In the incumbent weighted pay data, each employee is treated with equal weight. All employees and their pay contribute to the calculation of the job’s median, average, and other percentiles.
· The downside to these calculations is that employers with a large portion of the employees in the data set influence the job’s reported statistics. And this heavy influence of the large employers may inflate the final statistics. Smaller employers are also not going to pay as much as large employers so you can see how incumbent weight data can be “off.”
· Also, individual employee pay rates are impacted by what each employee brings to the job. Some employees have more skills, experience, or education than others. Employees also have different performance levels and that influences their pay. And constraints like internal pay policies/guidelines and internal equity are factors in individual employee pay decisions.
In the organization weighted pay data, the average value is calculated for each organization (or employer). Then the average and percentiles are calculated for the job from these organization averages.
· This is often viewed as being a better reflection of employer pay policies than incumbent weighted data.
· Think about how salary ranges are assigned to jobs. This represents the range of pay an employer is willing to pay for a job. Employees are paid within this range.
· So, the average that each employer pays for a job provides a number that gets rid of the outliers. Outliers can cause the job’s statistics to be “off.” And outliers are often caused by individual employee differences that may or may not be representative of the market for a job.
How do you define the external market?
1 - “What are other employers paying for this job?” Then use organization weighted pay data.
2 - “What are employees being paid for performing this job?” Then use incumbent weighted pay data.
Just know that no salary survey or other pay data source is perfect. That is why you need to read the methodology section of the survey or database carefully. And use that knowledge to assess how the survey results for each job reflect the market or your competition for talent.
Note another topic that is like this one is the salary survey results for total cash compensation and short-term incentives. Are these numbers based on actual short-term incentive payouts? Or are the numbers based on target short-term incentive numbers? The difference is important as you establish the total cash compensation and STI opportunity for your jobs as an employer.
I’ll share more on that topic another day.
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