Most organizations are bombarded with requests for information about their operations, from the government, industry groups, and others in the private sector. Many are required for one reason or another, meaning the time you have to spend on “voluntary” data collection activities is limited. No matter how little time you may have, you’d be wise to spend it on participating in surveys of compensation and benefits, particularly those that give you an opportunity to share in the findings.

Labor market data is essential in order to manage your organization. Do you buy a new computer without comparing prices? Do you hire an auditor without seeking competitive bids and talking to other clients about their services and prices? Why, then, would you manage what is probably the most expensive part of your budget without knowing the true cost of what you need pay to compete? 

In the context of a structured compensation program, labor market data provides a link between the organization’s values and the market. Even without a structured program, data tells you something about what you can expect, and tells you what you should and shouldn’t do in the area of employee pay. You shouldn’t even consider making a change of any substance without knowing the impacts.

When you have scarce resources to work with, market data is even more essential. If you have a limited budget, how will you divide it? Equally, to each employee? What if some employees are well above what they need to be paid, and others are well below? “Sacrificing equally” presupposes that what you had in the first place was actually right! What is really “fair”? Just as importantly, what impact do those decisions have on the ability of your organization to provide services to its members?

In our 20+ years of work with organizations of all types, we inevitably find that the total budget for pay is not far off what it should be. However, we also invariably find that the way pay is distributed among employees is far from what it should be. Employees often know this, resulting in frustration and morale issues. The use of market data can identify those areas in need of attention, and help to justify actions.

Some quick tips to using labor market data for compensation decisions…

• Compare yourself to “like” organizations. Look at those parts of a survey report that look most like you, and the areas where you recruit.
• The larger the sample, the better the data. Large samples minimize the impact on data that shouldn’t be in the sample, or the effect of unusually high or low pay.
• Always look for the “range” of data (usually the “middle 50%”). Just being above or below the “middle” isn’t enough. If the range is narrow, you have to be close to the middle to be competitive; if the range is wide, you can be farther off.
• Remember that the middle represents the point at which the average performer, in an average organization, is being paid. That means that it’s a good place to be, and you should only pay more than that if you’re getting more than you would normally expect…and the opposite is that if you pay much less, you shouldn’t expect to get “typical” performance.

Some people think that because they don’t have the money to give increases, they don’t need to know what the market looks like. Nothing could be farther from the truth. A down economy gives organizations the opportunity to make changes, and with changes come the chance to make decisions to improve the organization. You need to provide services that your members value, and do so with the smallest staff possible, and the most effective use of staff resources.

WHATEVER YOU DO IN THIS ECONOMY, DON’T GIVE ACROSS THE BOARD INCREASES OR MAKE ACROSS THE BOARD CUTS… THE ODDS OF ENDING UP WITH THE RIGHT RESULT ARE VERY SLIM.

Case Study
The following case study has been modified slightly to ensure client confidentiality. The positions and compensation, as well as the decisions made, represent the actual results of the assignment.

XYZ Association is a statewide organization with a budget of $2.5 million, and 9 employees, including an Executive Director. XYZ provides the typical services of a statewide association, including government relations, and has the typical internal administrative functions of an association its size. In addition to the ED, two employees were considered “management,” one “professional” and five “administrative/clerical.” The nine employees range in service between less than a year and 20 years.

The assignment involved setting up pay ranges for the organization, assessing individual employee performance, determining appropriate pay for each individual, and setting up a strategy for addressing inequities that may be found. The results of the study were the following:

• Total payroll was within three percent (3%) of what would be expected and appropriate
• Pay for the Executive Director was reasonably close to what was expected
• Pay for the recently hired manager was significantly higher than that of the much longer-service manager, whose portfolio of responsibilities was larger. This was not surprising, as organizations are much more accurate with respect to the market when they’ve recently interacted with it. On the other hand, employees who grow within the organization, but only receive the “average” annual increase, will eventually be far below their value on the market.
• Pay for a recently hired college graduate, seen as a high potential employee in a professional role, was only about half of the pay for a long service administrative employee whose duties were much less significant, and was perceived as a poor performer.  This is the “other shoe” of the problem with giving all employees an “average” annual increase over a long time, regardless of their performance or the value of their job.
• Pay for the four other administrative staff members, all evaluated as similar in value to the organization, ranged widely, and three were much higher than the market, while the most productive was paid the least.
• Overall, the organization felt like it had too many people doing lower-level clerical work, and not enough doing professional work.

With a total base pay budget of roughly $450,000, the amount identified as “above appropriate” was about $40,000, and the amount identified as “below appropriate” was just over $35,000. What was striking was that the employees identified as below appropriate were considered some of the best performers, and those above were considered some of the least valued. With little available to increase pay, and a higher degree of frustration concerning inequity, the organization decided:

• One highly paid administrative employee was moved to a job with significantly more responsibility, where the current pay became appropriate.
• Several changes were made to the organization structure, eliminating a function that was deemed unnecessary. One highly paid administrative employee, who was not actually performing the duties for which he was hired, but whose pay was the highest of the administrative staff, was offered a new job more appropriate to the needs of the association, but which had pay opportunity much lower than his current pay.
• The amount saved by the single major job restructuring was divided among the two employees whose pay was most below the appropriate rates, bringing them closer to an appropriate rate.
• All future increases were to be given to address those below appropriate rates first, and those whose pay was above an appropriate rate were frozen in place.

Now properly positioned, the organization restructured to provide better services to its members, made sound compensation decisions that made the organization less susceptible to unwanted turnover, and dramatically increased morale among its key employees.

Edmund Ura, JD is president of the Management Resource Center, Inc. He can be reached at ebura@mrc-consulting.com.

Participate in the Association Industry Market Data Collection
MSAE needs your help in completing the Michigan Association Compensation Study. You can request a survey by contacting Kelly Chase. Results will be available this winter. Deadline for participants is November 30, 2009.