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What Does Good Pay Benchmarking Look Like? 

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Posted by Mark Macoun on 26 May 2021

What Does Good Pay Benchmarking Look Like? 

Pay benchmarking

What is Pay Benchmarking?
Benchmarking is, fundamentally, an exercise which compares your organisation's pay rates with those of similar jobs in other companies. It usually incudes basic salary, cash bonuses, shares, pension and other such benefits. It is the most robust way to give an impartial and accurate picture of pay information to help you make informed and effective decisions around 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 Payscale 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?
Benchmarking should be more than a point in time exercise which is forgotten after implementation, as the real value you get from it is how you use the data to influence future decisions. This means maintaining the dataset is just as important as the initial benchmarking. Each organisation deals with promotions, new starters, and leavers, as well as newly created roles, which if not kept up to date, will quickly become dated and irrelevant. Making a record and keeping things up to date will prolong the value of the benchmarking.

Although a lot of emphasis has been placed on the external data, it is just as important to have good internal data such as relevant job descriptions, organisation charts and up to date employee data held within your systems to ensure accurate benchmarking results.

If you are looking to conduct benchmarking, please get in touch. I can be reached by email (mark.macoun@innecto.com), or you can call our consultancy team on 020 3457 0894.


 

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