Making Cents of the Dollars A Guide to Understanding Salary Surveys

1. Making Cents of the DollarsA Guide to Understanding Salary Surveys February 25, 2004 Presented to the Intermountain Compensation and Benefits Association

2. Agenda • Introduction • Composition of a Survey • Data Elements Defined • Market Pricing • Survey Considerations • Delivery Methods • Organize It! • Conclusion

3. Composition of a Survey • Survey Statistics • Participants • Industries • Locations • Revenue Sizes • Compensation Data • Base Salary • Bonus • Total Cash • LTI • Total Direct Cash

4. Composition of a Survey • Compensation Practices • Average Base Salary Increases • Average Salary Structure Increases • Details on STI Plans • Details on LTI Plans • Benefits Practices • Plans and their Prevalence • Cost of Benefits

5. Composition of a Survey • Survey Selection Objectives • Choose surveys that are representative on a number of factors. • Like participants (Industry/Size/Location/Etc.) • Like jobs represented. • Timeliness of the data (Effective date). • Sample size of the survey.

6. Composition of a Survey • Scope of the Data • Industry • General • Healthcare • Finance • High Technology • Manufacturing • Geography • National • Regional • Local • Revenue • Sales • Organization Type • Corporate • Division • For-Profit • Not-For-Profit • Employee Size

7. Composition of a Survey • Jobs Represented • Executive • Managerial • Professional • Technical • Hourly • Sales • Effective Date – Compensation data are typically reported as of a certain date in time. • Aging Factor – A recommended percentage to advance salary data when pricing a job to a point other than the effective date of the survey.

8. Data Elements Defined • Common Data Elements • Base Salary – Current annual compensation. • Bonus(Short-Term Incentive) – Additional annual compensation received above Base Salary for the pervious year. • Bonus Percent – Additional compensation from the previous year expressed as a percentage of another compensation element (typically Base Salary). • Target Bonus – The expected 100% bonus payout for the current year. • Total Cash – Total of all annual cash data. Hint: You should always compare “apples to apples”.

9. Data Elements Defined • Other Data Elements • Sales Quotas - Details on sales goals. • Base/Target Incentives – The mixture of guaranteed salary (Base) and “at risk” pay (Incentive). • LTI – The value of stock options or any similar award that extends over a period of a years. Often includes a performance qualifier. • Total Direct Cash – The sum of all annual cash and the value of any long-term incentives.

10. Data Elements Defined • Weighting • Company weighted? • Employee weighted? • What is “Simple” weighting? • Population • All employees? • Reporting employees?

11. Data Elements Defined • Common Percentiles • 10th percentile - the 10th percentile is the data point that is paid higher than 10% of the measured sample. • 25th percentile - the 25th percentile is the data point that is paid higher than 25% of the measured sample. • Median (50th) percentile - the middle rate in an ordered data set; i.e., half the observations fall at or below this number and half at or above. • 75th percentile - the 75th percentile is paid higher than 75% of the measured sample. • 90th percentile - the 90th percentile is paid higher than 90% of the measured sample. • Mean (Average)- the average is the central tendency of a population. Hint: Choose surveys that target your market position.

12. Data Elements Defined • It is important to note the following when interpreting survey data • Differences in the measures of central tendency (mean and median) typically are less with large survey samples. But as samples get smaller, even these statistics can be adversely affected. • A large difference between mean and median can be the result of a sample that is skewed high or low by a few unusual cases. Means are affected by such skewing, medians are not. Hint: Generally, median is the most reliable data point.

13. Market Pricing • What is Market Pricing? • The process of identifying pay levels for specific jobs in a define external market. • Why do we need Market Pricing? • To assess the competitiveness of your pay levels relative to other organizations competing for the same human resources. • Hire, retain, and motivate your employees. To reduce the risk of losing key employees to outside opportunities. • To maintain a reasonable payroll. • Pay people right – Not only against the market, but also to be consistent with your company’s philosophical position. • Give managers a benchmark for internal pay levels.

