Pay benchmarking is one of our most popular services – it’s a valuable exercise which can save you money and underpin a whole reward structure. There are plenty of reasons why clients come to us for pay benchmarking. Perhaps they’re struggling to retain or attract talent; control their payroll costs; or demonstrate a clear link between pay and business objectives.

Whatever your motivation, here’s how to go about it in 5 handy steps:

Step 1: Get the budget

In the words of Wham!, "If you're gonna do it, do it right." To secure much-needed cash with which to undertake pay benchmarking, you’ll need to demonstrate a clear ROI for the project.

The most effective way of persuading management is by highlighting future savings you’ll make. Do your sums and appeal to their pockets:

• Ad-hoc salary increases outside of a normal pay review are costly and ineffective. Work out how much you’re currently spending on these, and demonstrate how knowing the market rate will help you manage pay more efficiently.
• Think of the money spent on costly recruitment campaigns with poor ROI – why is the business wasting its time pitching jobs at the wrong market rate?
• What do your attrition rates look like? How confident are you that leavers are exiting the business because of reasons other than pay? How much money did you spend on training new recruits last year? Would a more informed picture on the pay landscape of your sector have helped at all?
• Loss of talent - are your top employees going elsewhere and is Reward a key factor in that?

All of this, presented well, can make a reasoned case that is very difficult for the business to ignore.

Step 2: Know why you’re doing it

Too often we see the results of a pay benchmarking exercise shape next steps in a reward re-alignment programme. But you shouldn’t wait for the outcome of the analysis to shape future decisions around the intended management of pay. Make your aims clear from the offset e.g.

• “We aim to be a median payer”
• “We accept we are not market leaders in base pay however we know our benefit package is first class”
• “We want to reward for performance and tracking the market is a key factor in achieving that”

Step 3: Know your data sources

This is the key decision in benchmarking – data is a significant cost and it’s vital to hone in on what is suitable and most worthy of investment.

Choosing salary surveys because they are cheap or free is a false economy. Companies often feel like they have their finger on the pulse of market data via various recruitment websites and other freely available salary information. Unfortunately, this can prove more of a hindrance than a help as the data is so high level, often masking hidden salary elements.

Choose salary surveys that provide data for roles with a robust matching methodology. Too often surveys publish ranges of salary data linked solely to job title and this can prove very misleading. The more reliable surveys use a proper matching system which allows companies to match the specifics of their role with that of the survey.

Remember a small amount of investment in a good salary survey reaps rewards in the long term. Credibility is a key success factor in communicating decisions around pay management and without a solid data foundation everything can be called into question.

Step 4: Practical advice

The more information you have/know about the role, the more precise the benchmark. A few pointers:

• Remember you benchmark the role, not the person
• Take a balanced view of the role across the whole year
• Always cross check matches internally across departments

Step 5: Be open with your employees

At Innecto we see first-hand the measures of success associated with a solid reward management system, and one of the most critical factors is transparency. Employees often have distorted perceptions or unrealistic expectations as to what a pay benchmarking exercise might mean for them. It’s therefore important to manage this and be as honest as possible as to the aims of the company in embarking on this type of exercise.

But (of course) the most important step in any successful pay benchmarking project is using an experienced, external partner to support you. If any of the above has struck a chord and you’d like to discuss a benchmarking exercise at your company, please give us a call on 020 3457 0894 or email me at sarah.nash@innecto.com

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