What Do You REALLY Know About Pay?

Before there were photographs, sailors would return from long trips and describe animals to artists who would then create “official” images. These images helped people feel like they understood what was “out there”. But, in reality, provided almost no useful information. Check out the drawing of the rhinoceros. You get reports from the Big 4 and compensation consultants. They have pretty charts and easily digestible info-bites. You get market data from survey providers and professional organizations. They include tons of little boxes of information on enormous spreadsheets. There is enough granularity to make you feel like you have everything and can build anything new with grains of sand that are at your fingertips. You have articles from established and new media. They provide insight and new perspective that allow you stay ahead of the trends. You follow twitter and read blogs.

But how much of what you know is factual? You may be surprised.

An article published by Bloomberg on July 1, 2016 discussed Alphabet’s new type of equity awards for their many companies. It was reported that these awards were based on the performance of individual business units, each with their own valuation. Each business unit can choose to use their own synthetic equity or the equity of the parent company for employee grants. It sounded both cool and complex. Right up my alley. I contacted friends there and after a couple weeks they let me know that, even with an NDA in place, they would not be willing to share any details with me.

Secrets make you competitive. I get it. But, what does this mean about what YOU know?

Consultants are notorious for presenting what they are doing and what their clients report back into their survey data sets. It is not coincidence that the predictions by some of the biggest firms are then followed a years or two later by data showing those predictions to now be trends. Consultant recommends client do X. Client does X. Client submits survey data a year or two later. X shows as a new trend in survey data. Presto.

A client asked me to review a recent report provided by one of the Big 4. The data showed incredible year over year changes in certain areas. My client hadn't experienced these same levels of changes. Reports from other firms didn't show the same level of changes. I called a friend at the firm and he acknowledged they made material changes to their methodology for their annual report, but had not reported the change. The year over year growth was essentially fabricated by comparing two different data sets.

Survey data sets are amazingly accurate, but notoriously incorrect. The data is parsed and reviewed, often by very qualified professionals. They work through anomalies, make corrections, throw out “bad data” and report on the rest. But, what data do they get? Is the data you report 100% perfect? Do you think that Alphabet submits the nitty gritty details of pay programs they believe offer a true competitive advantage? Would you? Even with all that detail, you can't know what's missing.

Pay is a big media topic. It has been for years, but the last few have seen an explosion in pay articles from both old and new media. These articles are often based on information from one or two, often disgruntled, employees. We are all aware of how well employees understand compensation. Throw in an axe to grind or a new program with real complexity and the details can get confused. Even when the details are correct, you may not see them in data or reports since companies, like Alphabet, like to keep their coolest programs fairly secret until they have moved on to the next cool thing.

So, what’s a compensation professional like yourself supposed to do? First, remember that you have access to the same information as everyone else. But, now you know that you should analyze with a very critical eye. More data sets are better than less, because they allow you to compare and contrast. When in doubt, go to the source. If you ask, they will usually try and help. Lastly, do what makes sense for your needs and use the data as a basic set of guidelines that define the far edges of potential reality.

Dan Walter is a CECP and CEP and works as Managing Consultant for FutureSense. He is passionately committed to aligning pay with company strategy and culture. Dan is also a leading expert on equity compensation issues and has written several industry resources including the one-of-a-kind Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”“Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.

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