Volume 90 ERI UPDATE Quarterly Notes for ERI Subscribers It s 40, 40, 20 When It Comes to Salary Increases ERI s Salary Increase Survey (blogs for 2010) finds a situation we ve not seen before: 40% or more will wait and see, effectively not altering salaries much at all. 40% are increasing pay by an average of 1.7%; most are focusing on key personnel. 20%(government,unions,oilcompanies)areusing3.7%,thetraditionalten-yeartarget. So what s the average? It is more a question of which group includes your organization. ERI has already begun to see swings in our research results for 1,123 industry differentials and 7,342 edot jobs. Both geographic and industry sector differentials are in flux. This is happening quickly. For the last group, a structure might move 2.3% per year with turnover, retirements, etc. In four years, a sector that was 5% below all-industry averages might be 5% above (e.g., government pay is surging ahead of private industry). State Coincident Indexes www.philadelphiafed.org/research-and-data/regional-economy/indexes/coincident/ ERI s Economic Forecast ERI s forecast remains guardedly optimistic: 1) modest US economic growth (although the fourth quarter of 2009 was 5.7%); 2) declining revenues for governments (particularly in states where personal income is taxed); 3) US businesses continuing to downsize and seek efficiencies; 4) in a jobless recovery, real unemployment peaking at its earliest in 2012; and 5) the Federal Reserve s near zero interest rate policy not changing as long as countries continue to purchase American debt (a factor, like the weather, that the US does not control). The biggest challenge is that key and skilled talent will continue to be key and skilled no matter what the economic climate, and many of these individuals are now feeling neglected and unappreciated. As most compensation systems tend to spread out rewards (caused by merit increase methodologies) rather than focus on a talented few, the easiest way to obtain a significant pay increase will be to change employers. As soon as employment starts to rise, key and skilled employees will feel enabled to seek alternative employment (especially as they are the first to be hired). This isn t rocket science; it s what happens after the bottom of an economic wave is reached, this one being deep and unique. Here s what we see: 1) employers decoupling performance appraisals from merit increase matrices; 2) many forbidding the use of the word salary in their talent management systems; and 3) some even hibernating merit pay. The second challenge is not overpaying for un/semi-skilled and easily replaced employees, for jobs where pay levels reflect revenue or asset sizes that no longer exist, or for salary increase budgets that reflect merit traditions that are no longer practiced by competitors. That is, for the rank and file, paying for the job that needs to be done, not for employees (often unused) skill sets. Most organizations have trimmed employment to the core; further reduced payroll costs will come only through prudent compensation management. Salary levels for skilled jobs continue to increase, wages for semi-skilled jobs are decreasing, and the content of many jobs has changed since mid-2008 (e.g., hybrid jobs), all leading to the need to reprice jobs. A US Problem US national debt has risen to 53% of GDP and continues to rise as the 5 largest elements, Social Security, Medicare, Medicaid, defense, and debt interest, are politically challenging. The second and third elements (healthcare) have construct cost increases that appear uncontrollable. ERI notes that employees salary and wage increases will continue to be negatively affected under these conditions for all those entities struggling with total payroll costs. Healthcare is not just a political problem, but a mathematical one best defined by the Rule of 72. Defensible Salary Survey Data Is this survey able to meet a Daubert challenge? is a question now heard in boardrooms and CEOs offices, as well as federal courts. Search the Internet for salary survey Daubert challenge or ask your survey providers for a rate of error (standard deviation or standard error). The Daubert concept is ubiquitous; it is seeping into many decisions. 8575-164th Avenue NE, Suite 100 Redmond, WA 98052 tel 800.627.3697 fax 800.753.4415 info.eri@erieri.com www.erieri.com Washington, DC Vancouver, BC London, UK
ERI methodology ERI Salary Surveys and the Assessor Series in 2010 As part of our salary survey plans, ERI and PAQ will distribute job-specific questionnaires in-person, online, and via download, email, or mail to over 1,000,000 employers in 2010. Assessor Series data are derived from employer-provided sources with storage in ERI s SalariesReview database, a complement to the edot Skills database of job analysis measures. (PAQ also collects employee-provided data via CareerBuilder and Salary Expert, but ERI does not include these data in its Assessor products because of the unreliability of contributors job title matching and the OES-like job family methodology which does not focus on specific jobs.) Our sources include: ERI s Traditional 2010 Salary Surveys - In 2009 and early 2010, ERI collected survey data from 2,000 participant organizations; 530,000 job incumbents will be reported, contributing to a total of 145 US, UK, Italian, French, and Canadian surveys. Over 5,000 Assessor Series job titles are embedded in ERI Salary Surveys with data collected online, although hard-copy questionnaires still exist. There are 97 ERI US for-profit surveys and 31 nonprofit Abbott, Langer Association Surveys, complementing 17 job function surveys (e.g., finance, sales, etc.). Our planned mailing of a million questionnaires in 2010 will dwarf anything we ve done before. 