14. Market Pricing • Why do we need Market Pricing? • Keep the company’s compensation programs competitive with its peers or the local job market. • Peers: Companies providing the same service. This may be local or national competition given the level of the job being market priced. • Job Market: Local organizations providing different goods and services, but needing many of the same skills. • Accountants • Network Engineers

15. Market Pricing • The first step is Job Matching, which is often a combination of art and science. • Job matches should be based on job content. • You cannot match on job content unless you know your jobs. • Even hybrid jobs can be matched to survey jobs, if results make sense in relation to other data. • Do not force a match. If necessary, create good market values around a problem job and then “slot” it. Hint: One rule of thumb is to consider a benchmark job a good match if it represents 80% of the survey job, or vice versa.

16. Market Pricing • Information needed about the company job before matching. • Duties (Functional description) • “Establishes and directs all functions” • “Provides technical direction and project management” • “Prepares standard reports” • “Maintains factory and office areas” • “Under direct supervision” • “Handles highly confidential data” • Scope (Sales, budget revenues, number of employees supervised) • Total Sales • Department Budget • Direct/Indirect Reports • Employees Supervised • Budget

17. Market Pricing • Information needed about the company job before matching (con’t). • Education and Experience (Years of relevant experience/education) • “Bachelors Degree” • “3-5 years of Wide Area Network (WAN) administration experience” • “Experience with enterprise-level HRIS systems” • “Masters Degree” • “Operational management experience of 5 years or greater” • Level of Job • Series of job with the same title, but differentiated • Duties • Experience • Education • Supervisory responsibility • Examples: Accountant, Engineer, Analyst

18. Market Pricing • Find the appropriate “Data Cut” • Industry • Manufacturing • Non-Manufacturing • High Technology • Healthcare • Location • City • Region • State • National • Revenue Size • Organization Type • For-Profit • Not-for-Profit

19. Market Pricing Never undervalue the importance of a job to your organization.

20. Market Pricing • When combining multiple survey sources • Know the compensation details of each survey source you intend to use. • Know the age of the sources (effective dates). • Know the scopes being reported. • Do you want to give each survey source equal weight in the final result?

21. Market Pricing • Example of job matching across multiple survey sources

22. Market Pricing • Applying the data from two surveys to arrive at a market value.

23. Market Pricing • Consider using geographic differential data if you cannot find your location. • Your local consultant. • Geographic differential assessment data is also typically published by survey vendors. • Economic Research Institute (ERI) • “Boutique” surveys • State or local assessments • Aging factor sources • From the survey • WorldatWork • Vendor sources (Mercer)

24. Survey Data Considerations • Other considerations when using survey data. • Can I mix company and employee weighted data? Maybe. It depends on the statistical influence of participating companies. • Can I mix “as reported” incentive pay and “all employee” incentive pay? Not recommended. Data “as reported” usually means only for those who received, while “all” data are influenced by employees receiving $0. • Does cash data always increase annually? No. Factors such as sample size and market conditions can affect the progression of data from one year to the next. • Can I age data an additional year rather than purchase a new report. Maybe. It depends on the volatility of the market and the jobs you are pricing.

25. Survey Data Considerations • Other considerations when using survey data (con’t)? • Can I extrapolate a percentile Total Cash by adding Base and Bonus of the same percentile? No, compensation elements are calculated independent of each other Look at the counts

26. Delivery Methods • How do survey vendors deliver? • Paper Report – The traditional report. • CD / Diskette – Electronic, but usually static. • On-Line Services – Provide the user with a method of refining survey data to a significant peer group or geographic area.

27. Delivery Methods • What are some on-line services? Radford: McLagan: www.radford.com www.mclagan.com eComp: www.ecomponline.com

28. Delivery Methods • Other than Aon? • Watson-Wyatt • Mercer • Towers • Clark Consulting • Hewitt • Your local vendor?

29. Organize It! • Using multiple survey sources means you have paper reports, spreadsheets, and Portable Document Files (PDF’s). Is there any way to organize this material? • Mercer: Prism • Watson-Wyatt: Rewards • Aon: CompProASP

30. Organize It! • CompProASP allows you to access multiple surveys on-line through one standard interface.

31. Organize It! • CompProASP allows you to age, weight, and adjust multiple surveys on-line through one standard interface.

32. Conclusion • Understand the basis of reported survey data. • Know the scope of the data. • Keep your data current, particularly in a volatile job market. • Know your job content. • Never force a job match. • Do not forget the value of the job to your organization. • Ask if your vendor can supply more than just a paper report. • Use technology to help manage your data.

33. Conclusion Thank You! John Delaney Email: john_delaney@aoncons.com Phone: 610-834-2241