Remember - The Exchange of Salary Information (In Surveys & Otherwise) is Bound by Anti-Trust Regulations

Recent interchanges in a national compensation publication serve to remind me that few HR professionals (including many compensation specialists) are aware that the conduct of both formal and informal compensation surveys is regulated by the Sherman Antitrust Act of 1890. The purview of this law extends to as simple an act as calling another employer to find out what they pay their customer service representatives - through the participation in more formal and sophisticated pay surveys.  For this reason, and in the spirit of keeping unnecessary litigation at bay, I thought it might be worth another post.

First, a little history.  The Sherman Antitrust Act, named for its author, Senator John Sherman of Ohio, was original passed to limit monopolies and other restraints on commerce.  It is the Act's provisions on pricing and competition which impact those seeking information on compensation practices via salary surveys.  The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC), which have primary responsibility for enforcing our nation's anti-trust laws, have determined that organizations conducting their own salary surveys could be seen as practicing illegal price-fixing.

To guide HR and compensation professionals seeking to determine competitive pay levels while avoiding antitrust violations, the DOJ and the FTC have jointly published a series of Anti-Trust Safety Zone Statements, which have been interpreted (through not extensively tested in court) to provide a "safe harbor" for organizations involved in this exchange of information.

The DOJ/FTC Antitrust Safety Zone Statements are as follows (note that these were initially developed with health care organizations and activities as their focus):

Antitrust Safety Zone: Exchanges of Price and Cost Information Among Providers That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies

The Agencies will not challenge, absent extraordinary circumstances, provider participation in written surveys of (a) prices for health care services, or (b) wages, salaries, or benefits of health care personnel, if the following conditions are satisfied:

1. The survey is managed by a third-party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);
2. The information provided by survey participants is based on data more than 3 months old; and
3. There are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data represents more than 25% on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider

The conditions that must be met for an information exchange among providers to fall within the antitrust safety zone are intended to ensure that an exchange of price or cost data is not used by competing providers for discussion or coordination of provider prices or costs. They represent a careful balancing of a provider's individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing providers to communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees.

Forewarned is forearmed, my friends!

Image: Creative Commons Photo "Gavel" by walknboston.

Comments

[E James (Jim) Brennan]

Wise of you, to repeat and expand on this topic, in light of last week's million-dollar settlement by NE Health in Troy NY for allegedly violating some of those three rules.

Remember, it is NOT the survey provider/supplier who pays the penalty: it is the USERs. Bothers me no end, I must admit, to see so many so-called survey organizations with no clue about surveys, entangling their customers in questionable schemes and exposing them to a world of hurt.

We abide by those rules religiously and cite them in all our survey Methodologies. Even though we get instant feeds from job board postings and credit rating services (where we do income verifications) and other real-time sources, we sit on all data for 3 months before releasing it. Doesn't mean we can't use the instant info to refine our trend studies for the update rates we apply to "legal" data, though. ;-)

[Joe Rice]

Jim somewhat got to what I was thinking; "give me an example of this being enforced." So there you go, it is being enforced. I have seen or participated in a number of home-grown surveys--few of which fall into the safety zone. There was one that was set up very well and I almost fell out of my chair when I got the results and each survey participant was named next to their results.

[Ann Bares]

Jim:

Thanks for the comment and additional information. As I understand it, the NY case is part of a wave which includes:

· Reed v. Advocate Health Care, No. 1:06-cv-3337 (N.D. Ill)
· Merendo v. Detroit Medical Center, No. 2:06-cv- 15601 (E.D. Mich)
· Clarke v. Baptist Memorial Healthcare Corp., No. 2:06-cv-2377 (W.D. Tenn.)
· Maderazo v. Hospital Corp. of America., Inc. No. 5:06-cv-535 (W.D. Texas)

I'm not sure which, if any, of the rest of these have settled, but I believe they are all class-action suits, all reflecting liabilities in the millions of dollars. Plus, I believe that most or all of these were largely supported by the Service Employees International Union. Which tells me that if the Employee Free Choice Act is made into law - in one form or another - the greater levels of unionization that will likely follow will probably increase the risk of challenge on this front.

All to your question, Joe!

Thanks, both of you, for the comments and discussion here.

[Ann Bares]

Joe:

Additional note - I have had experiences similar to yours, in many cases for surveys that are conducted by so-called "professional survey organizations". So the disregard is widespread, and obviously the enforcement efforts haven't been enough (or publicized widely enough) to hammer home awareness of (much less respect for) the regulations. Again, that may change.

Thanks again for joining the discussion!

[Paul Weatherhead]

Now I'm not an anti-trust lawyer, but it seems to me that the "safety zone" information above doesn't get at the heart of what anti-trust activities are all about. The idea of anti-trust legislation is to prevent organization's from interfering with competition and acting in monopolistic ways, but the safety zone doesn't addess what companies do with the compensation data.

Hypothetically, lets take three companies looking at a mountain of compensation data. Company A looks at the data and secretly decides that to be profitable, they will establish a market approach at the 33rd percentile. Company B looks at the data and secretly decides they want to attract the best and brightest and adopts a 75th percentile approach. Company C secretly decides they'll be happy with a 50th percentile strategy. To me, the looking at all the compensation data is not an anti-competitive use of survey data. It only becomes anti-competitive if Companies A, B and C discuss the best ways to use the data, and discuss a strategy for controlling labor costs.

Am I over-simplifying this issue?

[Ann Bares]

Paul:

I don't think you're over-simplifying at all. At the risk of being a cynic, I think it may just be another example of government regulation missing the boat. As you point out, collecting data in a manner that is outside the safety zone doesn't necessarily constitute anti-competitive practices - it is all in the way the data is used.