The question is relatively straightforward: How do you as an employer offer salaries and compensation structures that are attractive to employees, while still promoting your organizational profitability? The answer is simple: salary benchmarking. Understanding the process is considerably more complex.
To understand the process, you must first understand what salary benchmarking is and what it is not. Salary benchmarking, also known as compensation benchmarking, is the process by which internal job descriptions are matched to external jobs with similar responsibilities to identify the market rate for each position. It is not competitor analysis. While the two terms may often be used interchangeably, there are distinct differences. Competitor analysis involves identifying your competitors and evaluating their strategies to determine their strengths and weaknesses as compared to those of your similar products and services. Though competitor analysis may be a critical part of your marketing plan, salary benchmarking should be an integral part of your annual process improvement strategy.
To that end, there are two types of salary benchmarking: internal and external. The former involves a comparison of salaries at the same grade level across business units to develop the best internal benchmark. For instance, while a Human Resources Manager may have different requirements and levels of complexity as compared to a Sales Manager, a significant disparity should not exist between their respective managerial salaries. If comparison reveals that the Human Resources Manager’s salary exceeds the Sales Manager’s salary by tenfold, this is a strong indication that the employer needs to adjust their compensation structure to yield more consistency amongst grade levels and thereby aid in reducing employee dissatisfaction with compensation disparity in the workforce.
The latter is a process by which internal job descriptions are matched to established salary survey jobs in order to identify the external market rate for each benchmark position. Stated differently, a benchmark position is one that has a standard and consistent set of responsibilities from one organization to another and for which data is compiled from salary surveys to determine the median salary range for the position. But how exactly does that process work?
Though the benefits of benchmarking are innumerable, some of the most recognizable benefits include:
Salary benchmarking gives an impartial and accurate idea of pay information to help businesses make informed and effective remuneration decisions, while at the same time accounting for variations that need to be considered. For more information about salary benchmarking or other HR issues, please contact us.
Heather offers practical guidance and helps employers find solutions to employment law and compliance matters.
Heather educates and advises employers on all aspects of employment law, including compliance with state and federal laws, leaves of absence, discrimination, harassment, accommodations, discipline and discharge, wage and hour obligations, unfair competition, and other issues that arise in the workplace. In addition to Heather’s employment counseling, her background includes nearly a decade of litigation experience. Her prior experience includes litigating for a regional insurance company, business disputes, and employment.
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