Market Leadership & Pay (Part 1)
By James T. Stodd, SPHR, SHRM-SCP
August 12, 2015
In an earlier set of messages entitled Employee Engagement, Retention and Pay (Parts 1 & 2), we presented recent research showing “pay” to be extremely relevant to the decisions people make when considering a job (attraction), deciding to stay or leave their current employer (retention), and regarding how much they will invest themselves into their employer’s cause (engagement). We also noted that the salary increases granted by most employers over the past decade have barely kept up with inflation, which makes “pay” very relevant to most workers. Finally, we also provided a list of compensation strategies proactive employers could adopt to improve their position when it comes to winning the HR game, the first of which was Market Leadership. This message is the first in a series that will focus specifically on Market Leadership as a competitive talent management strategy.
Market Leadership is not for everyone. However, if attracting, retaining and engaging top talent is critical to your organization’s business success, then winning the HR game primarily or partially through pay practices should be given due consideration. The first and most important thing that employers should do is make sure they understand the compensation practices within their market and their position within that market. That requires valid and reliable data, and a benchmarking process appropriate for the industry and geography in which the organization operates. It also requires understanding the data available, making good choices about which data is relevant (and which to exclude), and how much weight to give that data in your benchmarking process. So, let’s talk data!
Pay data comes in a variety of forms, formats and from alternative sources that use different methodologies, aggregation strategies, and often present different views of the labor market. It can be confusing! And, while time and space do not permit for me to provide a thorough discussion of all the sources of pay data, we can discuss some major groupings of alternative data sources.
Many employers operate within large and diverse economies and need access to data that represents many sectors, markets and geographical regions, perhaps even continents. They need lots of data. Others exist in more restricted economies but may look to the same sources used by larger more diverse organizations for just a slice or two that is particularly useful for them. In today’s world there are three primary sources of multi-industry, multi-location, multi-occupational and multi-level information…what I call “big data.” Below we will discuss each.
Government Data
The Occupational Employment Statistics (OES) program collects, analyses and reports information about pay practices covering over 1.2 million establishments, extending over 450 industrial classifications, and over 800 occupational groups. It is the quintessential of “big data”, is a great resource that expands across much of the national labor market, and let’s not forget, the information is available…“free.”
There are two possible downsides for employers who use this enormous and valuable resource. First of all, the data is organized by both the North American Industry Classification System (NAICS) and the Standard Occupational Classification System (SOC). And while the data is reported nationally, by state, most major metropolitan area, and by a wide variety of industry sectors, it still comes in pretty big buckets. As such, it may not offer the level of detail each employer is looking for and requires intensive data crunching and analysis. Secondly, this government data may not fully capture the most recent market trends or market volatility. Rather, the methodology(1) is designed deliberately to disguise the market dynamics existing in the “here and now” in favor of a more stable, predictable, longitudinal view. Despite these downsides, the OES program provides a very useful source of comprehensive salary information that should not be ignored.
Proprietary Surveyors
For decades large consulting firms (e.g., Hay, Mercer, Sibson, and Watson-Wyatt, etc.), have conducted surveys of larger employers and/or those that comprise larger industrial sectors like healthcare, government, banking, manufacturing, etc. Many of these organizations are still collecting data and issuing proprietary salary reports, albeit making use of a lot more advanced technologies in doing so. While relatively expensive, these survey reports tend to be very focused on key jobs within specific industries, including global practices, and may be a very worthwhile investment.
Data Warehouses
More recently, we’ve seen the emergence of what I call “data warehouses.” These organizations generally buy up many of the proprietary survey reports produced by trade associations and large consulting firms to form a “mega database” that is often supplemented with their own survey research. These mega databases are generally available online and offered on the market as comprehensive solutions for an employer’s salary benchmarking needs. Examples would include the Economic Research Institute (ERI), Business and Legal Resources (BLR), and Salary.com.
Because of technology, these data warehouses are able to collect, analyze, and report mass amounts of information in a fairly user-friendly and cost-effective manner. However, I’ve learned to be a cautious shopper since some are much better data resources for certain industries, sectors and job groups than others. So, it’s important to take a close look at each resource before committing, and to make purchasing decisions based upon “the data” not the technology platform or ancillary support services.
Finally, there are several disadvantages associated with all these “big data” sources. First of all, in every case the sample data comes in the “slices and dices” established by the surveyor, and/or embraced by the data warehouse, including designated industries, market sectors, organizational size and type, and location. Secondly, data are provided only for a pre-determined set of “benchmark jobs” generally common to employers within a particular industry or common across industries. As such, and despite their size, the information provided through any one of these sources may not adequately cover your organization’s unique or mission-critical jobs, industry, or market sector. In fact, collecting all the relevant information may require using several such resources.
Enough for today! Thanks for reading, and we will pick up on some other data sources in the next edition of this series.
1 US Department of Labor, Bureau of Labor Statistics, Occupational Employment Statistics: Overview, http://www.bls.gove/oes/oes_emp.htm