Are you getting pay 'right’?
This might be a question that keeps you up at night and with the thought of the pay review process looming, you may be tempted to put off answering this question. By putting a plan in place before the start of September and getting ahead of the game, you’ll be in the best position to create a pay strategy and policy that ensures fairness and competitiveness. Not sure where to start? Your first step should be starting a pay benchmarking project.
What is Pay Benchmarking?
Benchmarking involves comparing an organisation's pay rates, including basic salary, cash bonuses, shares, pensions, and other benefits, with those of similar jobs in other companies or the external market. It provides an impartial and accurate picture of pay information, helping organisations make informed and effective decisions related to pay.
Why do organisations conduct Pay Benchmarking?
Most organisations conduct benchmarking to attract and retain employees, which is done by understanding the market rate of roles within the organisation. However, buying the market data alone is not enough to allow an accurate comparison as benchmarking must account for key variations to ensure you are as closely as possible comparing your market to the data for it to be considered valid.
These variations typically involve comparisons to things such as:
- Selected peer groups
- Organisations of similar sizes and sector
- Geographical Location
Therefore, the source of your market data must be robust.
What surveys are available?
There are three main sources of salary surveys:
- Self-reported surveys: from providers such as PayLab and Glassdoor
- Free to Air Recruitment Surveys: from providers such as Hays and Michael Page
- Commercial Surveys: from providers such as XpertHR and Willis Towers Watson
In our experience, commercial surveys are the only true source of accurate market information because the process used to collect the data involves gathering pay data from individual organisations and matching their pay practice into a methodology. Free sources are not matched to a methodology but simply by job title. However, there are a variety of commercial surveys out there who specialise in varying industries so choosing the best one will depend on your organisations DNA.
What else does good Pay Benchmarking need?
Good benchmarking does not only come down to the data source, but also what you do with the data to make sure you are as closely as possible comparing apples to apples. Bear in mind at least the following when running your benchmarking exercise:
- Regionalising Pay – Most data houses provide a high-level cut of a regional breakdown, however to get a true reflection of rates in your area, it’s worth applying more specified regional modifiers by city or county. This can be found using National sources such as ONS/OECD, or you may be able to request this detail from the survey provider.
- Ageing Data - This is largely dependent on how frequently the survey provider releases updates. Some do this on an automatic basis, others do annual releases. However, unless you are conducting benchmarking annually, for one year (or more), the market data is not as current as it could be. When this occurs, we recommend ageing this using typical (or industry specific) annual pay awards or forecasts as an indicator.
How often should Pay Benchmarking be conducted and when should you start?
Pay benchmarking should be conducted regularly and should not be treated as a one-time, static exercise. Keeping the benchmarking data up-to-date and relevant is crucial for its ongoing value and effectiveness in guiding future decisions related to compensation.
The frequency of conducting pay benchmarking can vary depending on the organisation's size, industry, and dynamic market conditions. However, it is generally recommended to conduct a comprehensive pay benchmarking exercise at least once a year. This annual review allows organisations to capture changes in market trends, industry standards, and economic conditions.
Here are some key points to consider regarding the frequency of pay benchmarking:
Annual Reviews: You should conduct a thorough pay benchmarking exercise annually to reassess their compensation strategy and ensure alignment with market rates. This helps in identifying any significant changes in pay trends, particularly for high-demand roles, critical positions, or in rapidly evolving industries.
Regular Updates: Besides conducting the benchmarking exercise annually, it is essential to update the dataset regularly throughout the year. This includes updating pay data for promotions, new hires, departures, and newly created roles. Regular updates help in maintaining the relevance and accuracy of the benchmarking data.
Market Shifts: If there are significant shifts in the job market or industry, organisations may need to conduct benchmarking more frequently to adapt their compensation strategy accordingly. This may be necessary during times of economic change (fluctuating inflation rates) or major industry changes.
Mergers and Acquisitions: In the case of mergers or acquisitions, organisations should conduct pay benchmarking to harmonise compensation structures and ensure equity across the newly combined entity.
Ad Hoc Needs: You may also conduct ad hoc benchmarking exercises when facing specific challenges or changes in their talent landscape.
By conducting pay benchmarking regularly and maintaining the dataset with timely updates, you can ensure that your compensation decisions remain relevant, competitive, and aligned with the changing market conditions. It helps in attracting and retaining top talent, improving employee satisfaction, and supporting the organisation's overall talent management strategy. Don’t delay, why not start the process today?
If you are looking to conduct benchmarking, please get in touch. I can be reached by email (firstname.lastname@example.org), or you can call our consultancy team on 020 3457 0894.