2010 ERI Survey of Public Records - ERI s digitization of 586,000 unique US tax-exempt entities and 14,000 SEC organizations 10-Ks, 8-Ks, and proxies represent another 3,000,000 individuals data. ERI also leases data and digitizes all publicly traded international annual reports that report executive remuneration data, along with leased Canadian SEDAR data. Participant organizations, incumbent numbers, rates of error, and source documents are available for Daubert challenge defensibility in courts. 2010 ERI SalariesReview Survey - With Patent Nos. 6,862,596 (1998) and 7,647,322 (2010), ERI s other online surveys collect millions of annual inputs. Benefits, cost-of-living, and college entrance hiring rates are collected in addition to competitive salary levels. Participant organizations, incumbent counts, and rates of error are included in Assessors if identified as employer-provided data. 2010 PAQ Field Analyst and Web Collection - PAQ questionnaires have been collecting salary and bonus input since 1974. Disability and FLSA overtime determination data from ERI s Occupational Assessor are cybernetic and included. Leasing of Others Survey Data - Because of the expansion of ERI s surveying efforts, we have reduced data acquisitions from other vendors.* As a service, we provide links to others surveys and sources from within the Assessor Series products and from our website: www.erieri.com. Leased data are provided by GuideStar, D&B, the UK National Statistics Office, SEDAR, Statistics Canada, the US IRS, Mergent, and Morningstar. ERI and PAQ have collected all CareerBuilder job postings since 2006 under an exclusive lease agreement; digitized work measures and job counts are extracted. (Job board salaries are typically favorably high.) 2010 ERI International Job Family Survey - The Global Salary Calculator s international job family remuneration survey captures data for 202 countries within a job family construct (as compared to the Assessor Series job-specific construct). In the end, most salary surveys are industry surveys. ERI s unique Assessor Series esic codes capture 1,123 industries variations. These codes, plus geographic differentials for over 10,000 areas, are unique to the Assessor Series. ERI utilizes exclusive industry and geographic definitions and allows updating of values from their collection date, leading to differing compensation values (plus unique relationships for incentive versus draw/wage/salary for sales related jobs). No other survey source duplicates Assessor Series values. When ERI was created in 1987, it easily might have been called the Geographic Assessor Institute. (The Salary Assessor was released later.) ERI s methodology then involved the collection of thousands of local, state, and regional salary surveys that have all but totally disappeared since the US government s morphing of the OES staffing survey (head counts) into a salary survey in the mid-1990s. To understand the OES impact, 92% of all H-1B immigration applications today utilize it as the source of salary survey data, even though it is a job family survey of head counts only (with 750 total job families), counting check marks in ranges. * ERI continues to trade, purchase, review, and use other salary surveys data as allowed by copyright, but the now decade-long impact of the OES survey has cut this number from 2,000 to less than 10. ERI is in the salary survey data collection business because it must be. There is no magic here, just data collection time, expense, and effort. ERI s evolution and progress are profiled: 1998 SalariesReview online data collection and Patent Nos. 6,862,596 and 7,647,322 2000 SalaryExpert collection of edot employee-inputted data (focused on job analysis measures) 2002 edot Skills database is created for SSA review; Form 990s digitized at IRS request 2004 Purchase of PAQ Services adding data for edot and SalariesReview databases back to 1974 2006 Purchase of Abbott, Langer (ALAS) enhancing IRS Form 990 project with nonprofit data back to 1967 2008 Full implementation of ERI Salary Surveys (search for salary surveys on Google or Bing) 2010 Distribution of over 1,000,000 employer salary survey input forms via download, email, and mail 2012 Assessor Series evolves into a 100% online offering, with CD-ROMs continued as a courtesy ERI does not provide consulting or other fee-for-services and has no political agenda. The US government no longer wishes to collect data on specific jobs, hence the abandonment of the DOT (see page 15). Insurance brokerage and actuarial firms use salary surveys as a loss-leader. Free Internet data sources spend no time, energy, or expense on data collection; their numbers vary according to paid advertisers revenue. All have had a negative impact on the salary survey tradecraft. 2
QUESTIoNS To ASK CoNCERNINg DATA or Just one Question Where do you get your data? Do you have data for this industry/geographic area/entity size? Which organizations are represented? Is it employer-provided data? What is the sample size? Do you report rates of error? If you wish to cut to the quick, simply ask, Can you show me your survey input questionnaire? Amazingly, the two leading compensation data websites have no US employer questionnaires! The Relocation, Occupational, and Nonprofit Comparables Assessors report data as is and, in this regard, are pure surveys. The Nonprofit Comparables Assessor cuts power/regression curves through data, and results may change significantly from quarter to quarter if its database changes. With 586,000 unique organizations data, it is more a census than a survey. ERI, PAQ, ALAS, and other SalariesReview surveys are old fashioned surveys that report computed averages complemented by snapshots of what the Assessors report. Results may vary