Salary Benchmarking
What is Salary Benchmarking?
In a nutshell, salary benchmarking is a detailed comparative remuneration process – more extensive, more relevant and more detailed than a traditional salary survey.
The art of benchmarking is to give you a complete comparative breakdown of the whole compensation package in relation to specific roles – because the basic salary never tells you the whole story. The whole package can contain considerable extras like private health care, company cars, allowances, cash/share bonuses, flexible holiday or child care arrangements all of which add quantifiable financial benefits.
Benchmarking knowledge allows companies to compare salaries and benefits in a specific industry. They can discover what like for like really means in practice. As a recruitment consultant, I have done benchmarking in the insurance industry, for example, and found, at that time, that employees who worked in the Lloyds of London space were paid on average a 20% higher salary in real terms than employees who worked in the General Insurance or Insurance Broking world.
Why is Salary Benchmarking Important?
In my opinion, the primary reason why salary benchmarking is so important to a client is based around staff retention. If a particular company has a competitor or multiple competitors that are offering a better package, there is only so long before employees will get theirs heads turned.
I’m not just talking about the mid-senior level here but also the top executives of a company as well. So benchmarking really does matter.
But how do you get this information I hear you ask… Well you can probably guess what I am about to say. Yes, you got it. Through recruiters, of course.
A good recruiter knows their market inside out; they will work with competitors in the same space as your company and they will know the full salary package offered across an industry for comparable roles. A good recruiter will not break confidentiality, trust is a vital part of a recruiter’s reputation, but they can advise with an accurate salary benchmark.
In a typical scenario, a company may be completely bemused about why its staff retention in a particular department is relatively low: benchmarking can shed light on at least part of the problem (there may be other issues apart from dissatisfaction with a compensation package) but at least the company can eliminate – with facts – the financial element.
There is another aspect to benchmarking which in our specialism of Governance at Broadgate Search is becoming ever more significant – the release of a new role or, in today’s heightened regulatory world, completely new or restructured departments. I have myself had to do salary benchmarking for clients when they are looking to release a new role and they want to know where it should be positioned in relation to their competitors. It is then crucial to discuss with the client the precise details of the role – parameters of responsibility, skillset needed – in order to benchmark accurately. A good recruiter can advise on structure and roles for a new or restructured department, using benchmarking skills, and make valuable input into a company’s sustainability.
Then there is the issue of internal discrepancy: quite timely given the recent prominence of the gender pay gap in the news lately! But that is a conversation for another time!
Advantages of Salary Benchmarking
Salary benchmarking has a lot of benefits. It allows organisations to focus on differences in roles in their own and different sectors. Organisations can then focus on the value of different components of their specific package offering, which can, of course, greatly differ depending on the employer. Salary benchmarking, by considering all aspects of remuneration, aims to ensure valued employees stay with the company in the short, medium or long term. Retention rate issues solved!
From an internal perspective, salary benchmarking provides an impartial and accurate idea of pay information to help businesses make effective, non-discriminatory decisions which will be potentially of great benefit to long term company growth and sustainability.
Lastly, it is good for the future development of a company when it comes to attraction strategies for future recruitment into the business.
A Candidate Perspective
So, enough about why it’s good for companies to do salary benchmarking. Why should employees and candidates care?
Well, perhaps you are due to have your yearly review and you want to make sure you are up to speed with what you should be being paid. Perhaps you are frustrated because you haven’t had a pay rise since joining your company three years ago. Or perhaps you are looking for a new opportunity in the market and you want to make sure you aren’t under or overpricing yourself.
Given that we are living in a candidate driven world, particularly in our field of Governance here at Broadgate Search, it pays to know your worth – literally.
However, a word of warning to candidates. The average pay increase is around 10 per cent in our sphere but be wary of demanding too much and ignoring your level of experience. Look at the fringe benefits, the complete compensation package – do your own benchmarking - with the help of a good recruiter’s benchmarking advice, of course! – and be realistic.
Summary
We live in a world where, for better or worse (and recent revelations have pointed up the negatives) data is power. Talent management and employee retention inside a business can benefit hugely from salary benchmarking. Gone are the days when a senior executive could bury his head in the sand, like an ostrich, and say – this is what I am going to pay and no more. A company that ignores the significance of benchmarking and the advice that stems from benchmarking does so at its peril. However, make good use of benchmarking and a company should see retention rates improve, as well as employee satisfaction levels. In a culture of positivity, a company will thrive and grow.