Compensation planning with multiple data sources

October 12, 2017

Shifting Workplace Dynamics: Direct Effects on Human Resource Management

Human resource management continues to evolve, with HR teams becoming strategic business partners, as organizations and work advance due to technological changes, such as digitalization, increased globalization, tougher competition, etc. As a result of increasingly specialized jobs throughout markets, as well as the heightened potential for today’s jobs to appeal to a wider variety of employers, the job-specific, market-specific, and country-specific data contained in salary surveys has become progressively more nuanced. Though this directly reflects the ongoing HR trends throughout the country, it has led to numerous complications for the HR professionals tasked with optimizing their company’s employee retention and attraction strategies. For them, the search for true competitive intelligence is now more complex than ever before.

One of the biggest ramifications of this is that many companies must now compete in labor markets outside of their own for valuable human capital. The pharmaceutical industry is a prime example of this, as many companies within this sector have seen increased competition for their critical IT jobs coming from any number of external industries. Similarly, many of today’s top financial organizations are now competing with various high-tech companies for top-level cybersecurity employees. This clearly illustrates how today’s best talent have the ability to cross over between disparate labor markets with greater ease and find rewarding employment in the industry where their assets are most valued. Even so, these are just two examples of a concept that is applicable to countless jobs throughout numerous geographic locations.

These ongoing HR challenges must be strategically addressed if a company’s competitive intelligence is to remain viable in the decades to come. However, for HR professionals aiming to obtain true competitive intelligence that’s reflective of an evolving 21st-century workforce, there is one major barrier: the restrictive practice of trying to create truly robust compensation budgets while using survey data from a single source.

Multiple Salary Surveys: The Path to the True Market

When discussing the adoption and usage of multiple salary survey sources for compensation management, the concept of the “true market” is one of the first things that must be addressed. The true market construct refers to the actual prevailing rates or the competitive status of jobs throughout any labor market or industry.

Naturally, the goal of workforce management professionals everywhere is to reflect the true market as accurately and comprehensively as possible in their company’s plans. However, these efforts are obstructed when employee attraction and retention strategies become wholly dependent on survey data from one single market data source (a practice commonly referred to as the “single survey methodology”). There are several prominent reasons for this:

  • A single-survey methodology forces HR professionals to interpret their often limited survey data as an estimate of actual market data. They must then draw their own inferences from this information, pressuring them to make critical business decisions with varying degrees of uncertainty.
  • In addition, many salary surveys have obtained reputations for reporting aggregate market data that’s either higher or lower than others, creating even more variability that’s hard to account for without a broader frame of reference (i.e., a secondary market data source).

On the other hand, when supplemental salary survey data is collected from multiple vendors or sources (as opposed to just one), it helps HR professionals achieve a more accurate true market approximation by:

  • Expanding a company’s frame of reference. Since competitive intelligence is culled from a broader selection of participants, this helps confirm human capital alignment with ongoing HR trends in relation to a particular industry, geographic location, or among similarly sized organizations.
  • Corroborating the results of a primary survey source. This provides additional confirmation that survey data has indeed achieved true market proximity.
  • Identifying local competition for the same human capital despite being in a different industry or market. The most obvious benefit of this is proactively stopping unexpected external competitors from gaining the upper hand with their employee retention strategies.
  • Decreasing variability. Market rates based on a composite of entries (i.e., multiple salary surveys) are aggregated over a large pool, naturally resulting in less variability.

For many HR professionals creating truly comprehensive employee retention strategies, the hardest step is usually the first: simply knowing where to start.

All HR management professionals strive to create up-to-date compensation programs that reflect true market data trends. However, it’s important to remember that the decision to adjust or perpetuate a salary structure must be based on interpreting market data from an optimum (not maximum) number of salary surveys. Additionally, one must remember that the actual realization of any HR strategy is just the final step in a complex process. In fact, for many HR professionals creating truly comprehensive employee retention strategies, the hardest step is usually the first: simply knowing where to start.

Robust Data: The Framework for True Competitive Intelligence

Even after a company’s workforce management team has collectively agreed to take the multiple salary survey route, there are still the looming questions of where to begin and what data gaps the secondary data will be used to fill.

Successfully identifying these gaps requires some amount of consideration on the part of workforce management professionals. However, it’s a critical step toward clarity, especially when considering the vast amount of data products there are to choose from — many of which feature niche specializations. Since all HR professionals intrinsically want the same thing (i.e., the most comprehensive market data for the most affordable price), most can start their search for secondary market data in the same way after identifying their needs. To begin, they must learn how to gauge how robust market data is.

Robustness is important because, without enough depth or diversity, a competitive intelligence database simply can’t provide an accurate reflection of the true market. A robust human capital database also greatly increases the chances that the available data will cover the right jobs. This is especially important since modern organizations are rarely structured the same way, meaning that many jobs with identical duties and responsibilities might have vastly different titles from company to company. Seemingly innocuous differences like this can actually make it incredibly difficult for HR professionals to validate the appropriateness of market comparisons, and if a vendor has a small database, then the data may not be diverse enough to account for these inconsistencies.

When using these multiple data sources — especially when using one as a primary source and others as secondary sources — a pivotal step is determining how much weight to assign each. For example, an HR strategist might assign his or her primary source 50% of the cumulative weight, while the two secondary sources each receive 25%. Of course, this is a delicate process that’s much more art than science, meaning there’s no one correct approach. However, there are some general considerations that should always play a role when distributing weight between salary surveys:

  • The reputations of the vendors who published the surveys, as well as their unique methodologies for gathering survey data.
  • The number of participating companies used in each survey.
  • The alignment of the benchmarked job descriptions to actual organizational structures. Usually, the closer the matches, the greater the confidence in the market data, and the more weight assigned.
  • How recent (or old) the survey data is, which can be determined based on data effective dates.

Even when following these general guidelines, individual discretion is always required, which is all the more reason why it’s important for HR professionals to understand how the market data will be used when purchasing multiple data sets. This means that, in a field as complex as human resource management, having market data that’s robust and expansive is no longer just a perk or incentive — it’s an essential.

Superior Workforce Management and Compensation Planning: Next Steps

With extensively compiled data on 6,600+ positions, Mercer’s US MBD: Mercer Benchmark Database is the premier general industry database available in the US. For Canada, Mercer’s Canada MBD: Mercer Benchmark Database has extensively compiled data on 4,700+ positions. Ideal for HR professionals in need of unparalleled competitive intelligence, this database allows for in-depth analyses of numerous jobs from a wide variety of the most commonly benchmarked functions, including human resources, manufacturing, finance, accounting, legal, sales, and more. Meanwhile, workforce management professionals interested in learning even more about effectively using general industry data in combination with industry-specific data can do so here. For current trends relative to your annual compensation planning, the US Compensation Planning Survey features data relative to pay structures across a variety of markets, salary increase budgets, average adjustments, and more.