What are other companies doing? Employers continue to ask this question as they try to understand how much and in what form to pay employees. While never an easy question to answer, it has recently become a lot more complicated.

The dynamic global talent market and increasing complexity of total compensation design have speeded the obsolescence of traditional survey data collection and reporting methods as resources for compensation planning and competitive intelligence. With employment costs comprising the largest single expense category in many organizations, there is a new pressure to understand these costs and what the organization is getting in return. 

In addition, as compensation data and decisions have come under increased scrutiny by boards of directors and outside stakeholders, organizations must ensure that competitive intelligence on pay levels and practices is meets validity and reliability criteria This combination of forces is causing a sea change in compensation and benefits survey practices and the ways of measuring and reporting them.

Salary Surveys Are No Longer Enough.
Introduced more than 50 years ago, survey techniques developed for the salary-only model have not changed all that much and are inadequate in a time when the notion of total rewards is widely accepted. Although early models have been extended to capture newer pay practices, most efforts have consisted of pencil-and-paper surveys migrated to spreadsheets and Web interfaces and have included new data categories for benefits, bonuses, stock options and other forms of pay. Yet these changes don´t address the increased complexity, urgency and scrutiny faced by HR professionals.

The new pay environment requires a practical approach to address vastly varying amounts and combinations of salary, incentive and equity-based pay, benefits, paid time off and other employment features now common for many types of jobs, not just executive-level positions. And as the notion of the "job" gets fuzzier and the individual´s unique combination of education, experience, skills, certifications and track record become the basis for pay determination, answering the question "What are other companies doing?" has become a more multidimensional and ever-changing challenge.

The Future of Pay Intelligence Lies in Salary Searches.
Facilitated by the Internet and related technologies, new methodologies are emerging that explain pay, based on real-time data, to an extent never before possible. Contrary to the traditional survey model, these modern-day methods recognize that the "job" is merely one variable that must be considered in explaining pay levels in the marketplace and gaining a complete picture of pay.

Fully appreciating and taking advantage of this changing paradigm for competitive intelligence requires understanding the elements of the change underway:
 
1. Expectations for Real-Time Data. While the availability of the Internet enables new ways of collecting, reporting and using compensation information, the dynamic nature of the talent market and turbulent business environment requires it. Real-time data is essential for effective decision-making. You wouldn´t buy shares of a company´s stock based on the price six months ago, and decision makers will no longer rely on static pay survey data to make informed decisions about how to attract and retain top candidates and employees.

2. The Needs of Empowered Users. The democratization created by the Internet has broken down the wall between traditional HR roles, hiring managers, and employees or candidates, further enhancing dynamic data collection and analysis and challenging traditional roles of data submitters, data users, and employee-employer decision-making. This has occurred in parallel with the individualization of pay - the increase in the number of "special deals" in employee pay, a difficult trend to manage and one that is not fully reflected in compensation survey data today.
 
3. The Emergence of Participative Data Collection. With the Internet, multi-point data collection can be conducted at minimal cost with the unprecedented ability to explain significant variations in pay. Older methodologies that measure pay based on the job, rather than the person, evolved when organizational structures were relatively static and hierarchical, job mobility was low and the knowledge worker was not a prominent force in the economy. The result: pay levels within a single job title that are so broad they´re meaningless. The data that explain these variations reside with the individual and are difficult to obtain through the standard survey process.
 
4. The Power of Searches over Surveys. Instead of being limited to predefined survey criteria like company revenue or number of employees to generate pay intelligence, new methodologies allow dynamic queries driven by criteria that are specific and meaningful to market pay levels. So, while a survey might tell me that my company is paying above the 90th percentile for our database administrators (which might alarm my CFO), a multidimensional search would reveal that our DBAs are really paid at our market average given their education, experience and specific skills, and that company size is irrelevant for this job. The key difference is that the data reported match the characteristics of who is in the job, not just a superficial description of what the job is. 
 
As we begin to see new methodologies bring more sophistication, access and cost reduction to the process of gathering and analyzing competitive pay intelligence, you may soon find that an Internet-based compensation search - not a survey - is the solution to finding out what other companies are really doing about employee pay.

About the Author

Fred Whittlesey is chief compensation officer of PayScale, Inc. in Seattle. The article originally appeared in Workforce Insightson Veritude.com, an online resource about emerging labor trends and issues.

About Veritude

Veritude provides strategic human resources - the talent, technology and tactics that growing firms need in order to anticipate and adapt to changes in the workplace. Veritude is a wholly owned subsidiary of Fidelity Investments. Headquartered in Boston, the company serves clients throughout the United States and Canada and is part of Fidelity´s ongoing investment and leadership in outsourced HR services. To review other articles, research and expert analysis relevant to HR professionals seeking to stay informed, please visit www.veritude.com.  For more information, contact: inquiry@veritude.com or call:1-800-597-5537. 

^©2005 Veritude,LLC.  Reprinted with permission.