midpoint because it’s not skewed as much as the midpoint. Weighted averages are sometimes useful too; it depends on the development of the data as you work through the project.

Once you’ve determined what market rates are for a job, then a comparison to your company’s actual pay rates should be conducted. When this work has been completed for all jobs, your company’s overall compensation position in relation to the market can be easily determined. And you can cost out the amount of money it would take to bring certain employees up to market rates. Strategies can be established on how to handle people who are currently paid below or above market rates.

Certainly when an individual’s pay is being decided in relation to market rates, there are many other variables to consider. These include:

* Your company’s compensation philosophy (how you want to pay in relation to the market)

* Individual performance rating and review history

* Total compensation (base & incentive/bonus pay)

* Individual contributions to the company

* Length of time in job (can be a consideration)

* Salary history

* Internal equity

An annual review of all jobs should be conducted to ensure parity of pay based upon objective criteria to ensure non-discriminatory pay policies in your organization. Minorities and women in the same salary range and job as men with commensurate work experience and job history need to be paid at very similar rates of pay. Your company needs to be able to explain why certain pay decisions were made for specific individuals based upon objective criteria.

Most organizations do not reduce pay when they realize that they are overpaying for certain jobs. Usually they “red-circle” the job, meaning that it is not eligible for merit increases until the market catches up with the current pay. The employee can still be eligible for a lump sum payout for recognition of performance and accomplishments, but the lump sum bonus is not built into the base pay, which contains merit budget costs.

Many employees are discouraged when they learn that they are not eligible for merit pay increases. But it doesn’t have to be a negative message; they have the benefit of receiving extra dollars until the market catches up with them! And if they multiply the approximate number of years that they have received a higher level of pay, they should consider themselves to be lucky, especially in these difficult economic times when the job market is tight.

In this article, the basics of a market study and salary administration have been explored. What appears to be a simple process is in fact, not so! There is a methodology to working through this type of project and further enhancements such as designing salary ranges and slotting jobs into those ranges can also be done.

The benefits of a more structured salary administration program are many, with the primary one being cost containment of your salary dollar expense, the largest expense in any organization. The goal is to implement enough structure to protect the company from litigation and ensure consistent salary administration practices while still retaining the ability to make good business decisions.

© 2007 Regan HR, Inc.

Becky Regan, M.A., CCP began her own consulting practice in 1995, Regan HR, Inc. to provide human resources consulting services to businesses in California. Her work as a consultant includes the full spectrum of HR technical expertise with an expertise in compensation studies. In addition to consulting with clients, in 2008 Becky expanded her practice to include online marketing of her custom HR products and established coaching programs for developing HR professionals. For more HR tips and to receive her FRE*E special report, visit http://www.ReganHR.com