We are getting ready to conduct a total compensation study. One of the major issues we need to resolve is which labor market to use as a comparison for our jobs. Our community has high service expectations, and we believe that more is expected from our employees than from employees in other communities in our geographic area. In fact, several of our employees who recently left for jobs with neighboring cities told us the reason they left was to make generally the same amount of money while not having to work as hard.
Can you help us define the criteria we might use to assess whether we are comparing our compensation to compensation at comparable organizations?
Just to make sure that we understand the issue, you believe your organization is more special than other nearby organizations and that your employees are also more special because they work for a really special organization.
Your community is no doubt a wonderful place to live and work, and you no doubt have a wonderful team of employees serving your community. The question that needs to be addressed is whether being special means that your community expects your employees to perform work that is of a different type or that your employees have different levels of overall responsibility than their counterparts in other organizations. While numerous factors impact rates of pay for the various jobs within an organization, compensation levels ultimately tie back to the type and level of work expected by the employers with whom you compete for qualified personnel.
Over the years, we have heard numerous references to differing expectations among private sector organizations that exemplify customer service such as Ritz-Carlton and Four Seasons hotels versus Motel 6 or Super 8. Among retailers, Nordstrom and Neiman Marcus are often cited as providing a higher level of service than Kohl’s or Sears. Whether these assessments are true or not, it really comes down to the expectations of the customer. One can also look at the merchandise that is sold in the various stores, the quality of the beds in the various hotels and the amenities provided to customers and guests.
If we are looking at certain jobs such as housekeepers or facilities and grounds maintenance personnel, however, it becomes a bit more problematic since we doubt that any employer does not want work performed correctly or intentionally hires people who are not qualified to do the work required. Where a difference may exist is in selection criteria when customer service is a higher priority or customer service is a defined priority.
When looking at market rates of pay, as well as the various components of total compensation, most surveys focus on trying to define jobs so that survey participants can determine if they have a position that looks like the job being surveyed. As a result of a series of consent decrees between private sector employers, the U.S. Department of Justice and the Federal Trade Commission related to potential violations of the Sherman Antitrust Act, a general guideline for survey matches call for a 70 percent approximation or better. The guidelines also require that there be a minimum of five matches to constitute a valid basis for comparison.
While there has been some debate about whether the antitrust guidelines for salary surveys apply to public agencies, most of the professional service organizations that we know have concluded that public agencies should follow the same procedures as private employers, if for no other reason than to eliminate any questions about the validity of the survey process. Consequently, surveys will generally focus on jobs with closely, if not perfectly, matched types and level of work duties, minimum qualifications and performance expectations. Unfortunately, trying to match and measure unique position characteristics like workload and quality of service provided is an exercise in subjective judgment.
We remember working with a city in a major urban area that professed to provide the highest level of service of any community in the area and which prided itself on only hiring the best and brightest candidates when they needed to fill positions. Shortly thereafter, we were retained by a neighboring city and, surprisingly, we heard exactly the same things. In addition, our clients each specifically stated that they felt they provided a higher level of service than their neighbor. Needless to say, we did not opine on the validity of the claims by either organization. The point is that quality of service is in the eye of the beholder.
Let’s talk for a minute about workload, or, more specifically and based on your question, the nature of the workload. If you look at the value of a job as relating to the highest level of work performed – that is, at the work that consumes the greatest portion of an incumbent’s workday – then you and the other organizations to which you are drawing compensation comparisons must maintain and be able to provide a finite level of detail about the work of incumbents in various job classes.
While a few organizations can provide that level of detail when responding to a total compensation survey, our experience convinces us that such a group is small. In order to obtain the type of information you will need, you must analyze operating budgets or other documents for each organization to see if they even report this level of information. If you are prepared to go to those measures, then you may be able to draw some form of conclusion as to how organizations compare in terms of operation and compensation.
More commonly, however, organizations will look at broader benchmark data to assess staffing levels relative to population, budget or another metric that may be of interest. But that takes us back to the fundamental question of whom you want to compare your organization with. For example, in California, where there are a large number of municipalities that contract out a range of public services instead of maintaining large workforces, it is uncommon for contract cities to compare themselves directly to full-service cities since each is looking for individuals with different skill sets. Also, contract cities generally do not provide the same types and levels of services as full-service cities and they tend to have different economic bases, lack similar populations and compete in a different labor market.
Once the labor market is defined, an agency can begin to ask itself how competitive it wants to be. While the majority of public agencies will state that they want to compensate their employees somewhere around the median of the market, others will decide they want to pay in the third quartile or even somewhere in the fourth (highest) quartile. If they believe that their employees’ performance can justify the claim that they hire only the best, brightest, fastest and most agile workers, then a market position above the median is appropriate. If they believe that there are other reasons that make them desirable to employees other than compensation, then they may decide that they do not have to pay above median rates to attract and motivate the caliber of employee that they are seeking.
We know we have been wandering around the gist of your question, but we hope our response provides you with an understanding of the complexities surrounding the issue. In our judgment, quality or quantity of services provided by individual employees are difficult to measure and different for every job. On the other hand, selecting comparable organizations that you perceive to provide the same type, level, quantity and quality of service may be more defensible. Finally, once you have the market data in hand, you need to determine where in relation to that data you want to pay (i.e., higher, lower or about equal). And that decision is entirely subjective.
The Comp Doctor™ is the team of Jim Fox and Bruce Lawson, Managing Directors in the Human Resources & Compensation Consulting practice of Arthur J. Gallagher & Co. They specialize in assisting governments in fixing their compensation and classification systems.
This article originally appeared in the IPMA-HR News in August 2016.
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