Cafe Classic: Absolutely Relative Increase Rates

Editor’s Note: In this perennially relevant Classic, Jim Brennan riffs on our profession’s quixotic search to find and capture “normal” practice in a world that’s constantly churning.  Take it away, Jim!

Can’t understand why folks barrage me with irrelevant questions about what our salary budget increase will be next year.  When I respond that my belt size expanded by 2%, they look at me cross-eyed and don’t seem to find that relevant.  What applies only to me has nothing to do with them, they say.  Well, yeah.  Think about the parallels.

If changes in my belt sizes are not relevant, why should changes in my salary budget be relevant?  Both are related to me and my unique situation and have nothing to do with anyone else’s, other than as a standard of relative change.  Yes, I said “relative change” as in “a metric computed in proportion to a base number.”

Must admit to being fond of analogies like, “with my head in the freezer and my feet in the oven, my overall temperature is perfectly average”; and “I’m very tall, compared to a kindergarten class, but I’m very short, compared to a professional basketball team.”  Belt sizes change quite frequently for pre-adolescent children and tend to stabilize thereafter (in an ideal world).  Notice anything about those comparisons? 

Those statements explain a lot.  They clearly illustrate the faulty logic of using relative standards to make inferences and draw conclusions about absolute facts. 

Absolute statements based on relative comparisons can be highly misleading.  If you lead the market by ten percent (10%) and grant no increases at all (0%) while the overall outside competitive market moves two percent (2%), you will end up continuing to lead that outside market by (horrors) a mere eight percent (8%).  I could live with that, in a down economy; also bet that most boards of directors would consider that a pretty good deal for their shareholders, too.

We live in a world where (maybe):

  • one-third of all employers substantially froze salaries;
  • another third granted nominal increases due to a great year or to make up for past freezes; and
  • the last third is spending money like it was water due to “stimulus” funding or simply because they have been immune from the economic slowdown so far.

In that environment, the definition of “normal practice” is impossible to determine. 

Even worse, some salary budget increase surveys count zeros, some do not and some don’t even ask what you actually did but instead ask what you think you might possibly do.  Only thing I’m certain of:  employers will do what is necessary for their continued existence, regardless of what others may say they plan to do. When push comes to shove, enterprises are probably going to act according to what is best for their own survival.  Although top managements may ask for underlings to supply comparative information for context, they will decide their ultimate course of action according to what is most appropriate for their specific situation, rather than line up behind the mass of lemmings.  They will do what they have to do rather than what some pollster suggests, based on what a limited selected observation sample of fewer than 2% of their competitors opines they might do.  Leaders don’t follow; they blaze new paths.

Nevertheless, they will ask you for those relative metrics before they proceed to craft their own unit-specific alternative.  All you can do is confirm that they comprehend the relative nature of the comparative figures.  Like a compass, it gives them a frame of reference, despite the fact that they will not always want to travel due North, even though that is where the compass needle points.  But, if you don’t know where “North” is, you will be in trouble.  That need for context alone is a good reason for supplying an answer, as long as you clarify that the absolute truth may be relatively meaningless.

Meanwhile, don’t ask me absolute questions about comparing relatives, because I have enough crazy relatives of my own without worrying about yours.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review. 

Image: Creative Commons Photo “Relativity!” by jtbrennan

This post originally appeared on Compensation Cafe
Author: Ann Bares