Why Use External Pay Survey Data?

The season of external survey data entry is about to blossom with spring. Numerous private, published and association driven surveys will open for compensation and benefits data submissions during the month of April. We’re working on several online compensation surveys while this blog entry is being written. Automation of the external survey process has improved participation and data assimilation.

There are several reasons why compensation and HR professionals acquire external employee pay survey data and I would like to offer some of the reasons based on our experience with compiling market pay studies, the use of market pay data for job classification, and compensation study projects and market pay analysis to evaluate internal and external pay equity and competitiveness.

  • Picture of Market Pay Comparisons and Competitiveness: The external survey data provides a snap-shot of the current median, mean and percentiles by benchmark job title and this data is compiled with pay data from additional surveys to calculate market pay comparable averages based on matching job titles. Based on compensation philosophies, organizations determine if their internal employee compensation averages are competitive with other companies and organizations within identified recruitment geographical areas. Including five or more external survey data comparisons by job title is a good practice and it helps to soften high or low pay outliers.
  • Market Pay Adjustments: Compensation and HR professionals are asked by management to provide annual employee pay adjustment budgeting recommendations based on average market pay adjustments. WorldatWork, with input from national and regional survey aggregators, business sector studies, and regional SHRM and Compensation associations, capture market pay adjustments data and offer annual average percentages by exempt, non-exempt and job classification groupings. This external survey data is used to determine the basis for annual employee cost of living and/or merit pool pay percentages.
  • Benchmark and Hybrid Positions: External pay surveys range from hundreds of benchmark positions to less than 50 job titles for custom surveys. Organizations using only external market pay data to evaluate benchmark and hybrid positions will need additional data since the organizations are void of an internal job valuing system. Some of the national survey aggregators have included software features to calculate market pay values for hybrid positions by utilizing percentages of two or more benchmark positions. If possible, it is a good goal to obtain external pay data on 50% or more of the organization’s job titles. This percentage can decrease if the organization is comparing internal pay lines with external data pay lines.
  • New Positions as the Economy Improves: Hybrid and new positions are increasing as organizations begin to hire and promote employees to meet increasing demand for products and services and/or increase the duties of existing employees by not backfilling previous positions placed on hold during the 2008-2010 Recession. Compensation and HR professionals are expected to determine pay ranges and starting pay for combination (hybrid) positions or new positions and their placement with the organization’s pay structure. Without an internal job evaluation process, there is greater pressure to obtain several market pay comparable matches that are valid and properly align with the organization’s pay structure.
  • Fair or Equitable Pay: Employees and regulatory agencies tend to evaluate fair or equitable pay on an internal basis and see external pay surveys as a means for validating pay competitiveness but not the basis for internal job comparisons based on several compensable factors. External pay survey data represents one half of a two part equation. Defensible and fair pay programs utilize the combination of internal job valuation and external pay data validation. The use of valid external pay data from a variety of reputable sources is a powerful tool for compensation management.
  • Prevent Overpaying or Underpaying: Usually managers and employees will frequently visit or email HR or Compensation professionals about pay equity or competitiveness issues. Some will present or send compensation comparisons from online survey organizations where employees provide pay salaries for the study’s data aggregation. Most employee generated pay study data is inflated compared to employer submitted pay data. Obtaining and maintaining external pay data from several sources helps to address pay questions from managers and employees and it will help organizations from overpaying or underpaying positions based on comparative studies.
  • Retain Top Performers: In 2012 and 2013, I gave several talks on retaining top performers as the economy improved from the 2008-2010 Recession. Organizations were at a risk of losing top performers due to improving economic conditions according to several studies shared by WorldatWork. Top performers were seeking to make more income especially if their current employers were unable to compensate them above market pay means due to decreased revenues during the recession. External compensation study data is helpful with keeping an eye on key positions and the value for these positions in the human capital marketplace.
  • Micro and Macro Job Valuing: We have some clients that will retain our services to provide external market pay studies for a few positions and other clients wanting to update their total organization’s pay structure and employee pay analysis. External pay survey data with significant data aggregation along with local and regional compensation data is useful in meeting our client’s needs. Most HR and Compensation professionals work to obtain and manage five or more external employee pay reports or database systems. Online systems, like IBM’s Kenexa CompAnalyst have robust pay data aggregation databases, researching capabilities and reporting options.
  • Validate Internal Pay Structure: Organizations are able to validate their internal pay structures with job classifications, grades and ranges by securing enough macro market pay data from external survey data sources to statistically evaluate their internal pay program. The amount of external pay data required is lessened when an organization utilizes an internal job valuing system.

It is important to note that an internal job valuing and external market pay compensation system is meant for assessing base pay employee compensation and pay structures. Differentiating pay for performance and merit systems are separate but they depend on solid and fair base pay foundational plans that are validated by external survey pay data from reputable sources.