Pay benchmarking in rocky times

Will this year’s survey data be reliable?
Italy3025PaintBoat by Dennis Jarvis

Will this year’s survey data be reliable? Well, this depends on the surveys you select and how you use the data. 

With ‘Freedom Day’ approaching, staff expected to gradually return to the office and things seemingly returning to business as usual, many of our clients are now looking towards pay review 2022.

Some have staff who worked throughout, others had to furlough. The common thread now is the desire to do the right thing for their employees and organisations going forward.

Part of this is understanding what’s happening in the external market, and that means pay benchmarking. But things aren’t on an even keel just yet.

The June 2021 Average weekly earnings report from the Office of National Statistics (ONS) is deceptive. It surprisingly shows an annual increase in pay of 5.6% for the year to April 2021.

This doesn’t mean that companies are granting large increases this year, it’s a comparison of pay levels year on year. For example, it’s estimated that 1.5% of the increase is due to lower paid jobs exiting the economy.

And remember, April 2020 was when we first saw action on pay because of the pandemic. Many companies froze or deferred pay awards at that point. So, the data is starting at a low base. The data will be picking up increases that may have been granted later in 2020 by way of ‘catching up’.

Thirdly, the data includes furloughed employees who may be receiving 80% of normal pay. As the proportion of the workforce on furlough has halved from 21.8% to 10% year on year, those now on full pay will be contributing to some of the increase.   

Against this background, some of our clients are nervous that they’ll be using salary survey data this year that reflects a ‘correction in the market’ illustrating an unsustainable spike or dip as we come out of the pandemic. Will the data be reliable?

Well, it’s never been as perfect as we like to think it is. Survey output has always had the propensity to bounce around as incumbents and participating organisations change.  Unhelpfully, this does occasionally play out as a significant increase or decrease year on year for a particular role.  

At this stage it’s impossible to know the impact of the pandemic on the data, as many of the surveys don’t publish until the autumn. But we can anticipate that:

  • The data will reflect the many different actions that participating organisations have taken on pay but the impact will be smoothed for a survey with large participant numbers
  • Some sector surveys will be impacted more than others e.g. hospitality and retail, so may need to be supplemented with generic cross industry data to give a broader view
  • Premium providers will have maintained and enhanced their methodology to ensure the data is meaningful. Some, for example, are excluding furloughed employees from datasets.

So, the survey data might be impacted by Covid but, in my opinion, if interpreted well, it doesn’t make it unreliable.

Treating the data as one part of the equation by using it to inform a well-designed pay structure, rather than laboriously following the market, will temper the impact and ensure sustainability - even if the survey shows dramatic wholesale movement.

Pay structures do this by:

  1. Grouping roles together into job families: this aggregates the many data points as opposed to taking the market median for a role as the ‘answer’, which helps regularise the ‘blips’ in data for particular roles
  2. Refining the raw market data into a clear structure: this enables a smooth pay transition between levels, creates a logical structure, and helps ensure affordability
  3. Using the structure as a guide: a broad range enables more holistic pay decisions that take account of many different factors e.g. pay for performance or other reward principles, attraction and retention challenges, internal equity, and affordability

So, yes the survey data is probably as reliable, or almost as reliable, as previous years.  The key here is to select reputable surveys that are constructed well and use data in a thoughtful way to inform robust pay structures aligned to a clear reward strategy.

This will help us all to do the right thing and steady the boat. 

 

If you’d like help pay benchmarking and developing a pay structure, please do get in touch for an initial conversation.  

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Image courtesy of: Dennis Jarvis