at each data collection date (31 March), as the number and composition of survey participants change. Online data collections are greatly enhanced by our two patents, the latest won in January 2010. The Salary, Geographic, and Executive Compensation Assessors are analytics in which we aggregate all ERI data and then analyze, review, and trend it. We control reporting each new quarter, building on the knowledge of prior quarters and utilizing data collected by ERI to the maximum (essential for planning, benchmarking, and cost control). Survey vendors should be able to illustrate their sources with examples rather than just words from unknown telemarketers. They should be able to answer the tough questions and quickly show you their paper trails. Ask to review their survey input questionnaires or, if your needs are those of an expert witness, ask if their data can pass a Daubert challenge. 3
geographic ASSESSoR & PAy SURvEy Example Screens View a Two-City Comparison of Salaries/Wages Refine Areas by ZIP, Radius, City, County, State, or Province Observe Comparisons from Non-Confidential Sources Email Any Assessor Series Analysis Anytime Customize Reports with Analyst and/or Firm s Name Retrieve Published OES (H-1B) Prevailing Wage Rates Trend US Census Demographics by Area Review Partial Source Data Published Rate of Error 4
geographic ComPENSATIoN DATA geographic Salary Differentials ERI s Geographic Assessor & Pay Survey (GA) is an easy-touse desktop data program that contrasts geographic wages/salaries and costs among infinite combinations of headquarter and branch office locations. It also provides area demographics (US Census), immigration prevailing wage rates (OES), and state minimum wage information. Five thousand subscribers utilize this unique research software application to set salary structures that are cost-effective and competitive. Relationships are derived from millions of data points gathered from loan verifications, digitized public records, OCR of IRS returns, SalariesReview s patented online surveys, and other licensed UK, Canadian, and US salary surveys and datasets. GA is available in two versions: the for US/Canada salary planning and the for US H-1B and EEO-1 compliance reporting and UK/EU remuneration planning. GA is for wage and salary planning. It includes these features: Define any city, suburb, or state as the base city and review any pay level comparison in currency, variances, or percents Calculate values for six earnings levels (e.g., grade midpoints) View wage and salary differentials for over 8,200 US and Canadian cities (areas may be defined as within a radius ) Create a user-defined area representing the recruiting area Use the national or state average (or a percent of the national) Review EEO-1 statistics for over 5,900 jobs as reported by 2000 Census databases, also restated with 1990 Census definitions Compare renters cost of living versus area wage differentials Rank, sort, save, load, export, and/or retrieve data Data reflect demand and supply of labor, not goods and services GA+ is for in-depth research for consulting or compliance. These features are included: All GA data and features Analyze data for thousands of UK and EU cities/areas Profile geographic differentials above $100k Utilize 2009-2010 published US OES (H-1B) prevailing wage norms (with historical data for years 1996 present) Review trended (to present dates) EEO-1 race and gender statistics for any of the US job titles profiled Assist with OFCCP reporting by area, industry, jobs, etc. View job zones, SOC descriptions, and SA s library of over 5,000 job titles and descriptions RESEARCh ToPIC: geographic DIFFERENTIAlS It was once a common truth among compensation professionals that geographic differentials disappear for top level management, as the market for executive talent is national. In the past, no one had ever been certain of this because there are so many variables and so little data were available. Privately held corporations, until web services began creating values, were the black hole of executive salary surveys. Only 6,500 US publicly traded firms report compensation in any one year. After taking into account size, differing job functions, and industry practices, these numbers are too low to deduce geographic differences. The creation of ERI s Nonprofit Comparables Assessor & Tax-Exempt Survey, with millions of observations, has changed this. Hospital CFOs at $100 million revenue are shown below. Differences do exist: Arizona California Florida Illinois 135,953 189,265 190,683 214,926 Kansas Minnesota New York Wisconsin 245,325 172,073 184,890 174,864 5
REloCATIoN ASSESSoR & Col SURvEy Example Screens View a Two-City Cost-of-Living Comparison for Renters View a Two-City Comparison with Home Ownership Create a Benchmark List of Branch Offices Costs Review ERI s US CONUS Estimated Per Diem Shortfalls Email International Analyses to Clients and Employees Refine International Analyses with Tax Equalizations Select Areas by Radius, ZIP, City, County, State, or Country Assess the Labor Cost Impact of a Plant/Office Relocation 6
