While several factors influence the modern employee’s decision to join (or stay with) an organization — flexibility is increasingly desirable in the modern employment landscape. Along with a positive company culture, offering attractive and competitive salaries is also equally important in engaging and retaining top talents within your organisation.
In a largely candidate-led market where many employees and job seekers are feeling the effects of a rapidly-rising cost of living, businesses cannot afford to be miserly when it comes to compensation packages. It becomes even more relevant among the ‘Gen Z’ workers — who will account for over a quarter of the total workforce by 2025 as they are apparently highly motivated by pay.
But how can companies ensure their salaries remain competitive in this cutthroat and continually-shifting job market? How can they attract and retain talent through generous yet economical financial packages? This is where salary benchmarking comes in, enabling businesses to gauge their own salaries and benefits against competitors within their industry and across the broader market.
However, first of all we need to know how salary benchmarking works? And how can it be used to help companies lure skilled talent and keep hold of their top performers? Let’s dig a little deeper.
How does salary benchmarking work?
At its core, salary benchmarking is a process where companies compare the compensation packages they offer to the prevalent market rates for similar roles within similar industries. This is usually accomplished through specialized surveys, industry reports, and in-depth research, offering a comprehensive look at what competitors, both direct and indirect, are offering their employees.
Empowering a data-driven approach
With the world becoming increasingly digital, the tools and technologies available for salary benchmarking have become more sophisticated. Platforms and software solutions can now provide real-time insights into pay scales and benefits packages across various industries, ensuring that businesses have the most up-to-date information possible.
By taking a data-driven approach, companies are not only ensuring that they are competitive in their compensation offerings, but also that they remain attuned to ever-changing market trends and shifts. It’s about having a finger on the pulse of what’s happening — not just within a specific industry but in the broader employment landscape, too.
Understanding the Gen Z perspective
As already highlighted, the youngest generation of workers are particularly driven by salary. Growing up in the age of digital transformation, economic downturns, and a rapidly-rising cost of living, this generation is acutely aware of financial stability. While they value flexibility, work-life balance, and opportunities for growth, a competitive salary remains at the forefront of their employment considerations.
Therefore, to attract this new — and next — generation of workers, companies must recognize the importance of offering compensation that not only matches their skills and experience but also aligns with or exceeds the current market rate.
Why is salary benchmarking important?
To attract and retain top talent, it’s imperative that businesses offer fair and competitive compensation packages. If their salaries fall significantly below market rates, this could mean high turnover rates (and replacing an employee may cost the equivalent of up to 9 months of their annual salary), while making it increasingly difficult to recruit skilled, qualified candidates.
Making an impactful first impression
In a candidate-driven market, the initial salary offer made to a prospective employee can make-or-break their decision to accept or reject an offer. By utilizing salary benchmarking, companies can put forth a competitive offer right from the outset, ensuring they don’t lose out on valuable candidates to competitors who might be offering a more attractive package.
Of course, attracting talent is just half the battle — the real challenge lies in retaining your most skilled employees. Regularly benchmarking salaries can aid businesses in identifying if and when they start to fall behind the market rate. This proactive approach allows companies to offer pay raises and bonuses in line with market trends, ensuring that top performers don’t feel undervalued and start to get itchy feet.
Fostering a transparent culture
One of the most significant advantages of regular salary benchmarking is that it fosters a culture of transparency. By openly discussing compensation structures and regularly reviewing them against the market, employees feel seen, heard, and valued. It establishes trust and shows that the company is committed to offering competitive packages that fairly reflect individual performance and experience.
Budgeting and planning
Salary benchmarking helps companies plan and budget for factors such as salary increases, ensuring they allocate resources strategically and in line with market trends. And quite aside from base salaries, additional incentives such as bonuses and benefits represent significant costs for companies. By understanding industry standards in these areas, companies can budget for these expenditures more effectively.
What methods can be used for salary benchmarking?
Surveys and industry reports
Surveys and industry reports — such as the Global Workforce Report produced by Gallup — can provide valuable insights into the overall employment market, and are one of the most traditional and widely-used methods for salary benchmarking. By participating in or purchasing annual industry-specific salary surveys, businesses can get insights into the average compensation packages for various job roles within their sector.
These surveys, usually undertaken by professional associations or consulting firms, collect data from multiple companies, ensuring confidentiality while providing aggregated results. The data gleaned from such reports can then help organizations to position their salaries and benefits in line with or above market standards.
Web scraping utilizes software tools to extract website data from a number of sources, and in the case of salary benchmarking it can be leveraged to pull data specifically from online job boards and company career pages. Given that many job postings include salary ranges, web scraping allows companies to automatically gather a significant amount of data on current market rates for various roles.
By analyzing this data, businesses can get a real-time perspective on the going rate for specific job titles or skill sets. However, accuracy and the ethical considerations around scraping need to be managed carefully to ensure reliable and respectful data collection.
Peer networks and industry forums
Participation in peer networks and industry forums provides a more informal method for gaining insights into prevailing salary trends. By networking with professionals and HR representatives from other organizations, companies can discuss and share insights on compensation strategies and ranges, even if not in exact figures.
These discussions, while less quantitative than formal surveys, can offer nuanced understandings of current market dynamics, as well as emerging trends and challenges.
Compensation software and platforms
Modern compensation software is designed to aid HR professionals in analyzing and benchmarking pay scales. Platforms such as Payscale often have built-in databases with up-to-date salary information for various roles across industries, and they can provide analytics, insights, and recommendations based on the company’s specific needs, location, and industry.
By leveraging these tools, organizations can effortlessly align their compensation structures with market rates, ensuring competitiveness.
Many consulting firms offer specialized services in compensation analysis and salary benchmarking. Drawing upon their extensive databases and research capabilities, these firms provide tailored insights for businesses looking to revamp or assess their pay structures.
By partnering with a consulting firm, companies can gain a comprehensive view of the market, complemented by expert analysis and recommendations. This approach can be particularly beneficial for niche industries or roles where data might be sparse or hard to access.
When it comes to attracting and retaining top talent, salary benchmarking emerges as a pivotal tool. It offers businesses a roadmap, guiding them in making astute, data-driven decisions about compensation, ensuring they remain competitive and in line with market standards.
In a job market where employees are driven by financial incentives, salary benchmarking is an increasing necessity. By staying informed, transparent, and proactive, companies can ensure they remain employers of choice in a fiercely competitive landscape.