Salary Survey Guidelines

Salary Survey Guidelines - Why Direct Data Exchanges Should Be Avoided

G. Jonathan Meng, General Partner

According to a World at Work survey, more than 50% of organizations have no guidelines regarding the participation in, or use of, salary surveys. Virtually all organizations participate in third-party surveys (those conducted by consulting firms, etc.) while more than 60% also participate in non-third party surveys (i.e. those conducted by a survey participant, not a consulting firm or trade association). While only 10% never heard of the Safe Harbor Guidelines, only 16% are "very familiar" with them. With request for survey participation constantly passing over the desks of HR professionals, how should salary information be exchanged?

Concern regarding salary surveys first arose in the 1990's when hospitals in the Salt Lake City region of Utah were accused of colluding on the compensation paid to healthcare employees through the exchange of salary information--a violation of the antitrust laws.; As a result, the Department of Justice and Federal Trade Commission issued a set of guidelines that would provide a "safe harbor" from antitrust challenges. Although the Safe Harbor Guidelines were promulgated for healthcare, they have been adopted by many companies in other industries. Salary surveys need to meet the following criteria:

  1. The survey must be managed by a third-party (i.e. consulting firm);
  2. The information provided by participants is based on data more than three months old;
  3. There have to be at least five providers offering data and no individual provider's data should represent more than 25% on a weighted basis of that statistic; and lastly,
  4. Any information disseminated must be sufficiently aggregated so participants are not able to identify the compensation paid by any particular provider.

Any exchange of information outside the above needs to be examined on a case-by-case basis to determine if there may be an anticompetitive effect. Exchanges of future compensation information is likely to be considered anticompetitive.

Since the Safe Harbor Guidelines, the federal court of appeals in New York (Todd vs. Exxon, 275 F2d 191 [2nd Cir. 2001]) raised additional concerns regarding compensation benchmarking. In Todd, fourteen competitors in the oil and petrochemical industry (representing 80-90% of the industry) exchanged detailed compensation information relating to managerial, professional and technical employees. Each company could receive subsets of the data from as few as three companies. In addition, the participants met at least three times a year to discuss current and future salary budgets. The court concluded that the data exchange as presented aroused suspicion of anticompetitive activity.

In light of Todd, the guidelines set forth below should be followed:

  1. Do not limit the survey to those employers having a specialized set of skills in only one industry;
  2. The survey group should be of a sufficient size so that position-specific compensation paid by others cannot be determined;
  3. The survey should not contain a recommendation;
  4. Do not exchange future compensation information;
  5. Avoid frequent exchanges of information;
  6. Report only aggregated data;
  7. Use a third party to aggregate and analyze competitive data.

In conclusion, it is recommended that the Safe Harbor Guidelines as well as the Todd rationale be followed and direct data exchanges should be avoided. At the very least, a conscious effort must be made to balance the need for information about compensation and the potential risks of running afoul of antitrust.