This article was updated January 2, 2020
Free online salary data and a changing work force has dramatically changed the compensation landscape. In the past, compensation conversations used to be very one sided. Managers, who had all the information, told their employees what their pay was and the employee simply nodded. Today, employees are expecting more transparency around how their pay is set. Managers are facing conversations with their employees that start like this:
“I found this data on the internet that says I should be getting paid at least 20 percent more…”
Many managers are caught off guard and find themselves on their heels in this conversation. But not organizations who have the most up to date and accurate data. Organizations who utilize compensation software like PayScale’s, will often respond to their employees with something like this:
“For our salary benchmarks we utilize PayScale’s crowd sourced data. This is different from the data you have found because it is from a source we trust and know has thoroughly vetted every profile.”
In order to have confidence in the salary data you are both giving to and receiving from your employees you must understand where the data originates. Both from the perspective of what type of organization is providing the data and where they are getting that data from.
The free data your employees are finding online typically comes from one of two types of organizations. The main difference originates from the motives of the organizations providing the data. Typically, they are either using the salary data to help drive more people to their website, or they are using it to help other companies set compensation strategies.
Glassdoor is an example of a company that is using salary information to drive people to their website. Often sites like this make their money from advertisements. The more people who come to their site, the more money they make from the advertisements. They don’t have a lot of incentive to prioritize validation and data cleansing over driving folks to their website.
There are multiple sources of data that organizations use to fuel their compensation strategy.
- Employee Sourced Data (Crowdsourced)
- With fresh, easily accessible data you are accessing the most updated data in the market which allows you to stay ahead of the curve.
- Employer Sourced data – The data sharing community
- Third Party Surveys such as Mercer, WTW, Radford, Culpepper.
- PayScale Company Sourced Data is updated quarterly with 1,800 participants
If you your data isn’t coming directly from third-party survey providers, then it is essential you have the documentation and transparency behind the data, otherwise your talent and compensation strategy could be at risk.
Always ask the following questions and confirm data credibility with the true source of the data.
- When was the data last updated?
- Has anything been applied to the data – aging, differentials, etc?
- Where did it come from?
- Do you have a participation and position list?
- Do you have proof of purchase of the surveys?
PayScale is an example of a compensation software provider that uses its data to help organizations set compensation strategy. Organizations in the compensation software space make their revenue from human resource professionals and senior executives seeking help to set pay strategically at their organization. At PayScale, we take providing our customers with trustworthy, reliable data very seriously. We not only feel an ethical responsibility to help customers set compensation strategies with accurate and validated data, but also know that without trustworthy data our customers would lose trust in us. To date, 8,000 customers rely on PayScale data to help set compensation strategy.
Once you understand what type of organization your salary data is coming from, you will then need to understand where they are obtaining the data they are giving to you and how they are validating it.
Questions to consider if you are thinking about using free salary data to make pay decisions:
1. Has the data been validated?
When looking at free salary information online, it may not be readily apparent how the information was derived. Do you know how the data was obtained? Do you know the methodology that was used to generate the data? For example, are you looking at salaries that are “averages of averages”? Do you know if the data was scrubbed to remove extreme or nonsensical outliers? Has the data been controlled to account for data scrapers or other bogus survey takers? Knowing the answers to these kinds of questions is key because they get at the heart of whether or not you can trust the data.
2. Do you know who the data is coming from?
Certain factors can heavily influence pay. Some are around where the work is performed. Is the salary data coming from employees at large or small organizations? Is the data coming from employees working in large cities or rural areas? Is the data purchased from survey providers such as Mercer or Aon? Have you seen the proof of purchase? And equally as important, is understanding where you compete for talent. What type of data would help you recruit and retain the type of talent you need?
Some important factors to consider are job specific. Years on the job, education, skills and certifications all affect pay. Is the salary you found online for a software engineer with three years of experience or eight? Does it factor in the specific skills that you need in an engineer? For example, what if you need an in-demand skill like AWS that commands a market premium?
Understanding the employees that are giving salary data is crucial to understanding if the data will work for your organization. It is hard to trust data without full transparency behind the data source.
When in doubt, check with the original source that the data came from.
3. Is the data current?
Pay data isn’t stagnant; the market for jobs across different locations is changing all the time, which is why it’s important to know whether the information you’re looking at online is current, a few months old, or reflects pay from a year or more ago. If you don’t know, then you run the risk of underpaying for a hot job or overpaying for a job where the market has gone down. Consider jobs in transportation, where pay was hot from 2016 into 2017 but took a downward turn in 2018 that continues in 2019. If the free salary data you’re looking at for an Operations Manager in the transportation industry is more than a year old, then you probably don’t want to use it to make an offer today.
If you don’t know the answers to these questions, think carefully about whether that free salary data you found online is the truly the best foundation upon which to base your organization’s pay decisions. Since compensation is often an organization’s largest operating expense – 50-70 percent! – it’s important to get it right. As they say, you get what you pay for.
Learn more about PayScale’s approach to data here and start managing your compensation strategically.