A Common Compensation Trap: Poor Data Sources
What is Self-Reported Salary Data and How Can You Avoid It?
Certified Compensation Professionals (CCPs) recommend salary ranges be built from reliable salary survey data. Unfortunately, there are organizations that gather and resell self-reported salary data. Self-reported data is widely perceived as highly unreliable, hence the reason CCPs avoid it. You should avoid it, too.
What is self-reported data? If you try to find “no-cost” pay data information online, you will find websites that try to provide it but they leave you to do your own self-analysis and then provide you with different data points that may or may not be reliable based on what others have entered into their lengthy questionnaires.
Someone who is entering their own salary data into a website is approaching the situation from a totally different position than an HR Professional. For example, let's say that Sally Salary enters her best guess about her actual pay. But Sally’s only interest is in seeing if she can get a raise and not in maintaining the integrity of a data set. Therefore, Sally might just claim that she makes $900,000 a year. Or, maybe Sally is entering data for her cousin and just doesn’t know how much her cousin makes at the moment. As Sally sees how many additional questions she has to answer about her (or her cousin’s) job, she is likely to just start clicking whatever buttons are needed in order to get to the end of the arduous process quickly. Of course, there are people who thoughtfully and accurately submit their personal data but an organization in today’s tight labor market can’t afford to base their compensation philosophy, and their ability to retain their top talent, on Sally Salary’s responses. Fortunately, most members of senior leadership teams instinctively recognize the limitations of self-reported data – and so does SHRM (click here to learn more).
Self-reported data lacks the checks and balances that help maintain the integrity of salary surveys. But, when an HR professional submits their organization’s salary ranges to a survey, they typically export their data directly from an HRIS. They have an interest in maintaining the accuracy of the survey’s data because the validity of the data affects their ability to get accurate ranges. They’ve submitted salary data numerous times and have practice with the process. Without accurate ranges, they will see turnover which not only puts their entire organization at risk but which also directly causes their jobs to be significantly harder to perform.
One simple way to avoid self-reported data is to ask your CCP or automated compensation application vendor what salary surveys they use and if any of them contain self-reported data as opposed to data that is submitted by an HR Department. If they don’t use at least five surveys from a variety of sources, keep looking for an alternative.
How to Respond When Employees Bring Bad Data to You
While most CCPs recommend you should avoid self-reported data, there isn’t a practical way to keep your employees from looking at, and approaching you with, self-reported data. When an employee comes to you to discuss the “comparable pay that they found online,” be prepared to help them understand where that data comes from and why it is skewed. Point out to the employee that the data is self-reported and that, therefore, there is no way to know if everyone put accurate salary data into the application. Additionally, point out that salary ranges are determined by job duties and not by job title. There is no way for a website to distinguish the day-to-day responsibilities of what employees at your company do versus what employees at other organizations do, even if the job titles are the same. Simply explain to the employee that, for these reasons and more, your organization applies more accurate procedures to determine pay ranges. But don’t leave the conversation there — be prepared to clearly explain the unbiased process your company goes through to determine ranges.
It’s also important to know that when an employee comes to you with concerns about their compensation, whether those concerns are based on self-reported data or not, they are giving you a chance to retain them. It is a great opportunity to encourage them and help them feel motivated to stay. Be sure to understand and acknowledge their circumstances. If they have a lower than expected compa-ratio, you may want to consider giving them an increase. After all, if they leave and you need to hire a new person, you will likely need to pay them more than your current employee is making anyway. If you are not able to increase their pay, explain the rationale clearly and objectively but don’t leave the conversation there. Talk about what they could do to be positioned to receive more pay in the future either by improving their performance in order to maximize bonuses (or annual pay increases), or through increasing their skill-set so that they might be more likely to earn a promotion. Discussing those details and putting a plan in place could provide everything that the employee needs to be even more engaged at work and excited to stay.
Another way to avoid awkward compensation conversations is to preemptively discuss your company’s internal compensation processes with management and, potentially, directly with employees. This gives you an opportunity to position your compensation procedures as fair, and as unbiased, as possible. During these conversations, it may be helpful to proactively distinguish between best-in-class salary surveys and self-reported data. Educating your managers can help them feel like the process is fair and when managers feel like the process is fair, they can do a lot to help employees feel that way as well. Last, but not least, find out which of your employees is most likely to leave your organization, due to pay concerns, through regularly reviewing compa-ratio reports and identifying who has low compa-ratios.
Reliable data is the foundation of competitive and defensible pay practices. If you don’t start with reliable data, you won’t end with reliable data. Seek out the sources — both salary surveys and consultative expertise — to make sure your compensation practices help you to attract and retain the best talent.
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