Salary benchmarking, also known as compensation benchmarking, is a strategy businesses use to evaluate how their compensation stacks up against similar companies. Benchmarking compares the compensation and benefits that competitors in their market provide employees performing similar tasks. This side-by-side comparison highlights elements of a comp and benefits package falling short of industry standards before such shortcomings begin influencing employee decisions.
While a variety of factors influence employee engagement and loyalty, it’s no secret that compensation is at the top of the list. Employees who feel underpaid or believe they could access better benefits at another company may be more tempted to leave. Likewise, job applicants considering accepting similar jobs will undoubtedly compare the comp and benefits packages of each organization before making a final decision.
Thus, employers who want to attract and retain highly skilled employees need to consider whether their compensation and benefits are attractive and competitive. And the best way to do that is through benchmarking.
Narrowing the Field
Accurately benchmarking your compensation begins with narrowing the field. Just as you would not compare the financial gains of a small startup to a large corporation, comparing the compensation package of your growing IT company to Microsoft or Apple is not helpful.
Look for organizations that closely resemble your own. They should be in your industry, of a similar size, and in a comparable location. The more similar they are to your company, the more helpful the benchmarking will be. These companies are your closest competitors, especially when it comes to recruiting. You are likely competing with them for the same talented individuals.
While you may offer your employees a wide array of benefits, comparing every benefit across multiple companies is daunting. Instead, limit your analysis to the top benefits employees want or expect. Some of these benefits include salary, health insurance, retirement plans, paid time off, long-term disability, and dental insurance.
Market Research
How do you know what benefits your competitors provide or what salary they pay their employees? This information can be challenging to find, as companies do not advertise on their website. Still, some information is available if you know where to look.
- Job listings can be helpful. They may provide a description of a position’s skills and duties, as well as the benefits and pay.
- Former employees can also be a good source of information. Did you hire someone who left a competing company? Ask them if benefits influenced their decision to leave and what their benefits were with their former employer.
- Online review sites such as GlassDoor can also provide unique insight about what it is like to work for a company. Employees may provide insight into the company’s benefits or pay.
- Professional recruiters have a wealth of information about benefits and pay for many industries at their fingertips. Part of helping companies recruit top talent is assisting them with crafting competitive compensation packages. If you want to know how your package compares, ask a recruiter what benefits and pay your competitors are offering. They can walk you through the benchmarking process and make recommendations for making your package more competitive.
Note: Benchmarking is most helpful when you compare the benefits for similar positions within similar companies. Comparing apples to apples, so to say. Before drawing any conclusions, be sure to consider all aspects of each position, including skills, education, and experience.
Internal Analysis
An employer’s goal is to offer a compensation package that is both attractive and realistic. Skim too many benefits off the top, and you are likely to appear stingy compared to other companies. Provide too many benefits, and you will liquidate your hard-earned profits on benefits that are less important to employees. Finding the balance between too much and too little can be challenging.
Ask current employees for feedback about their compensation package. Do they feel compensation is fair? Is it competitive? What do they like best? What would they most like to see improved? Yes, most employees would like to see something change, and what that is will vary from one person to the next. Look for overarching patterns. Are most employees generally happy, or are they struggling to see how the health insurance plan benefits them?
Make plans to close gaps between company compensation and market expectations and address employee concerns. Improving compensation based on benchmarking and employee feedback will benefit your employees and the company.
The Benefits of Benchmarking
Companies that regularly benchmark their compensation and adjust their benefits and pay accordingly can be sure they stay competitive, especially when talent is in short supply. As they do so, they reap the benefits, which include:
- Business Reputation – Word travels fast. A quick online search can tell applicants if your company compensates employees well or provides basic benefits, before they even apply. Staying ahead of the game makes your business a place people want to be.
- Employee Satisfaction—Do you want loyal employees who give their best every day? Keeping employees engaged starts with demonstrating their value to the company. A leading compensation package speaks for itself.
- Talent Recruitment – What draws top applicants to one company over another? Opportunities, for sure. But often, it comes down to pay and benefits. If you want to hire the most talented individuals, you need a compensation package better than or equal to the other offers they may receive.
- Employee Retention – Every individual you hire comes with a cost. Recruiting, training, onboarding, and mentoring all take time and money. Employees content with their pay and benefits are less likely to leave looking for greener pastures.
- Company Culture – Competitive compensation is the foundation of a workplace where employees feel valued and engaged. One where committed employees work together to ensure the success of a company that takes care of them. Compensation contributes to building a positive and supportive company culture.
Recruiting and retaining top talent in a competitive job market is the goal of every organization. Regular benchmarking allows organizations to accurately gauge where they stand amidst a sea of employers in their industry. While it can be an internal task, leveraging the benchmarking expertise and industry knowledge and experience of a recruiting firm, can ensure thorough, complete, and accurate results.