Companies are always keen on knowing whether their remuneration packages are in line with what is commonly called the 'market rate.’ It involves extracting information about the pay packages from their competitors, which isn't very openly available for obvious reasons. Despite the complexity, the task needs to be completed. It defines the future for every company thriving in markets where varied salaries directly influence the retention and loss of highly valued employees. The matter of concern here is, therefore, salary benchmarking.
What Is Salary Benchmarking and Why Is It Important?
When organizations match and compare the existing records of their internal jobs with a salary survey or market pay data, this process is called salary benchmarking. The primary objective of salary benchmarking is to determine whether the company's proposal or offering to an employee is competitive enough to retain them for long. If the average market pay for a particular position is much higher, the company is bound to lose valuable employees to its competitors. From a neutral perspective, such practices are also necessary to ensure that you offer your workers a fair amount of money and do not undervalue them.
Benefits of Salary Benchmarking For Employees
Get What You Deserve
The most significant benefit of salary benchmarking is that it helps in removing unequal pay disparities. Every employee gets a fair remuneration, which is equally competitive as well. In companies where compensation benchmarking has not been introduced yet, the process will even allow salary increases for several positions.
More Bonuses and Incentives
Since the entire process is about defeating the competition and retaining more employees for the organization, there will always be attempts to woo employees with bonuses and incentives. Therefore, periodic increments in salaries, alongside added benefits, can be expected in organizations in which regular compensation benchmarking is performed.
Regulated Duty Hours
Although compensation benchmarking is strictly related to salaries’ facts and figures, it also has influenced the work profile that cannot be ignored. When data about what other organizations offer to their employees who work for the same number of hours as you do becomes available, you get to negotiate your duty hours accordingly. Therefore, compensation benchmarking promotes not only a fair salary offering but also a peaceful work environment.
Know the Salary Ranges
When employees decide to change organizations, looking at the salary benchmarking reports helps them determine the salary range in the new company. This way, the applicant can identify the growth prospects and how far he could go when the monetary benefits are concerned. Hence, salary benchmarking helps employees in making an informed decision before changing jobs.
Benefits of Salary Benchmarking to The Employer
Higher Retention Rates
No matter how big the organization is, hiring and retaining the right person for the right role is equally tricky everywhere. So, tackling pay disparities, which is the most common cause for employee migration, should be dealt with using reasonable promptness. Therefore, comparing and then changing the salaries offered for every position concerning the average market rate is essential to keep the competitors at bay when talent retention is your priority.
Compensation benchmarking works equally well the other way round as well. When you get hold of figures related to market rates for a particular position, you can straightaway tell your applicants how the package that you propose is wholly justified. Moreover, your recruitment drives will also be planned similarly, actively hiring for roles where average market packages are well within your budget or even lesser than that.
Build a Loyal Employee Base
Making changes according to the data obtained with salary benchmarking will help in cultivating trust amongst the employees. Employees would realize how the organization is taking care of their remuneration and providing necessary increments to offer a fair salary for every position. Ultimately, these steps help strengthen human relations, and the loyalty of every employee towards the organization gets enhanced.
How Is Salary Benchmarking Done
Identify Job Attributes
The first step of compensation benchmarking is to identify the attributes of every position. This refers to the duties that the organization wishes to give to a person hired for the job. Once these duties have been identified, you will have to individually search for the salary data concerning each of these work attributes. For instance, if data analysis is one task that you want a research associate to perform, you will search for the market rate for a data analyst position first. For this, you can use HR-reported average survey data.
Decide the Percentage Increment of Salary
In the above example, according to the time you want the employee to devote to data analysis, you will figure out the percentage of the salary that should be finalized according to market research. A similar approach is used for other job attributes, following which a balanced final pay package is decided. Performing salary benchmarking is not easy for internal departments. One requires resources and analysts to give meaningful reports. Therefore, several companies prefer hiring consultants who complete compensation benchmarking on their behalf. Ma Foi is a business consulting agency that supports the HR, Legal and Compliance processes in companies from all industries. With over 20 years of experience and helping more than 400 clients, Ma Foi is a trusted alternative to get industry-specific salary benchmarking results.
Salary Benchmarking Best Practices
The objectives of the benchmarking process should be clear from the start. Every member of relevant committees should be aware of these objectives to take the expected pay decisions smoothly. Senior executives are valuable assets who drive crucial management decisions. Thus, conduct market benchmarking for these posts annually to ensure that your valued executives do not feel unsatisfied at any point with their pay. The summary of the data should be based on the middle 50% of the samples obtained. This is important because such reports give a better idea of how narrow or wide the salary ranges for a position can be.
Comparing your company's practices with those of your competitors is an excellent way to stay on top of market trends. Salary benchmarking is one such process that provides you a window to tweak the pay packages for your employees and make them more competitive. From an employee's point of view, the process brings more transparency and justice to the financial aspects of work, which is undoubtedly a desirable situation. Compensation benchmarking is a necessity for every organization as it helps maintain a pool of talented workers.