August 14, 2015
Aging Salary Data: Is Your Data Ready for Retirement?

Sharon McKnight, CCP, SPHR

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Is your salary data a toddler, a teenager, or ready for retirement?

If you’ve worked in compensation for very long you probably know all there is to know about “aging” data. If you’re new to comp, however, and aging data is a bit of a mystery, read on.

WorldatWork defines aging data as, “The practice of increasing market survey data by a percentage assumed to be representative of wage movement to bring the data to a consistent point in time.”

What that means

In a nutshell, it means that if you’re using salary data from multiple salary surveys but are not aging the data from each to a common date then you’re comparing apples to oranges. Let’s say you have data for a department manager position from two different surveys. Survey A is dated January 1, Survey B is dated June 1, and right now it’s October 1 of the same year. You need to “age” the data from both surveys to the same point in time in order obtain a composite rate for your accounting position.

Here’s how it works.
Survey A = $52,000 effective January 1
January 1 to October 1 = 9 month
Annual Aging Factor* = 3%
9/12 x 3% = .025 Aging Factor
$52,000 x 1.0225 = $53,170

Survey B = $53,000 effective June 2
June 1 to October 1 = 4 months
Annual Aging factor* = 3%
4/12 x 3% = .01 Aging Factor
$53,000 x 1.01 = $53,530

Composite: $53,170 + $53,530 = $106,700 ÷ 2 = $53,350

What if your salary data is more than one year old?

You should probably be looking for a new data source, but if that’s just not possible, you can age the data for more than twelve months. For example, from January 1 to July 1 of the following year. You’ll need to break it down into two calculations. One for the first 12 months then a second calculation for the last 5 months.

Here’s how it works.
First age the data 12 months
$52,000 effective January 1
January 1 to December 31 = 12 months
Annual Aging Factor* = 3%
12/12 x 3% = .03 Aging Factor
$52,000 x 1.03 = $53,560
Next age the data for the remaining six months
$53,560 effective January 1
January 1 to July 1 = 6 months
Annual Aging Factor* = 3%
6/12 x 3% = .015 Aging Factor
$53,560 x 1.015 = $54,363

Making sure that the data from multiple surveys is aged to a common date is an essential step in the market pricing process. One thing to remember, though, is that if you age older data to a current date, you’re lagging the market. If you want to lead the market, you need to start with more current salary data and “age” it forward using the formulas shown above.

*The annual aging factor is subjective and determined by the user. It could be an internal amount such as your budgeted increase percent or it could be an external amount such as the annual CPI.

For a tool that makes aging salary data a simple process, check out BLR's Aging Calculator.

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