REloCATIoN DATA AND ANAlySES Two City Cost-of-living Analyses ERI s Relocation Assessor & COL Survey (RA) is a desktop software application that compares cost-of-living (COL) levels in over 11,500 locations worldwide. HR professionals and consultants use this software to calculate relocation bonuses/ allowances (or salary adjustments) for transferred employees. Relationships are derived from thousands of cost-of-living data points gathered via ERI s provision of web services, digitization of public records, SalariesReview s patented online surveys, and other licensed UK, Canadian, US, and international cost-of-living datasets. Create unlimited numbers of detailed two city cost-ofliving comparison reports in house with this database program. RA is available in two versions: the for US and Canada COL analyses and the for US plant relocations, worldwide labor cost analyses, costing proposed HR policy changes, and global international COL comparisons. RA is for HR planning and decision making. It includes these features: View COL differentials for over 8,200 US and Canadian cities Create unlimited numbers of customized printed reports Vary input for an employee s earnings, home size, home ownership or rental, family size, number of automobiles, distances driven, and auto values Contrast cost-of-living increases for multiple earnings levels Calculate values for five different earnings levels (for renters) Compare cities individually or grouped into user-defined locations based on commuting distance of a local labor pool Review finer neighborhood breakouts for major cities Data reflect demand and supply of goods and services, not labor RA+ is for in-depth relocation research. It includes these features: All RA data and features Perform renters analyses in over 11,500 cities worldwide Select an organization and review the impact on labor costs of a plant relocation to any city in the US Define your organization s labor cost profile and assess the change in costs with a change in HR policy Tap into other online international data sources, including public domain data from ERI, CIA, the UN, etc. Rank, sort, save, load, export, and/or retrieve data; consultants may personalize printed reports with software assistance Review costs in the suburbs favored by those relocating SAlARy AND Col DIFFERENCES geographic Cost of living versus Salary Differentials Cost of living (COL) reflects the demand for and supply of goods and services, while salary differentials reflect the demand for and supply of labor. ERI s Geographic Assessor reports salary differentials derived from regression analyses where local area salary survey positions are compared to national norms by job or job function. Competitive salary structures assure that organizations neither underpay nor overpay for labor. Employees often confuse competitive pay with COL. Demand for and supply of goods and services are defined in terms of the data reported in the Relocation Assessor software: rental rates, housing prices, income taxes, property taxes, gasoline prices, medical costs, and the prices found in major retail grocery and drug stores. COL differentials, as reported by ERI, reflect cost models (e.g., an automobile driven x miles/kilometers of y value). Salary administrators focus on cost efficient salary levels; those in Human Resources hear the other side of the story. It s often easier for a key employee to fill a cost-of-living shortfall by changing employers than by negotiating with his/her present employer. Inflation The US economy is filled with slack that absorbs inflationary pressures. As soon as the economy turns around (and it will), America s new money will chase a finite amount of goods and services, the foremost of which is talented individuals skill sets. ERI is forecasting significant inflation in 2012 due to these factors: 1) inflation increases sales, excise, and income tax dollars (the latter moves people to higher tax brackets look for no US alternative minimum tax relief); 2) inflation decreases government debt in terms of today s dollars; 3) inflation would solve the upside-down US home mortgage problem; and 4) inflation, which triggers COL increase payments, makes constituents of the populace where politicians become the source of pay increases for those on disability, unemployment, or in retirement. We are watching the creation of perfect storm conditions for those managing the pay of skilled individuals. During inflationary times, key employees easiest defense historically has been to find higher compensation elsewhere. 7
SAlARy ASSESSoR & SURvEy Example Screens Profile Individual Jobs Salaries by Experience/Size Profile Individual Jobs Salaries by Level Create Unlimited Numbers of Benchmark Listings Create a Set of Area Benchmarks for a Single Job Plan Salaries Easily Include Executive Level Positions in SA+ Analyses Access Employer-Provided Data from Other Countries Review Rates of Error for a Daubert Challenge 8
SAlARy SURvEy DATA Salary Survey Data ERI s Salary Assessor & Survey (SA) reports the most robust competitive wage, salary, and incentive survey norms available. Each job has been studied over time, many jobs since 1977. Job content is updated via PAQ s edot Skills Project. Analyses are derived from millions of data points gathered annually from loan and employment applicant earnings verifications, digitized public records including the US SEC, OCR of US IRS returns, SalariesReview s patented online surveys, and licensed UK, Canadian, and US salary surveys and datasets. ERI research saves subscribers time and expense, providing analyses of competitive pay for over 5,900 jobs defined by area, industry, and size. Six thousand corporate subscribers, including most of the US Fortune 500, use Assessor data to review competitive wage/salary and incentive levels. SA comes in two editions: SA is for today s salary planning. These features are included: Review salary ranges and mean/median values for over 5,300 positions in 298 US and Canadian metro areas (expand analyses to over 8,200 US and Canadian city locations when used in conjunction with ERI s Geographic Assessor) Calculate competitive levels of salaries, incentives, and total compensation by area, industry, size, and planning date Set up a user-defined area representing the labor market pool from which a workforce is (or will be) recruited Mix tasks and skills to create a hybrid job Quickly create a benchmark