Comparables – Financial Proposals
When drafting financial proposals for a contract, each side must look at similar contracts financial proposals and other wage reports to determine what would be a fair wage for their organization. Understand that the cost of living in an area, the employer’s budget, the tax base, the cost of benefits and many other economic variables must be taken into consideration when reviewing contracts.
For example, the cost of living in city A might be much higher than in city B. The higher cost of living might justify higher wages for employees of city A. Or perhaps union 1 took lower wages for years in order to receive a better pension benefit. As a result union 1’s wages might be considerably lower than another union’s wages yet when then members of union 1 retire they have an enhanced retirement package.
So when doing your research you need to dig deeper and think about more than just what you read in the contract. As the old saying goes in regard to comparables, “Make sure you are comparing apples to apples and not apples to oranges.” When you think of it this is what people do when they buy a car or a house. For example, if two cars of the same year, make and model are for sale but there is a huge difference in the asking price what questions would you ask the car dealer? You may think you are comparing two identical cars but one of those cars might be a lemon.
Comparable charts are a useful tool for recording and comparing wages across similar cities or organizations. A sample comparable charts is shown to the right. This was drafted for the purpose of showing the wages of the highest paid officers at various Michigan public universities.
To compute the annual wage, the drafter completed this calculation:
Hourly wage X 2080 (40 hours per week X 52 weeks) = annual wage
WHAT MAKES IT COMPARABLE?
When comparing the wages of any position among different organizations, you must ensure you are comparing similar entities. Organizations with a large global presence and high financial returns are able to pay their employees more than a small, family business. On the same hand, large public universities receive substantial more funding than smaller, regional state universities. You want to make sure you are comparing apples to oranges. Several factors should be examined to determine if two organizations are comparable.
For example, when comparing universities there are three factors to look for similarities:
1. Location = Cost of Living
2. Government funding received
3. Size of the University (i.e. Enrollment)
These factors, and more, would determine the amount of funds that a university would have to pay its employees.