How are market rates determined?

Using existing survey data

The least expensive way to obtain survey data is to get it from those who have already conducted surveys. These sources include consulting firms, company and trade associations to which your organization may belong, and professional associations. Local chambers of commerce and business groups may also produce area market survey data. Other sources of salary survey data are the publications of the Bureau of Labor Statistics of the United States Department of Labor and the Internet (see Is pay data available on the Internet? at ¶31,660 ).

Several salary surveys are published on a regular basis by third-party vendors such as private consulting firms. These surveys track market rates for specifically defined jobs. When evaluating whether you will use particular data, consider the following:

• Survey market. It is critical that a survey include a company's competitors in terms of both the product market where goods are sold and the labor market where there is competition for people.

• Pay objectives. A company must decide how it wants to position itself in the pay market and select the data points accordingly.

• Job comparability. Job functions, responsibility and performance matches must be in place in order for pay comparisons to be useful.

• Compensation mix. Look at total compensation, in addition to base salary levels. Total compensation typically means base salaries, plus bonuses, plus short- and long-term incentives.

• Time frame. Most surveys come out at specific intervals each year, and they can be updated for a salary budget year or any other given budget cycle.

What if the data is old? It is possible to update old survey data, if necessary, and it make it usable again using statistical measures designed for that purpose. One of the best ways to update outdated salary survey data is to use the Employment Cost Index.

The Employment Cost Index is a statistical device of the Bureau of Labor Statistics of the United States Department of Labor. It measures the rate of change in employee compensation, which includes wages, salaries and employers' costs for employee benefits. Figures are reported for total compensation and for wages and salaries only.

By adjusting survey data by the same percentage change as the percentage change in the Employment Cost Index over the appropriate period of time, an employer can age older survey data to make it more valid.

For key jobs in your company or in times of rapid market changes such as inflation, be careful of adjusting data in any manner. It is an approximation and, in some circumstances, estimates are not adequate.

Commissioning your own survey

Having a consultant conduct a made-to-order survey specifically for you can be prohibitively expensive. If, however, you decide to use a consultant's services instead of conducting your own survey, the consultant will often have adequate data on hand already, without having to do too much from scratch research.

Conducting your own salary survey

Conducting your own salary survey is one way to ensure that you are getting exactly what you need, provided, of course, that your company's human resource staff has the expertise to conduct the survey and analyze the results.

For a checklist of the major steps for designing, planning and executing an internal salary survey, see Conduct your own salary survey at ¶31,650 .