list of competitive rates Review reliability statistics (standard error and number of observations) provided to meet Daubert challenge criteria Research salary practices and levels in 1,123 industry sectors SA+ is for in-depth research for consulting, compliance, or litigation support and for planning salaries for executive and director level positions. These features are included: All SA data and features Analyze salaries, incentives, and total compensation for an additional 550 executive job titles (jobs that had previously been found only in the Executive Compensation Assessor) View UK/EU remuneration data in local currencies List jobs by industry in the benchmark table Review survey populations, alternate titles, and job codes Edit and rewrite job descriptions with a focus on skills Plan salary increases for multiple departments using the salary planning sheet RESEARCh ToPIC: DATA KEyS AND QUICK CAllS Development of online Assessor Series Every database has a key. Social Security uses Social Security numbers; the IRS uses organizations EINs; and ERI uses longitudes and latitudes for location, the abandoned US Dictionary of Occupational Titles (updated and enhanced) edot numbers for jobs, and esic codes, a combination of the abandoned US SIC and present tax-exempt NTEE codes, for industries. As ERI develops online versions of our Delphi PC Platform Library (not all PC/Delphi features will be available), we are developing universal data feeds that can be used by others, should their applications utilize ERI database keys. Have you ever thought of developing a web tool designed for your organization s internal use only? If you can envision it using the before-mentioned keys, then that s now possible. Call 626-799-1093 for more information; fees will vary as to application and frequency of data calls. Logically, we do not plan to provide data feeds that compete with our Assessor Series data. See www.cbsalary.com for an example of what an ERI-provided application might look like. Large organizations internal use, however, is limited only by one s imagination. Quick Calls via PAQ Services ERI is now providing PAQ with access to our survey and SalariesReview databases (much as PAQ is offering ERI access to its edot Skills & Competencies database). This database access supports the provision of PAQ Quick Call reports where a third-party can be the researcher, which is often necessary for expert witness work. Basic Assessor reports begin at $189 per report (depending on selection criteria); more complex research is billed on a time and cost basis. The data accessed are unique, gathered under Patent Nos. 6,862,596 and 7,647,322. For individualized PAQ Quick Call reports, please call 800-292-2198. 9
ComPARABlES ASSESSoR & TAX-EXEmPT SURvEy Basic (Free) Edition Example Screens Analyze by Sector, Size, Location, and Job Function Rank and Search Source Organizations by Size, Alpha, etc. Review Pay Practices within +/- 1.0 Standard Deviation Select and Create Customized Comparable Peer Reports Access All Data > +/- 1.0 SD and Historic Forms Create a Trend Analysis for Any Organization Review Officers Paid as Contractors esemantic Analysis for Text and Relationship Searches ry que lic r o, b ress n pu es) add curs i l nam, a c rm y fi re it o person n a e wh lion e in Typ eview 5 mil r (3 and ents um doc 10
NoNPRoFIT EXECUTIvE ComPENSATIoN Tax-Exempt Executive Pay ERI s Nonprofit Comparables Assessor & Tax-Exempt Survey (CA) is an easy-to-use and up-to-date desktop program that converts executive compensation data, reported to the IRS on Form 990s, 990-EZs, and 990-PFs, into infinite combinations of digitized analyses covering over 586,000 unique EINs. It can assist in attracting, retaining, and motivating key management staff, paying competitively, controlling costs, and providing a rebuttable presumption for tax-exemption compliance. Featured by GuideStar, interactive graphs and screens present data on more than 25 million incumbents from over three million forms filed from 1992 to the present, all keyed to Internet-retrievable source documents. CA/CA+ is more a census than a survey.all of the mandatory reported pay data on Form 990s, from 1992 to the present, have been OCR/digitized. Data can be filtered and exported by industry, area, size, and date. Two editions exist: the for salary planning and the for board governance and in-depth research. CA is for compensation planning. These features are included: Search, rank, and sort by industry subsector, geographic area, date, and size (revenue or assets) Calculate average competitive compensation levels, along with user-selected ranges and percentiles, for more than 100 reported executive job titles and/or functions Provide benchmarks for compensation planning from the most recent publicly available data and/or data trended by the subscriber to any planning date Include data from all nonprofits that pay above, below, and beyond +/- 1.0 standard deviation of the average Access source documents from the Library-990/PF/EZ tab Click on any dot and retrieve source documents CA+ is for in-depth research for consulting, board governance, IRC 4958 compliance, or litigation support. These features are included: All CA data and features Retrieve source documents with one click (on a square dot ) from the most recently digitized Form 990 data Access ERI Executive Compensation Assessor & Survey data (shown as a round dot ), allowing the review of forprofit comparables from publicly traded entities Download historic data for all available organizations Use a Full Xwalk for tracing relationships among other available employer and compensation databases Analyze Business Contractor as a position Free Job Search Edition Download an Occupational Assessor (OA) demo of