News & Articles

Human Resource Management
Published in the Rochester Business Journal
June 25, 2004
© 2004 HR Works, Inc.

Web-based salary information: The Untold Story
By Candace Walters

As Internet technology has blossomed, a flood of free information regarding salary and other compensation has generated new challenges for employers.

Historically, salaries were benchmarked by human resource specialists using validated compensation surveys, giving employers control over the data supporting compensation decisions. But now the balance is shifting, as any employee with Internet access can visit a variety of websites showing how pay ranges for similar jobs compare with his or her paycheck.

A supervisory employee building the case for a pay increase, for example, will find a gold mine of information in such sites. By choosing a job title that seems to match his or her own, and punching in a zip code, a user can generate a report that specifies a salary range that he or she "should" be earning. By experimenting with different variables and different websites, an employee can easily find data supporting the belief that he or she is entitled to a raise.

While the appeal of this process to employees is clear, one must be cautious about the quality of the information. Though employees seldom verify the accuracy of website salary information, many nevertheless rely upon that information to develop expectations - perhaps unrealistic -- about what they're worth. In response, employers must manage the tensions this information creates, while explaining the basis for the organization's compensation structure.

Employers are finding this trend particularly troublesome when key managers perceive themselves to be underpaid. Wise employers are aware of the vital contribution of key people to the company's operation. When designing a compensation plan, such employers typically focus carefully on ways to tie the compensation of crucial individuals to the organization's success.

But free websites have no way of reflecting such philosophies; by simplistically reporting dollar figures, the websites ignore other important factors in an employee's compensation.

How accurate is on-line salary information?

First, let's address the reality of free, on-line salary data: A web-based survey is only as good as the methodologies used to compile the information. And that's where web-survey data can vary greatly.

In researching this article, we decided to put web surveys to the test. We considered a hypothetical CFO position for a Rochester-based company with $10 million in revenue. We entered the criteria for that position into two free, popular on-line salary searches, and compared those results with a validated fee-based survey frequently used by compensation specialists.

The result? One of the free surveys reported compensation about 5 percent higher than the validated survey. But the other reported a mean total compensation figure of $149,000 more than - or nearly double -- the figure offered by the validated survey.

Clearly, a CFO candidate armed with the inflated figure will have a difficult time obtaining this salary in Rochester, and might make ill-advised moves based on this false expectation.

It's easy to understand why employees are drawn to "information" that pumps up their sense of worth, especially during tough economic times. However, anyone using on-line surveys should consider the agenda of the data provider. Many of the free sites are published by staffing firms whose primary business is to find candidates and place them in new jobs or new organizations. The inflated salary expectations become the bait for recruiting candidates or selling additional services. That one cannot find follow-up information on these websites demonstrating that job seekers actually received the promised salaries raises further suspicion about the data's credibility.

Not all web surveys resort to such baiting tactics, however. Some rely on impressive-looking methodologies and resources, and may generate credible results. Nevertheless, the serious limitations of web surveys must be considered:

* Many of the free surveys use self-reported data from individuals. This information is not validated, and individuals often are motivated to inflate their current salary in order to contribute to a higher survey outcome.

* Web surveys generally focus on job titles rather than job descriptions. As we all know, jobs with the same title can involve very different responsibilities across companies and industries. For example, the scope of responsibilities for a controller in a public company differs greatly from that of a controller in a not-for-profit. The free surveys that try to simplify the process by basing searches on job titles often ignore dramatic differences between sectors, industries and the size of organizations.

* Free surveys often deal inconsistently or generically with benefits, which represent a significant portion of total compensation. Some organizations compensate employees with less cash but generous benefit programs. And high-tech start-ups may offer large stock option grants with lower cash compensation. By excluding this relevant information, web surveys paint a flawed picture.

* The data found in free surveys is based on employees from companies of all sizes. Many of these free surveys ignore company size, suggesting that "one salary fits all."

* Website surveys also often do not account for the length of experience attributed to the reported pay Yet the length of time a person has held a given position is a significant factor in determining actual pay.

Nevertheless, web-based salary data are proliferating - and impacting employees' perceptions and satisfaction levels. Employers must educate themselves about web salaries and be prepared, when challenged, to directly and succinctly communicate the basis for the company's compensation structure.

Most important, employers must define and consistently apply their own compensation philosophies, and continue to ensure that the delivery of all elements of compensation remain in synch with the organization's goals.

Obtaining reliable salary info

When benchmarking salaries, larger employers have long relied on reputable surveys such as those published by large consulting firms; smaller companies have looked to industry-specific survey information compiled and published by associations.

Professionally developed surveys ensure integrity and accuracy by using methodologies that adhere to industry standards and principles. These surveys offer targeted information based on company size, industry, geographic location and many other variables.

Companies of all sizes also find value in using compensation consultants who are familiar with survey data across organizations, can interpret the data for specific organizations and industries, and can provide creative compensation solutions.

A caution about price fixing

But even professionally conducted salary surveys can present risks. Those conducting or participating in surveys should take note that a 2001 U.S. Court of Appeals ruling questioned the legality of some such surveys under federal antitrust law.

A class-action suit brought by an Exxon employee alleged that the company was able to lower its annual salaries for non-union managerial, professional and technical employees by sharing salary information through a "custom survey" with 13 competitors. The ruling Todd v. Exxon found that an unlawful information exchange occurred among 14 major oil companies.

In a 2002 memo, the law firm Bond, Schoeneck & King, LLP, outlined several factors that may contribute to a salary survey running afoul of antitrust law:

* Information is provided directly to competitors rather than obtained, compiled and distributed with anonymity by a third party.
* Current information and future plans are included.
* Detailed, company-specific results are distributed.
* Competitors frequentlydiscuss the information.
* Competitors clarify how the data will be used.
* The results are shielded from public scrutiny.


Looking at the bigger picture

It's important to remember that pay is just one aspect of what motivates an employee, and is seldom the greatest factor driving someone to join or leave an organization. When an organization experiences significant questioning about pay, a more complete review of the situation is usually in order. But by focusing on money as the No. 1 motivator, both employer and employee often neglect the crucial "total rewards" view of compensation.

Companies that invest in their people's growth, provide a compelling vision, and nurture a culture of trust and open communications frequently attract and retain far better talent than would come or stay simply because of the paycheck.

 

 

 

Candace Walters is president and CEO of HR Works, Inc., an HR management outsourcing and consulting firm serving more than 600 clients in the Rochester, Buffalo, Syracuse and Baltimore/Washington areas. HR Works provides HR Department outsourcing, part-time and interim HR managers, affirmative action plans, HR*Stars recruitment services, legally reviewed employee handbooks and supervisor manuals, compensation programs, training and more. To offer comments, write walters@hrworks-inc.com

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