A Recruiter’s Map to Navigating Compensation Survey Data

Here’s a scenario many recruiters can probably relate to: You need to hire a new CFO in Chicago. An account executive in Boston. An engineer in Houston. A registered nurse in Indianapolis. Or any number of positions critical to meeting your business challenges.

Sourcing the talent can certainly be a challenge, and determining the appropriate salary level and/or full pay package can be equally challenging, especially because you need to manage hiring managers’ budgetary expectations.

So, who is right? Which jobs/professions are affected? Why isn’t this information reflected in compensation survey data? And, most important, what do you do?

Who Is Right?

Both the salary surveys and anecdotal hiring manager experience need to be considered as reference points for establishing new-hire salaries. Compensation surveys give you a picture for similar jobs: the recently hired, highly experienced, and high performers.

While not universally felt across all positions and geographies yet, there is strong evidence to suggest that generating new-hire offers compelling enough to attract key talent away from your competitors is becoming more challenging and costly.

As the economy improves and demographic changes are emerging, employees increasingly feel safe enough to explore new opportunities. In order to actually accept another offer of employment, however, they want more than their current position offers, and are willing to negotiate hard or wait to get it.

Employers see talent as their last competitive business advantage and are willing to invest to get the talent they need to position themselves for the future. Some of the things our clients are confirming they have recently needed to offer to attract top or key talent include:

  • Base salary levels 10%, 15%, or 20% more than the employee was earning or more than current employee pay levels.
  • New-hire or sign-on bonuses.
  • Guaranteed incentive awards for six, 12, or 18 months, regardless of performance.
  • Restricted stock (instead of stock options), or larger grants.
  • Any combination (including all) of the above.

Which Job Categories Are Affected?

Where is the trend for higher salaries most prevalent? As demographic changes continue to have an impact on the pool of available talent in the United States, this list will continue to expand.

In the meantime, the list is still fairly broad and includes:

  • Executive talent of all types: the new guidelines regarding number of board seats by individual, the personal liability implications of Sarbanes-Oxley, and the retiring baby boomers are creating even greater demand for talent, as well as resulting in talent demanding greater rewards.
  • Sales and business development talent in all industries.
  • Healthcare, especially nursing, physical therapy, and pharmaceutical.
  • Financial and audit positions in a Sarbanes-Oxley world.
  • Industry-specific technical talent, such as engineers in oil and gas exploration and research-related professions in pharmaceutical companies.

For highly sought-after skill sets, it is increasingly a sellers’ market. Individuals with transferable skills can determine their best job fit, so organizations are competing with each other for particular skills or expertise, not just against other organizations in that specific industry.

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For example, individuals with nursing/medical skills can be recruited to work with patients in hospitals, doctors’ offices, or long-term care facilities. If they don’t enjoy shift work, they work with home-healthcare service providers.

If they don’t enjoy direct patient care, they can track drug trials for pharmaceutical researchers or serve as benefits administrators for corporations.

But don’t let that observation lure you into thinking that pay is not important to employees. When the differences become large enough, it matters.

As a practical example, a survey of more than 100 hospital systems in the Midwest has been conducted for several years.

The position of General Duty Nurse (a registered nurse without specific specialty) has included data on more than 20,000 incumbents each year for the last three years. Of note:

  • The median (50th percentile) of the data moved more than $3.00 per hour in a 24-month period (March 1, 2004, to March 1, 2006).
  • The pay level at the 75th percentile (top quartile) of pay on March 1, 2004, is below the 25th percentile (bottom quartile) of the data on March 1, 2006.
  • Nursing turnover is reported in the 50% to 70% range.
  • Respondents reported merit budgets in the 3% to 4% range, leading to the conclusion that the reported pay rates are the result of employees leaving one or more organizations in that period to gain pay increases.

Even organizations that consider themselves premium payers today need to pay careful attention to the market.

Why isn’t this information reflected in available compensation survey data? There are several reasons mainstream compensation surveys do not fully reflect new hire offer data:

  • It’s illegal. Tracking just new-hire offer-package data and publishing it in a timely manner would clearly be in conflict with all interpretations and rulings of the Sherman Antitrust Act of 1890 that is intended to prevent “wage price fixing.” Court rulings have determined that compensation data needs to be at least three months old before it is published and that specific participant data is protected. Therefore, by definition, survey data is not entirely current at publication.
  • It’s buried. Compensation surveys report pay on an entire population of individual pay matched against defined “benchmark” jobs. Therefore, the data represents new incumbents, experienced incumbents, high performers, low performers, as well as pay for the nephew of the founder! While the data for new hires is there, you are not able to separate it out in the report.
  • It’s impractical. Salary survey organizations have spent years attempting to gather more detailed information regarding the various components of new-hire packages, even if according to the law, they needed to report it as trend vs. specific data. In many organizations, the categorization of pay into certain buckets is not consistent. Additionally, many organizations do not want to disclose “special deals” for fear of causing internal problems. Therefore, collected data may be incomplete or invalid.

What to Do

  • Have a plan. What is your organization’s mission, vision, and values? What is it trying to accomplish? What are the implications? Do you need more people? Fewer people? People with different skills? What is your rewards strategy?
  • Retain the key talent you already have. Ensure that your employees feel valued and rewarded. Turnover is expensive in lost client service, momentum, productivity, and resource reallocation, not to mention recruiting new talent. A penny saved here is really more than a penny earned there.
  • Consider the position. All organizations have financial constraints, and not all positions require a Herculean effort to fill. Determine your rewards philosophy and guidelines, and remain within those guidelines for the majority of openings. Clearly identify early on which positions you are willing to take extraordinary efforts to fill.
  • Seek data from multiple sources. Compensation surveys are still the best first source of data for most positions. While the data is retrospective and reflective of the entire population, it provides guidance regarding the market value of the position and/or skill set you seek.
  • Continually take the pulse of the market. Maintain local and industry contacts, but remember to avoid any conflict with antitrust laws.
  • Mine your own data. Review past hiring patterns and position vacancy rates. For multiple incumbent positions, model hiring rates and retention rates for patterns. This may provide you with a hiring “sweet spot” that is more effective than surveys. Consider the impact of new-hire pay levels on the morale of existing employees, but don’t let it create unrealistic boundaries. It may be that current employee pay has fallen behind “market.”
  • Consider alternative arrangements to pay. What makes your offer compelling to a candidate is more than pay. It may be culture, opportunities for advancement, or a flexible work arrangement.
  • Use all the “rewards” at your disposal. Use your judgment and be ready to continually adapt. Once all the data is in, make your judgment, but remember to review outcomes (acceptance patterns, retention, performance metrics, etc.) and adjust course as necessary.

The marketplace for talent is increasingly dynamic, and you need to be prepared to be flexible and adaptive.

Diane Gerard, a principal at Capital H Group, is a total rewards professional with a solid reputation for assisting major companies in achieving and exceeding their business strategies through total compensation and other human resource program design and implementation. Her expertise includes: global human resource and total reward (compensation and benefits) strategies, executive and employee pay, incentive design, merger integration, total rewards cost management, business performance management and human resources change.

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