In human resources, salary benchmarking serves many critical needs. It helps organizations assess the competitiveness of their total compensation versus the market, and is an important step in managing your human resources program. When organizations look to introduce new positions, salary benchmarking ensures a good understanding of the prevailing market conditions.
Here’s a short checklist – five steps – to follow for your next benchmarking exercise:
- Start with a High-Quality Survey
To do any benchmarking, you need market data, and that market data comes in the form of a survey. The foundation to any market survey is its job matching approach. The job matching exercise ensures that jobs of similar levels of complexity are benchmarked against each other to establish common value across the market.
It’s important to understand the methodology for job matching used by the survey provider and how the process is managed. Are clients responsible for job matching, or does the consultant take the lead?
In Birches Group’s Community™ Market surveys, our survey specialists perform the job matching on behalf of every client, ensuring consistency and high-quality.
We use a job matching methodology that is simple, clear, and consistent, based on our Community™ Jobs evaluation approach. Community™ Jobs considers three factors – Purpose, Engagement, and Delivery.
Purpose enables us to examine each role within the organization and determine its primary objectives and how it supports the overall mission of the organization. Engagement identifies how each job interacts and collaborates with internal and external stakeholders to carry out its function. Delivery examines how each role plans, organizes and delivers work to fulfill the organization’s mission.
These three factors are present in any job, at any level. And together, they allow us to understand how an organization conducts business across all levels of work, starting with defining the purpose of its jobs, determining their level of engagement, and examining how each of its roles organizes and delivers service.
2. Focus on Grade Data
Many salary surveys take pride in the number of specific jobs captured in their surveys, but this is really a questionable practice. Most organizations use generic pay bands and set pay ranges for all jobs at a particular level across all occupations. Jobs with the same internal grade are paid in the same pay range, so the differences measured in the survey between different jobs are based not on job characteristics at all, but personal ones, like performance or tenure. Job data is also easily affected by the number of incumbents matched to a particular role, giving an illusion of precise differences based on volatile data of questionable value. The differences reported in the survey by job are misleading.
When benchmarking your salaries, we believe that organizations should focus on grade data. Grade data is based on the job level and the associated ranges, and not the actual people sitting in those jobs. It’s a more reliable analysis because grade data captures all jobs with the same contribution level to an organization. Grade data is a more stable representation of actual market movement versus incumbent salaries, which is highly variable.
3. Know Your Target Market
Before making your assessment, it is important that you select the survey comparators that are relevant to your organization. Out of the bigger survey sample, you will need to choose a smaller group of comparators relevant for your organization.
Market surveys can have twenty to over a hundred participants, or even more. But it does not necessarily mean that you compete with each one of them. If you are unsure where to begin with your selection, the criteria below are great places to start:
- Organizations working in the same/similar sectors;
- Those which you have lost staff to/hired staff from;
- and Organizations in the same geographic area.
You should also consider comparator organizations which share a similar Employee Value Proposition (EVP). Each company’s EVP is different, but look for organizations that have similar mission, approaches to career development, or pay and benefits philosophies similar to your own organization.
5. Identify Your Market Position
Once you have narrowed down the selection to your chosen comparators, the next step is to identify which level or percentile of the sample you want to target. But before making that decision, you will need to go back to your company’s EVP. Your EVP for total rewards should state your organization’s objective for competitive market position.
Organizations typically state their target market position as a percentile of the targeted comparator group. A position versus the 50th percentile or median of the market is common; going higher or lower is OK, too – it depends on what talent market you are trying to reach.
Being competitive is not always just about salaries. Allowances and benefits – monetary and non-monetary – can also be used to attract and retain talent. In our own experience, we have encountered companies that choose to position their salaries a bit lower in the market range but offer additional benefits on top of market practice. Again, depending on your company’s EVP, its all about striking that balance.
- Always Use Fresh Data
If you are responsible for managing your company’s compensation and benefits, one concern that you might have is making sure that you are working with the most updated market information. Companies that have solid compensation policies will still struggle to maintain their competitiveness in the market if they are working with outdated information.
In Birches Group, we recognize that not all organizations update salaries at the same time every year or apply the same frequency between salary reviews. We know that organizations choose to participate in salary surveys when it makes sense for them. Our surveys are evergreen, with the opportunity to participate when it makes the most sense for you, and multiple publication dates.
Our Community™ Market salary surveys are updated three times a year, every April, July, and October. This ensures that we always have the freshest data in our surveys and that any change to your compensation and benefits can easily be captured anytime during the year. Our evergreen approach also allows us to grow our survey sample throughout the year, providing our participants with the most robust data possible.
Birches Group provides labor market information for over 150 countries around the world. Our compensation and benefits surveys cover a full range of professional and support levels, providing information that ensures a client’s pay practices are aligned with the market conditions of leading employers in each country. Contact us to learn more.