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QUESTION:  Why is organization size important when analyzing compensation?

 

An organization size field is included in the Salary Adjustments (Adjustments to Compensation Analyses) dialog for the following reasons:

 

1.Some jobs are paid so differently based on size (which is measured differently by industry) that the unit size is a vital input element.

2.Even when the size of the organization does not affect pay -- which is generally the case for lower compensated jobs -- ERI recommends applying the size of the organization so that compensation reports clearly communicate that the proper size dimension was applied even though it did not affect pay.

 

For lower compensated jobs, pay varies by geographic area and industry, but not by organization size.  In most cases, employers simply hire more incumbents of those non-executive titles when the organization grows larger rather than broadening the responsibility and giving the (usually) single incumbent greater total compensation, as done with management jobs.

 

Types of Organization Size Metrics

 

Compensation data may be adjusted for geographic area, industry, organization size (revenue, assets, or fiscal year budget) or years of experience, and planning date.

 

Certain industries rely on specific size categories as their comparative metrics in competitive market surveys.  Most employers generally report top executive pay according to revenue size.  Banking, real estate, insurance, and other asset-focused organizations (such as foundations) report management pay by asset size.  Government bodies, public agencies, charities, some foundations, and most nonprofit entities report pay according to the size of their income or operating budget; some nonprofits also use the number of employees as a basis of comparison.

 

Number of Employees as an Organization Size Metric

 

The number of full-time employees on your payroll is rarely as indicative of pay in any specific industry as other size variables.  

 

For example, a high degree of automation may lead to having fewer employees, but executive pay, revenues, assets, or operating budget may be identical to organizations in the industry with larger numbers of employees.

 

Outsourcing, subcontracting, and the use of temporary or contract workers can also mask the true numbers used to produce goods and services.  The number of people on a payroll may not reflect the full cost of labor.  Some charities have large numbers of volunteers, which allows them to operate with fewer employees than others at the same revenue levels.  Also, many organizations use contractors and temporary workers to reduce their fixed costs and enhance their staffing flexibility.  When this is the case, total operating budget or revenue levels tend to be much more indicative of management pay than head-counts of full-time employees.