Equity compensation continues to be a confusing topic for compensation professionals and with good reason. Equity compensation is not just variable compensation. It’s variable, variable, variable, variable compensation. There’s the variable of stock price. There are variable numbers of shares, units, options or rights. There are variable types of awards, variable vesting timing, variable (for international participants) currency rates and for many recent awards, there are variable performance conditions. So, it’s not just four variables I mentioned earlier, but six or more variables that come into play. This can be tough to grasp in the compensation world where everyone would really like some level of expected consistency.
I have found that the geo-differential from Seattle might suggest that jobs, as a whole, in Seattle pay 10%-15% above the national market. However, when I ran a comparison of multiple surveys to identify the differential between the Seattle cuts and the National cuts, I found that the median differential, is much lower than the suggested geographic differential, overall.
Radford suggested that the Seattle cut vs the National cut had a median differential of only 1%
Culpepper suggested the Seattle cut vs the National cut had a median differential of about 7%
Is anybody able to provide some insight as to why these numbers are significantly less than what I have seen in terms of what the geographic differentials suggest?
There are many factors that could lead to different geographic pay differential results between surveys.
Different Data Sample. Just about every survey out there will have a different group of companies that provide compensation data. They may be from different industries, company sizes and some jobs may be more dominant than others.
Different Data Collection Methods. Every survey has their own survey job descriptions and therefore companies will need to make a judgement call on how to match their roles to the survey. In addition, not all companies provide quality information and it is difficult for survey companies to determine the good information from the bad.
Different Survey Methodology. In school we learn the right way to use statistics and then some survey companies come up with their own creative spin on the science. (I am not pointing any fingers here.) Whether a company uses sound statistics or not, different survey methodologies with yield different results.
May have Different Definitions for Pay Elements. Some survey companies may also define pay elements differently such as base pay versus fixed pay although, to my knowledge, this should not be an issue between Culpepper and Radford. This is typically a concern with international surveys.
This doesn’t mean that surveys are all bad, it is just a fact that they are not a perfect representation of reality. The bottom line is that the geographic differential process is inherently flawed. It is not meant to be perfect. It is meant to be a cheaper and less administratively burdensome than direct market mapping. (meaning, purchasing local surveys and mapping local jobs) The key is to find the best source that works for your company and keep consistent with your methodology. Understand that it is not perfect and check your employee attraction and turnover data to identify problems and adjust as needed.
The holiday season is now in the rear-view mirror and everyone reading this post has recently had to answer some version the question, “what exactly do you do?” Maybe you had to explain it for the umpteenth time to a family member who spent the past year sending you articles about payroll. Maybe you had to explain it to someone who blames you, personally, for the disparity in pay between executives and “everyone else.” Perhaps you had to deal with why you had not yet fixed the minimum wage, income taxes, health care or some other headline issue. Or, this might have been the year where the light went on and someone Continue reading →
Everything You Do in Compensation is Communication: 3/8 of the Compensation Cafe Publishes a Book! …. $10 discount through September 30, 2014! (use code “8steps”)
About three years ago, a trio of cheeky compensation bloggers joined forces around an idea. The insight that started it all – that everything (and we mean everything) we do in compensation is, in fact, communication. When we talk and when we stay silent. When we share details about how plans work and how awards are earned and when we keep it all under wraps. The reality is that we are sending messages — inadvertently and often unintentionally — with every step of the compensation design, implementation and management process.
If this is true — and we believe it is — then why not get ahead of this communication process, take control and use it to make our compensation work better and more impactful? And to increase our own influence and career success along the way?
Compensation Cafe cohorts Margaret O’Hanlon, Dan Walter and Ann Bares are pleased to announce the publication of our book.
Dreaming about ways that you can have more influence and impact in your work? To learn more and to order your own copy, please go here and get your copy today.
First, congratulations to everyone who can now legally experience what is the best thing about my life, marriage. A quick shout of support for those still fighting on this front.
Second, over a month ago, Section 3 of the federal Defense of Marriage Act (DOMA) was ruled unconstitutional. This means that a marriage legally performed in any state must be recognized at the federal level. You may have considered what this means for your friends and employees affected, but have you considered what this means for your compensation plans? Continue reading →
The article focuses on how quantitative easing has increased share prices for companies in the UK. One argument is that this monetary policy relieves pressure on the economy and pushes stock prices upward even if companies Continue reading →
Several years ago, I worked for a company that was beginning to experience some significant growing pains brought on by its expansion into the global marketplace. The young company I had joined had grown rapidly in the U.S. and was now looking for a stronger presence internationally. Opportunities to open locations in Europe, Asia and Latin America had triggered a hiring phase unlike any the company had previously experienced and in the eagerness to expand; we overlooked the fact that we were rapidly outgrowing our own infrastructure.
It didn’t take long before the problems became apparent. There was no process in place Continue reading →
In the past several months, Switzerland has made some interesting compensation headlines. Swiss voters recently passed a referendum on executive compensation that is more far-reaching and restrictive than anything we currently have in the U.S. This new set of rules was supported by a convincing 68% of voters. At nearly the same time, a UBS report from September 2012 shows that Swiss employees in Geneva and Zurich receive the highest net wages in the world. Does this tell us anything? Continue reading →
So, I was recently doing my civic responsibility by serving on jury duty. As it happens, when I am just sitting around, my thoughts turn to compensation issues (just like yours!). A strange and crazy thought came to me. Imagine if your peer group for compensation was selected in the same manner as a “jury of your peers” in a criminal court case. Besides it being almost glacially inefficient, how would this historically proven method (even the ancient Greeks used it) for choosing one’s peers impact the world of compensation? Continue reading →
Many of us spent time during the last week watching the news about a man in Southern California who was wanted on suspicion of murder, including the killing of at least one police officer. Horrified and fascinated, those of us in, or near, Los Angeles were aware of what this man looked liked. And most of us wouldn’t have hesitated to contact the police if we had even glimpsed this guy’s shadow. So, what does this have to do with compensation? Continue reading →