ERI/PAQ s edot Skills & Competency Project data and receive a full Job Search Edition. Answer the question, Within a 5-50 mile driving radius, what are the 20 organizations most likely in need of my skills and physical/mental capabilities? OA, assisted by the Internet, has an answer that greatly increases the chances of job search success. Designed for use by those with disabilities, but useful for all, there are 10,127,640 US employers with their address, phone, and contact person cited for over 18,000 jobs. 2010 Research Focus: Skills ERI s research focus for 2010 is reflected in these new features: esic (a combination of SEC, IRS, NAICS, and NTEE industry codes) eskills (new work fields for the Occupational Assessor reflecting rewrites of all Assessor Series job descriptions) Identification of new job information (see page 15) empsms (new Material, Product, Subject Matter, & Service classifications) occupational ASSESSoR 11
EXECUTIvE ComPENSATIoN ASSESSoR & SURvEy Example Screens Individual Job Profile Direct Cash by Size Review Compensation Details for Six Top Paid Jobs Create an Unlimited Number of Benchmark Listings Review Financial Comparables Group and Analyze Only Selected Companies Compare, Contrast, and Filter within Canada Review Summary Compensation Tables Compare, Contrast, and Filter within UK or EU 12
FoR-PRoFIT EXECUTIvE ComPENSATIoN Executive Pay ERI s Executive Compensation Assessor & Survey (XA) reports for-profit competitive management remuneration levels with the ability to retrieve source documents. Data are derived from publicly traded corporations proxies and 10-K annual reports (1994 to present), 8-Ks, loan and employment applicant earnings verifications, digitized public records including US SEC and Canadian SEDAR data, OCR of US IRS returns, SalariesReview s patented online surveys, and licensed UK, Canadian, and US surveys and datasets. This research represents the largest executive salary survey ever conducted, excluding ERI s Nonprofit Comparables Assessor with data for almost 600,000 organizations each year (eclipsing the publicly traded for-profit sector). Subscribers include dozens of IRS offices. Two editions exist: the for US executive compensation planning and the Consultant Edition for use in Sarbanes Oxley compliance, litigation support, UK/Canada/EU analyses, and reasonable compensation disputes. XA is for executive compensation planning. It includes these features: Select a graph dot, and the actual Summary Compensation Table appears; click on the dot and download the source proxy, annual report, and 10-K materials via the Internet View compensation ranges, percentiles, and means/medians for 550 position titles Adjust executive compensation data for geographic area, industry, organization size, pay strategy, and date Review companies between 1 million and 100 billion in size Establish trends based on compensation comparability data View financial data and create appraisal averages or executive performance metrics for any group of comparable organizations Click on any dot and retrieve source documents XA+ research has been used in federal tax courts since 1995; many describe it as the default source. It includes these features: All XA data and features Analyze base salary, incentive, and total remuneration data for an additional 928 UK/EU publicly traded corporations Examine base salary, incentive, and total remuneration data for an additional 783 Canadian publicly traded companies Utilize data from 1,123 unique industry sectors Review reliability statistics (standard error and number of incumbents) Access the Black-Scholes calculator or Valuations analyses View, edit, and rewrite full job descriptions RESEARCh ToPIC: INDUSTRy DIFFERENTIAlS There are ~ 6,500 publicly traded, for-profit corporations that report executive pay. Many of these organizations represent multiple industries and, when pay differences are segmented among 1,123 ERI industry groupings (esic), the statistical reliability created by a small n creates large variances. The creation of the Nonprofit Comparables Assessor & Tax-Exempt Survey has changed this, as many organizations that are not thought of as nonprofits have filed for tax exemption, some 1.5 million, not counting churches. Among the 35 million lines of digitized tax-exempt management pay data, ERI has a database where industry differentials can be studied in new ways (most of health care is tax-exempt, affecting 23% of the US economy). Industry differentials for an Executive Director with $100 million in revenue follow: Religion Related Housing, Shelter Utilities Medical Research 213,652 230,548 155,442 326,756 Arts, Culture Environmental Foreign Affairs Education 335,348 289,654 226,637 257,192 13
EXECUTIvE ComPENSATIoN INDEX Executive Pay at lowest levels since 2005 REDMOND, WA February 25, 2010 Compensation for the senior executives of very large US companies is taking a hit in these tough economic times. While critics often say that US executive salaries are irresponsibly high, the trend toward basing compensation on performance, both of the executive and of the company stock, has had a dramatic impact on what these top executives are being paid. ERI Economic Research Institute has been tracking the pay for the highest paid executives in each of 45 large US companies on a quarterly basis since 1997, and the most recent findings show the impact of the slowing economy on executive pay: Average Total Overall Compensation of the highest-paid executives in US publicly held companies dropped by 11.8% from February 2009 to February 2010. Total compensation is at its lowest point since the end of 2005. The drop in the Total Compensation Index was driven by a 25.8% drop in Cash Bonus and Non-Equity Incentives and a 12.8% drop