Competing for and retaining top talent is more of a challenge today than ever before. Existing employees and prospective job candidates now have quick access to salary data from a variety of online sources, and a greater understanding of their value in the market. To compete, organizations must assess and analyze how the compensation they offer measures up.
The best way to accomplish this, and to ensure that your salary ranges align with your talent strategy, is through compensation benchmarking.
Compensation benchmarking, also known as salary benchmarking, is the practice of comparing specific jobs with similar market counterparts to determine the right compensation for those positions.
Start with the date
Before you can effectively benchmark compensation, you need to have a few things in place. Make sure you have a well-defined compensation philosophy and strategy, as well as highly detailed job descriptions, for more accurate comparisons.
From here, the most critical part of the process is selecting the right data sources for market salary information. The data must be specific to your industry, geography, as well your organization’s size and type, and include the variety of skill sets, experience levels and educational backgrounds of the positions you’re benchmarking. Experts recommend searching by job description, instead of job title, and using data from at least three sources for the best results.
The data sources can include:
- Published, traditional surveys, which typically originate from government, associations or third-party consulting firms. While these surveys offer the broad perspective you need, the data compilation may be a year or more old, so they may not reflect the current market, or align with your organization’s structure or size.
- Crowdsourced, self-reported salary data, submitted by employees. These sources are typically very current, simple to use and relatively inexpensive. Payscale offers this type of online tool, which is one of the largest salary surveys of its type in the world.
- Company-sourced data from data sharing networks, which provide aggregate data on jobs in specific cities and industries on a quarterly basis.
- Custom surveys from third-party providers. These surveys are specifically created for your organization, so they are typically very accurate and reflective of current conditions. However, they are also extremely expensive, which makes this option cost-prohibitive for many companies
Apply your compensation strategy
After selecting your data sources, apply that data to your compensation strategy, which, among other factors, identifies where you want your pay structure to be, relative to your competition. Are you leading (offering higher compensation than your competition), meeting (keeping salaries in line with your competition) or structuring your salaries below market?
Create ranges for each position
Once you’ve matched your jobs to the data, and factored in the market competitiveness for your strategy, create a range, including the minimum salary, midpoint salary and highest salary paid, for each position or job grade.
Then, build out the guidelines for each compensation scenario, including where new employees enter ranges and how employees move through the ranges, as well as policies for promotions, and how to handle employees who fall above or below the range.
It’s also important to take incentives and benefits into account in the benchmarking process. If your budget is limited and won’t allow comparable pay structures for certain positions, adding incentives, flexible schedules or other perks could make your total compensation package more competitive.
Reap the benefits
Although benchmarking is a time-consuming process, the benefits it brings to your organization make it well worth the effort. Benchmarking ensures equitability in your pay practices, increases your ability to attract and retain the best talent, and ensures your employees are hired and rewarded consistently across your organization.
All good reasons for making the effort, all true catalysts for business success.
