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How Salary Benchmarking Enables Companies to Improve Recruitment and Retention
You may have heard of Salary Benchmarking Companies, and wondered how to benefit from their efforts.
Salary Benchmarking is a process which shows you where you stand in relation to other companies for specific job roles. Since salaries are dynamic and change every year, it is important to be aware of the current salaries based on both position and years of experience.
Over the course of this article, we will delve into how it can hold the secret for higher acquisition and retention rates.
Salary Benchmarking Companies
These are firms who have the capability to aggregate and organize salary data. Most importantly, they can incorporate your specific salary information to show where you stand compared to the rest of the market in your geography.
In a 2018 survey conducted by ourselves in Lincoln, 61% of employers said they planned to hire more people over the next 5 years. Across industries, labour has been identified as holding the greatest percentage of overall operating expenses. This means that offering competitive salaries while being careful not to overpay is the need of the hour for employers and HR divisions. But how exactly does it influence whether employees stay at a job or leave for “greener” pastures?
The Benefits of Salary Benchmarking
An employee’s total compensation is made of up a number of different components such as salaries, bonuses, commissions, and stock options (for senior professionals). Depending on the preferences of the employee and the objective of the employer, there are a number of permutations available. For example, if employers are looking to hire ambitious high performers, they can offer a compensation structure that unlocks higher bonuses if and when certain milestones are met. This could be a compelling incentive for employees, giving them the opportunity to make higher compensation than they would elsewhere if they performed at a certain level. Higher performance also translates into better operating results for companies, making this a potential win-win if applied appropriately.
Compensation can also vary between different sectors and industries. When looking to acquire top talent within a certain industry, salary benchmarking can allow the employer to pinpoint where their compensation packages stand in relation to the industry mean. Thereafter, they can adjust these packages as per the market rates to appeal to potential candidates. On the flip side, it can also be a retention tactic. There are many schools of thought about what motivates employees including the famous Maslow’s pyramid. However, across these different philosophies, compensation is a recurring theme, albeit at varying levels of importance. In many cases, companies may therefore undertake salary benchmarking to reduce the risk of key leadership being poached away by competitors solely because of better compensation packages.
Finally, there is also the reporting aspect to consider. Companies that have issued equity to shareholders outside the company have a fiduciary duty towards them. Publicly traded companies are even obligated to provide financial reports on a quarterly basis. As part owners of the company, shareholders have a direct interest in ensuring that the management team they have hired to run the company is providing enough value for the money they are paid. It is here where salary benchmarking can be used to justify remuneration decisions by comparing the operating performance and total compensation of management teams across the industry.
What Questions will Salary Benchmarking Help Answer?
The practice of salary benchmarking can help the Compensation Committees of Boards (for public companies) and/or human resource teams answer the following questions:
- Who are our competitors? When benchmarking compensation, the comparable entities chosen as part of the dataset is a critical component of the process. To attract and/or retain top employees, knowing where the company stands amongst direct substitutes in the market can help in setting rates accordingly.
- How do we structure our compensation? Depending on corporate priorities, compensation packages can be altered. In a high-performance environment, more weight can be given to bonuses and/or stock options to reward exceptional performance. In an environment where retention is critical, a higher base i.e. guaranteed salary could be the answer.
- Where do we want to stand in the market? As mentioned above, the company is ultimately answerable to shareholders. Therefore in some cases, they may not want to pay top bracket compensation in order to justify their operational expenses with shareholder groups. Striking a balance between fiscal responsibility and attractive pay packages is therefore the focus of Compensation Committees at public companies.
At Lincoln, we are advocates of decision making based on sound data analytics. The Lincoln Salary & Employment Insights survey is Lincoln’s comprehensive resource on the current state of the Irish employment market, salary trends, recruitment and workplace trends. It is an ideal guide for companies and the professional job seeker to understand salary levels across industry and job title. We are currently collecting data for this years survey due to be released at the end of November, if you would like to contribute please do so here.
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