in Restricted Stock Awards Company Revenue growth has basically come to a halt (posting less than 1% growth). In the coming months of 2010, company revenue will probably turn negative as more companies complete their fiscal years and file their annual reports with the SEC. Executive compensation typically consists of a fixed base salary, a variable bonus in cash or non-equity incentives based on meeting performance goals, and a variable equity payment in stock, either restricted stock awards or stock options based on stock prices. Pension and other compensation components are added to the compensation package for these top executives. The table below details the changes in average compensation for the highest paid executive from February 2009 to February 2010, by type of component: Compensation Components February 2009 February 2010 % Change Salary $1,255,499 $1,219,303-2.9% Bonus & Non-Equity Incentives $4,288,915 $3,181,549-25.8% Restricted Stock Awards (RSA) $5,020,200 $4,377,030-12.8% Stock Options $4,389,775 $4,335,290-1.2% Total RSA/Options $9,409,975 $8,712,320-7.4% Pension $1,611,460 $1,760,211 9.2% All Other Compensation $1,158,956 $753,142-35.0% Total Compensation Package $17,724,805 $15,626,525-11.8% Company Revenues (Millions) $63,039 $63,495 0.7% Most executives now have a large percentage of compensation based on performance and company revenues and are facing decreased salaries this year and perhaps for the next few years. As the pie chart below illustrates, base salary was only 11.2% of total compensation, while the variable cash component (bonuses and non-equity incentives) represented 16.2%, and the variable equity component (restricted stock awards and stock options) was 57.8% of the total. The result of the effort to make executive compensation responsive to the economic strength of the company is showing up on salary levels, observed Dr. Christopher Chasteen, Research Director, ERI Economic Research Institute. ERI will continue to report on the various components of compensation as the economy recovers and evaluate the impact of increasing the variable components of compensation. 14
A NEW US occupational INFoRmATIoN SySTEm A New occupational System on the horizon for the US When ERI developed the Assessor Series in the 1980s, we utilized the survey job matching and description constructs of the not yet then abandoned US Dictionary of Occupational Titles (DOT), for which no copyright existed. In the 1990s, we inadvertently started, and in 2002 overtly began, to update and enhance the 1991 abandoned DOT. Today, ERI s Occupational Assessor (OA) has thousands of subscribers, including a single major insurance carrier that orders hundreds of Assessor subscriptions and many in the disability determination field who assist in placing individuals in alternative jobs due to lessened capabilities or unexpected unemployment. OA utilizes the edot Skills database, managed by ERI s affiliate, PAQ Services, Inc. All field job analysis measures are available for public review, as OA is designed to meet Daubert challenges (as compared to O*NET which states openly that its data is too general in nature). The Social Security Administration (SSA) administers the largest US disability plan with three to five million applicants a year, 57% going to Stage 4 when DOT work characteristics are used. Today, 3,500 administrative law judges still listen to testimony regarding a database last updated in 1991, with 85% of its data gathered before 1977. In a January 2010 meeting in Dallas, after a webinar by the International Association of Rehabilitation Professionals (IARP), a special SSA panel (OIDAP) described the process in which a new Occupational Information System (OIS) is being created to replace the DOT. Read the 750-page report at www.ssa.gov/oidap; find the IARP webinar at www.rehabpro.org/events/webinars/oidap-update; or see www.erieri.com for more information. While the Department of Labor s OES/SOC/O*NET job family occupational system clearly doesn t meet the needs of the SSA, the SSA is not seeking an updated and enhanced DOT; rather, they are reportedly developing a totally new system to replace the DOT. That is, you will not find ERI/PAQ s work mentioned in the 750-page OIDAP report. SSA is intent upon building a new system devoid of certain unused DOT features (e.g., interests) and, in so doing, demonstrates an interest in changing its disability determination methodologies. From January comments, SSA is aware of Daubert (i.e., field job analyses being transparent), but is openly not planning to meet this design demand, as US administrative law courts are not federal when it comes to Daubert evidence. The following methodology is used in the ongoing process of salvaging the DOT and developing the edot: 1) To identify the jobs that exist in today s US economy, we use 250 incumbents nationally as the metric for inclusion (built from three years of CareerBuilder data, Google searches, workers compensation files, D&B employers, salary surveys, web queries, etc.). 2) Descriptions, alternate titles, and estimated starting work measures are created. Job descriptions are written using the new FLSA methodology regarding primary duties and job demands; that is, defining a job begins with a carefully crafted prose statement. 3) Next, we capture skills (work fields) and the related object of these verbs (gerunds), creating a Work Field and MPSMS (Materials, Products, Subject Matter, Services) matrix for transferable skills analyses. For PAQ, a skill is a verb and object phrase; ERI/PAQ utilize the DOT construct. SSA proposes generalizing the definition of skill, such that any learned behavior is a skill (e.g., walking) with no work context (MPSMS) required. edot defines walking as a work characteristic. 