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Salary Vs experience analysis
March 3, 2012 1:22 PM   Subscribe

Need to do a simple analysis around pay and experience fairness. Example: Two project managers managing exactly same kind of projects and have similar performance levels: PM 1 -> Pay $130,000 ; Experience 15 years; PM2-> Pay $80,000 ; Experience 3 years; I want a mathematical way of analyzing if the person getting paid $80,000 is being under payed. Now I know there are industry standards and charts available. I want to do something that may not be perfect but gives a sense. How much weight should be given to experience and can this be factored in mathematically? Please dont get hung up on accuracy. I want a logical analysis method that does not need to be entirely accurate. Also, where can I find industry charts comparing pay and experience
posted by r2d2 to Work & Money (12 answers total) 1 user marked this as a favorite
 
80,000*(1.04^12) = 128,000, i.e. it's an increase of 4% per additional year of experience. But it's completely up to the employer how to value experience over other factors. If I were PM2, I'd be pleased to know that the salary range for the position is that big and would try to negotiate a solid increase without bringing up PM1's salary.
posted by dhoe at 1:40 PM on March 3, 2012 [1 favorite]


With only two data points, your really can't determine that.

I'd suspect a formula may look like this though:

Constant (e.g. entry level salary or below) + variable x experience.

salary = 62.5 + 5.83*experience (this formula gives you exactly those two salaries, btw)

There's probably a curve in there too so once you get more data points the it may look more like

constant + (var1*exp)/(var2+exp)

where the bottom formula is meant to temper the straight line and get more of the curve you could expect.

As for where to get salaries - there are a few resources online that I don't remember at the moment, but just google around for typical salaries & you'll find it. I remember the site that had it made you fill in a survey & then enter your email address.
posted by MesoFilter at 1:41 PM on March 3, 2012


Thanks MesoFilter. This is excellent stuff!!

So if an employer values experience a lot they would have a very high "variable".

In this case you have 5.83. So if an employer values experience more than the employer for whom these PM's work then they would use a variable higher than 5.83.

Am I understanding this correctly?

Also if I now want to add another factor say performance. What would the modified formula look like? Let's say a high performer is given a rating of 3, medium=2 and poor is 1

Thanks again!!
posted by r2d2 at 2:05 PM on March 3, 2012


This kind of analysis looks good on paper, and makes HR monkeys feel like they are doing something useful and productive, but still isn't very accurate. Your analysis will be much better (but still poor) if you break the role up into capability categories, Something like:

Junior PM: Able to complete projects that have been drawn up by a more senior PM.
Staff PM: Able to independently draw up projects involving teams that are organizationally close, successful track record of driving to completion.
Senior PM: Successfully manages direct reports, able to initiate and conclude projects that are locally focused, but draw on cross-company resources. Has completed at least one project that has received positive attention from senior management.
Master PM: Drives projects that span the entire company and may include numerous external vendors. Speaks frequently at technical conferences and is publicly respected for their knowledge.

This helps because there are plenty of 15-year veterans who are stuck at Staff PM level who really have no hope of making the leap to Senior or Master level. On the other hand, I've promoted people from other roles into the PM role who started operating at the Senior level after just a few weeks in the new role.

Years of experience shouldn't really matter to the company. Years of experience are often used as proxy for mastery of the job skill-set and knowledge of the business, but some people pick these things up much faster than others. Focus on years of experience if you want to stay stuck in the 19th century.

To make the compensation story really work, you need good people managers that can assess and develop their team accurately. HR guidelines are useful, but they need to be flexible. Otherwise, your best people will quickly depart for companies that are more performance and less formula driven.
posted by b1tr0t at 2:30 PM on March 3, 2012 [2 favorites]


I would argue that if two people are doing the same thing and getting the same results that they "should" be paid exactly the same. In fact, though, to my knowledge salary depends more on the negotiation skills of the employee than anything else, in which case more experience will undoubtedly correlate with higher salary.
posted by emilyw at 2:37 PM on March 3, 2012


Perhaps

salary = base + var * experience * performance

Where performance is a base where 1 is average, 1.2 is above average, 0.8 is below average etc. Sort of like the consumer price index.

or

salary = base + value * experience + value * performance

where performance is based around 0 being average (e.g. adds or subtracts nothing).

The first formula has larger absolute value as you get more experience - E.g. someone with 10 years experience and a 1.5 performance will perform at a 15 year level - or 20 at a 30 year level.

The second one gives you smaller variances as you add experience. - a +5 performance turns 10 into 15, but only turn 20 into 25.

I leave it to you to decide which is more realistic.
posted by MesoFilter at 3:04 PM on March 3, 2012


(the second formula also has the benefit of you being able to use a 2nd variable "value of performance" to temper performance)
posted by MesoFilter at 3:06 PM on March 3, 2012


Very helpful! Thank You!!
posted by r2d2 at 3:24 PM on March 3, 2012


This seems like the sort of question labor economics might have some opinions on, and the references section mentions "Jacob Mincer, 1974. Schooling, Experience, and Earnings. New York: Columbia University Press." Wikipedia also has an entry for the author, which describes the work itself as well.

Basically looks like Mincer used census data to find correlations between income and education, on the job training and age. Two of those seem reasonable, but the third one seems curious; I should probably try finding the paper when I get home. There's probably a million more complicated and more accurate techniques since Mincer published, but it sounds like you'd want something basic anyways.
posted by pwnguin at 7:38 PM on March 3, 2012


Experience is not really measured in years. For some individuals experience is highly correlated with time in a similar position, for others there is no relation.

What really matters is expertise (skills) and performance (execution). These levels and more importantly the ability to measure them accurately may also grow with time.

If PM1 is doing identical work to PM2, and the expectation is that PM2 is equally suited for tackling any new project then yes PM2 is underpaid, and really shouldn't need to wait 12 years to get to a similar salary. But this should be related to capabilities and performance not just years.

What years gets you, aside from developing new skills if you are smart, is the recognition by others that you have a given set of capabilities and that people understand your potential for success for any given project. A person who has a proven track record who you know will execute the project flawlessly is very valuable - this value however is measured in previous successful projects and not years...
posted by NoDef at 10:40 AM on March 4, 2012


The value of a manager with 3 years experience is what the market will bear, not some mathematical relationship to some other manager with more experience.
posted by caddis at 5:41 PM on March 4, 2012


Great discussion - Thanks!
posted by r2d2 at 6:21 AM on March 5, 2012


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