Are we really doing anything? We create salary structures and write job descriptions. We organization our data and provide reports up and down the organization. We do a lot, but how much of it is making us competitive in a tight talent market? The “annual Increase.” Sometimes we even call it a merit increase. According to one study, at the beginning of 2016 companies predicted their pay budgets would increase 3% and at the end of the year they reported the actual increase was 2.6%. Similar reports from several prior years had very similar results. The results match the expectations, year after year.
We have become rubber duckies in an annual charity race. We are bobbing along letting the current take us where it may. Who will win the race? Does it matter?
The vast majority of companies I speak to at conferences target the 50th percentile for base pay. The vast majority of these same companies get their information from the same sources. These same companies are then pleased to find that each year they are “keeping pace” with the market. They are also dismayed when employees cannot see how competitive their pay programs are.
If we all use the same data to set our pay to the middle, then report the resulting pay at the end of the year to the same sources, we will always be “correct” and competitive. But we will also be doing nothing.
The following is an actual example. One of my clients, a poster child for their industry, had the following conversation with a very large, and respected, survey provider.
Client: “We are too busy to participate in this years survey and we find that our data has basically represented the industry for a few years.
Survey Provider: “What if we let you participate for free?”
Client: “We are too busy and your data tells us what we already know.”
Survey Provider: “How about you let us use last years data, aged at 3%, and we will just update the key demographics.”
Client: “Are you crazy? You want to use last years data in this years survey?”
Survey Provider: “Your data is important to the industry and budgets haven’t changed that much.”
In other words: “Just do nothing, we will also do nothing, our survey clients will then be justified in also doing nothing.”
My client decided not to participate and instead focused on finding ways to outpace the market while not sharing that information to the market. Yep, some companies put a secret engine on their rubber ducky with the intent to actually win, while the rest of their peers just bob happily along.
Let me know why you target the 50th percentile. Do you feel that you let market data dictate your pay, rather than letting it determine the pay of your peers while you motor ahead? Do you feel that aiming for the middle of the pack in a crowd of companies following the market puts you at a competitive advantage?
Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and considered a leading expert on equity compensation issues. Dan has written several industry resources including a recent Performance-Based Equity Compensation issue brief. 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 @Performensation.