Why Using Salary Surveys Requires Both Good Analysis and Good Judgment

by David Creelman | Posted | Total Rewards

Why Using Salary Surveys Requires Both Good Analysis and Good Judgment

The interpretation of salary surveys provide a good illustration of the central challenge in reward: it is a combination of serious analytics and gut judgments. A manager will ask HR a simple question such as, “What do we need to pay a graphic designer?” HR is well-equipped to answer the question thanks to their access to salary surveys. Yet the answer is never as simple as the manager would like. The reason is that despite all the careful work that goes into salary surveys, the answer on what to pay a given job is always a broad range.

Instead of being able to say a designer gets paid $50K per year, the survey tells you that most get paid between $40K and $55K, with some as low as $35K and a few as high as $65K. The manager looking to hire a great employee walks away from this hearing “as high as $65K”, while the CFO is sure she heard “as low as $35K”. Deciding what precisely to pay an individual takes good judgment.

HR leaders need to be able to accurately interpret salary surveys, make confident judgments on setting pay levels, and explain those decisions with an air of authority—without pretending that the answer is a pure calculation rather than a gut-feel call.

The wide salary dispersion

There are three reasons why the dispersion of pay we find within a survey (not to mention between different surveys) is so large.

1. It’s an apple to orange comparison. When it comes to salary ranges, we never have precise apple-to-apple comparisons. There are endless reasons why two jobs that sound similar might have important differences. One graphics designer may do creative work whereas another does routine drawings. One may need a mastery of technology, another less so. The pay dispersion showing up in the survey reflects these differences in job size.

2. The pay market is inefficient. In neo-classical economics the price of a product ought to be the same everywhere; however we all know that the price of a tube of toothpaste can vary enormously from store to store. The same goes for jobs, especially jobs in different markets. People with similar skills, doing similar work can end up with very different levels of pay.


3. There are differences in performance.
Even when the jobs are the same, and the market is efficient, there will be a wide range of pay due to differences in performance. The average professional hockey player in the NHL makes about $2.5 million but the range goes from a low of $0.5 million to a high of $8 million. The pay dispersion makes sense, but it means the survey only gives limited help in deciding what to pay a given player.

What HR needs to do Whereas the manager thinks HR can just “look up the number” the truth is that HR needs to do a lot of work to get a handle on what the market is paying and where to pay in relation to that. This often involves analyzing several surveys and considering factors like company strategy, the ability to pay, the attractiveness of the jobs, and internal equity before deciding on an appropriate pay level.

Good data, good software and expertise are all part of the equation. It starts with serious data analysis and ends with informed judgment.

Sometimes problems have tidy answers. Other times the best we can do is confront the messiness. Pay problems are messy. Reward professionals have to be able to say, here is the data, here is how it is analyzed, and here are the judgments we made as experienced professionals.

The CFO may argue for lower pay, a manager may argue for higher pay. HR has to act with authority in making a firm recommendation based on their analysis and judgment. If HR makes good decisions, and explains them well, then managers will walk away knowing HR is being diligent and looking out for the long term good of the organization.

* Graphic designer salary ranges used in this article are loosely based on data sourced from salary.com.

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