4) We then survey physical and mental/cognitive demands (see methodology on page 2), collect SCOs (selected physical and mental/ cognitive work characteristics of occupations), populate PAQ s edot Skills database, and contribute salary survey data to ERI s SalariesReview database. For mental/stress measures, PAQ prefers employee-provided input to that of subject matter experts. 5) In an effort to improve and enhance the SCO model over the years, we have added SSA s mental/cognitive desk work paper measures (20 total) and keyboarding, sit/stand/shuffle, and typical education, summing to 35 in all, without changing any of the 1991/1993 DOT s 64 SCO measures or their scales. We thereby build on and never lose the marvelous work of previous years, with 99 work measures for every Assessor Series job (in addition to all the wage, salary, incentive, and other remuneration data). 6) Finally, we place edot s field job analyses, methodology, model, skills, and other measures on the Internet, available for public review and expert witnesses reproduction of modes, means, and rates of error. The SSA OIDAP s report reads backwards. It plans to select only 1,000 semi-skilled jobs of the over 7,000 total jobs identified by edot, not dealing with #3 above in a defined way, while making no commitment to #6. By not planning to make job analysis measures public, the SSA s new OIS promises to become a black box. Who is to say that administrative law courts will not someday adopt Daubert? Not having a workable and explainable transferable skills definition is also risky. ERI can t fault the SSA in any way; it has the right to choose whichever system it deems fit. We just don t see how the new construct will succeed, nor does the National Academy of Sciences (NAS), now weighing in with a review suggesting that SSA go back to the drawing board and try to use the DOL s O*NET data to reconstruct a system. Not to question NAS, but we wonder if it realizes how bizarre O*NET s twin SCO measurement scales are and how strange its collection methodologies are (e.g., combining four positions with four partial questionnaires to form a single job s analysis). Working with PAQ Services to collect job analyses and compensation data on new jobs as they emerge, ERI will continue to support the edot Skills Project, as disability insurance carriers claimants aren t confined to the 1,000 unskilled and semi-skilled jobs in SSA s proposed model. Like other Assessors, OA will evolve into an online offering as part of the new www.online.erieri.com website (in development). The DOT construct was not just good enough for government work ; its language is the worldwide historical taxonomy of work today. Whether they are aware of it or not, thousands of ERI Assessor Series subscribers use the DOT construct and language every day as ERI ties competitive values to the marketable skills that define why an individual is employed. (Assessor Series values reflect skill-based pay analytics.) As employees say here at ERI, we love edot. We will watch SSA s efforts with interest. 15
ERI SUBSCRIPTIoN order ShEET www.erieri.com 800.627.3697 ERI s ASSESSoR SERIES & Surveys software databases (single annual subscriptions, updated quarterly, most recent data) ERI s Platform library ERIPl $ 0. -------- free -------- Salary Assessor & Survey SA $ 889. $ (with added executive/director titles and UK/EU data) SA+ $ 2,389. geographic Assessor & Pay Survey ga $ 889. $ (with immigration/census/eeo-1 data and UK/EU data) ga+ $ 2,389. Relocation Assessor & Col Survey RA $ 889. $ (with 3,000 international cities and new labor cost model) RA+ $ 2,389. Executive Compensation Assessor & Survey XA $ 2,289. $ (EU & Canada data, US SEC, and valuation norms) XA+ $ 2,889. Nonprofit Comparables Assessor & Tax-Exempt Survey CA Basic ( dots <+/- 1.0 SD) $ 0. -------- free -------- (with historic data, for-profit data, and dots >+/- 1.0 SD) CA $ 889. $ (with State Analysis and Full esemantic Xwalk) CA+ $ 2,389. occupational Assessor & Survey edot Job Search Edition oa Basic $ 0. -------- free -------- (FLSA and Archive DOT) oa $ 889. $ (enhanced with disability determination analyses) oa+ $ 2,389. ComBINED SERIES software databases (single annual subscriptions, updated quarterly) Full Assessor Series FAS = SA, ga, RA, oa Professional Assessor Series PAS = FAS, XA, CA, oa+ Consultant Assessor Series CAS = PAS, SA+, ga+, RA+, XA+, CA+, RAS Remuneration Assessor Series RAS = SAuk/eu, gauk/eu, RA+, XAuk/eu NETWoRK SUBSCRIPTIoNS A separate license is required for each individual user. Assessor Series Price $ X the # of users = $ 2,667. $ $ 4,989. $ $ 6,889. $ 1,467. $ other RESEARCh PRoDUCTS 2010 global Salary Calculator (international estimates created from job family data) $ 889. $ ERI & Affiliate Salary Surveys (SalariesReview, ALAS, PAQ) (ERI Salary Surveys are free with participation for Assessor Series subscribers via ERIPL Survey Questionnaires tab) Distance learning Center (courses for those new to compensation at www.eridlc.com) $ 0. free (fee for exams) 2010 Salary Increase Planning Survey (online at www.salariesreview.com) $ 0. discontinued for 2010 Subtotal: $ For CA, DC, HI, KS, MO, and WA subscribers, add applicable sales tax: $ For Canadian subscribers, add applicable taxes: $ For all other international orders: Foreign duties/taxes are a subscriber s responsibility Total: $ Your Name: Title: Organization: Address: Tel: Fax: Email: Credit Card Type: Credit Card #: Exp. Date: (Visa/American Express/Master Card) Purchase Order Number (or Credit Card Signature): Prices good through 7/15/2010 8575-164 th Avenue NE, Suite 100 Redmond, Washington 98052 USA tel 800.627.3697 fax 800.753.4415 www.erieri.com info.eri@erieri.com US FEIN 33-0356443 CAD GST 834447013 16