Is pay benchmarking a luxury or necessity?
Whether you need to hire someone new or conduct a pay review within your organisation, make sure that your employees are sitting in the correct salary range or determine the pay package for the whole organisation, pay benchmarking is the key to organisational success.
Every day, we use comparisons to make decisions about where to buy our food by comparing supermarket prices or where to get the best deals on petrol, electricity, or car insurance using website comparison companies.
Why wouldn’t we do the same when we pay employees in our organisation so that we align pay to the rest of the market, ensuring compensation packages are fair and equitable, and helping to reduce the risk of pay disparities, which can often lead to employee dissatisfaction and legal issues.
Suppose you are not using a market position that is underpinned by robust salary survey data.
In that case, your organisation will not have the advantage needed for successful recruitment and retention of the talent you need.
This will, in turn, help you maintain cost control without sacrificing efficiency as well as reducing legal risk.
What is the process of pay benchmarking?
Ever wondered if your organisation is paying employees enough or too much?
Using a strategic process to determine the appropriate compensation levels for the employees, pay benchmarking will help you understand your position against your competitors by comparing your salaries to industry standards and ensuring you offer competitive pay to attract and retain talent.
By knowing what the market is paying you will be able to:
- Attract and retain talent: By understanding market rates, companies can avoid losing employees to higher-paying competitors.
- Ensure a competitive offer: Knowing what your competitors are paying for certain roles can help your organisation become more competitive in order to attract and retain talent.
- Control cost: By setting appropriate salary ranges, businesses can control costs while maintaining a competitive compensation package.
- Demonstrate employee value: Salary benchmarking helps businesses demonstrate the value they place on their employees.
- Ensure compliance: Salary benchmarking helps companies comply with labour laws and regulations, mitigating legal risks.
Pay benchmarking is a balance of data and judgement
A salary benchmarking tool does not negate the need for judgement or negotiation when deciding on pay packages.
However, it does help your organisation’s executives or remuneration committee to compare salaries objectively.
Decision making can then take into account a role’s market rate as well as any considerations relating to a job holder personally.
Striking a good balance between these two considerations can help with competitive pay setting, pay progression, and bonus decisions.
Pay benchmarking is not a luxury because it ensures you can attract and retain talented employees, reducing the costs of hiring and training new staff.
By understanding what others in the industry are paying, you ensure your pay practices are fair and competitive, which boosts your reputation in the marketplace and positions you as an employer of choice.
Supplied by REBA Associate Member, Gallagher
Buck is a global, integrated HR consulting, benefits administration & technology services provider.
