Selecting appropriate data sources is an essential part of having a successful study. Use the wrong peers or data sources and the results may be rejected, leaving you with a study you can’t implement. Use the right data sources and you can fuel needed support to adopt a competitive compensation program. Here are some insights on how to select peer organizations for comparison.
Article
Salary benchmarking: selecting peer organizations for comparison
Authored by Jada Kent, CCP
Consider the supply and demand differences between an administrative assistant and a police chief. Jobs that have a lot of overlapping skills will be in greater supply while positions that require specialized training or skills will be in greater demand. The administrative assistant position can exist in nearly every organization regardless of industry, size or geography while the police chief position only exists once per municipality. As a public sector organization, to ensure you can attract and retain quality employees, which are essential to providing necessary services to the community – you will have to compete across many different types of supply/demand labor pools for those employees. Here’s a list of considerations commonly used to help identify and differentiate appropriate peers for comparison.
Industry
Public sector
As a public sector organization, it’s expected that most of your peers are other public sector organizations. The purpose for existing for most public sector entities is to serve the community at-large. This means many jobs within your organization only exist within other public sector entities. Public safety is an example. There is not a firefighter equivalent in the private sector.
Private sector
There might be just as many jobs in your organization with a private sector company equivalent. Most of these are business function positions, such as finance, human resources, administration, etc. For these jobs, it will be important to perform a private sector comparison. However, in conducting an external market study, it’s uncommon that private sector organizations are willing to publish compensation information. Alternatively, you can supplement market data with published salary survey information to serve as a private sector representative.
Published data
There are many published salary surveys available for free online or for purchase. At Baker Tilly, when conducting a market survey for our clients, we regularly include salary information from the Economic Research Institute, Bureau of Labor Statistics, American Public Power Association, American Water Works Association and more – as necessary.
Services offered
The services you provide are driven by the needs and wants of your community, which may be common or uncommon even among neighboring communities. For example, in a frequent tourist destination city, it might be necessary to have a robust marketing department or even a convention center. The less visited neighboring cities, alternatively, may not need to have these amenities and offerings. Therefore, a comparison to other tourist cities may be necessary (even if they are not nearby).
A more common example is a city or county that manages its own water or wastewater operations. Not all neighboring organizations will provide the same services. In fact, you may be competing for talent against a water authority or other special districts whose entire objective is focused on that singular service offering. The makeup of the organizations is not exactly the same but the types of talent being recruited is.
Organization size
Organization size can represent an entity’s operating budget, number of employees or population served. However, these aspects are not mutually exclusive. For example, an affluent city may serve a small population but have a large operating budget to do so. Comparing themselves to other cities with similar populations may not be the most appropriate for measuring market competitiveness. Alternatively, a large city may have limited resources and comparison to other large cities with more resources may also be inappropriate for determining competitive wages. For an organization experiencing rapid growth, consider this: your size today may not be your size tomorrow, so look ahead when determining a comparison.
The overall takeaway is that size matters because it can be indicative of the quality (and sometimes the quantity) of service provided.
Geographic location
Geographic proximity is important to consider when identifying peer compensation comparisons because the cost of labor can fluctuate greatly for the same job across different regions. Where cost of living is a measurement of goods and services in a given area, the cost of labor is a measurement of compensation in a given region. Cost of labor can be impacted by cost of living, but it also relates to the supply and demand of labor in a given area (rate of unemployment and number of qualified laborers). Determining these figures and applying the proper calculations to determine cost of labor can be a lot to manage for individual organizations, therefore, many opt to only consider organizations near them as a way to avoid it.
One of the perks of using an outside consultant to conduct your market study is the ability to apply a geographic differential calculation to the market data, providing you with an apples-to-apples comparison of organizations across the country. Overall, this means you will be able to cast a wider net when identifying organizations similar to yours.
Competition
Perhaps the most obvious consideration when identifying peers for comparison is to select organizations you have lost employees to or gained employees from. These entities are likely within close geographic proximity to you, so making even a $1 or $2 per hour difference in pay could be enough to retain your employees and/or recruit their employees.
How do you know if you’ve got it right?
Any time you are collecting pay data for comparison to your organization, you are likely to be asked why you choose the peers you did. The factors listed here will help you defend your choices; however, it is vital to keep in mind that local officials may have their own perspective over which peers should be included in the data set. If challenged, come armed with a thorough understanding of the data set. For example, it can help an inquisitive member to know what portion of the police department’s turnover went to the neighboring jurisdiction in the last year.
If you’ve had a difficult time getting buy-in from taxpayers and elected officials in the past, consider using an outside consultant to conduct your next market study. An external firm’s approach is likely to follow best practice guidelines for determining the appropriateness of the parameters used to yield data, which will be well documented. A consultant can present/defend the results as needed.
For more information, or to learn how Baker Tilly’s public sector human capital consulting team can assist your organization in defining its labor market or conducting a market assessment, contact our team.
