Page 195 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 5. Salary 181

Degree of Comparability Data Weighting

Noticeably heavier 0.5
Slightly heavier 0.8

Good match 1.0
Slightly lighter 0.8

Noticeably lighter 0.5
Table 5-8. Survey leveling

A variation is to adjust the reported compensation based on the match. Some job-evalu-
ation plans have built values around 15 percent multiples, believing that the difference in
responsibilities between two jobs is recognizable in multiples of 15 percent. Table 5-9 illus-
trates the effect on leveling reported pay data for four companies all reporting the same data as
the surveying company, E. A noticeable variation is either 0.85 (heavier) or 1.15 (lighter).
Two variations are 0.723 (much heavier) and 1.323 (much lighter). For example, company A
is reporting pay of $100,000 for a job much heavier than company E’s. This would suggest it
might pay about $72,300 if it had a perfect match. This would be calculated by the formula
0.723 ($100,000) $72,300. Conversely, company C’s job is reportedly “lighter” than com-
pany E’s. This would suggest that if company C had a comparable job, it would pay $115,000
based on the formula 1.15 ($100,000) $115,000.

Company Actual Pay Job Match Adjusted Pay
A $100,000 Much heavier $72,300

B $100,000 Heavier $85,000
C $100,000 Lighter $115,000

D $100,000 Much lighter $132,300
Average $100,000 $101,150

E $105,000
Table 5-9. Leveling reported pay

In this example the variances have essentially offset each other; however, one can see the
dramatic effect had the variances all been skewed in one direction.
A technique that may be employed to test the possible existence of lack of comparabili-
ty is the survey ratio. This is simply the division of the lowest salary reported for a position
into the highest (after the data has been arrayed high to low). If this value is much above 1.5,
it is appropriate to examine the data more closely, since it indicates that there is over a 50 per-
cent difference in the amount being paid to individuals allegedly performing the same job.