Employee engagement continues to be a top priority for organizations. Tight labor markets and low unemployment create additional challenges for businesses to retain and attract key talent. Compensation Benchmarking has emerged as a critical step to ensure that employee compensation is competitive, and the company remains attractive to employees and candidates.
Benchmarking is just one part of the total compensation puzzle, but it’s a key part. Compensation planning in advance of building the 2024 budget ensures that you can account for increases accurately. It also frequently dovetails with annual benefits renewals. Taking a comprehensive view of compensation is important to business success whether for an established company, an emerging business or when merging two organizations into one.
This isn’t a one day or even one week activity. With geographically dispersed workforces and competitors, the benchmarking activity requires additional scope than what may have been executed previously. And there may not be the level of experience in your current Human Resources function to plan and execute this process. So how do you begin?
According to SHRM (The Society of Human Resources Management) Compensation infrastructure has three components:
- A compensation philosophy - your strategy target and viewpoint on compensation as an organization.
- A review of each job/role and its worth in the organization - designed to maintain objectivity in compensation management.
- A set of pay ranges - to guide managers in making hiring offers and in promotional, merit and other pay increases.
In today’s competitive environment, it is prudent to add total benefits to the compensation infrastructure. This is normally part of the compensation philosophy and requires documentation.
Human Resources Expertise
Ideally, you seek benchmarks from one or more sources to compare and arrive at the best data. This requires time and investment that small to mid-market companies might not be ready for or have the internal knowledge to properly execute. Benchmarking compensation goes beyond arriving at a number. It encompasses the entire benefit package and often, requires a bit of informed creativity.
If your HR team lacks this expertise or could benefit from learning from a seasoned expert, consider bringing in a fractional or interim Human Resources professional to aid in this important part of business planning. S/He will bring experience to not only identify the correct benchmarking tools to fit the organization’s needs, but also the best approach for building the compensation infrastructure. This expert will craft compensation packages post-benchmarking, keeping the company competitive. The investment you make in this individual will pay off in the retention of top employees and the ability to attract top talent to your organization.
Explore tools you may already have. Your PE firm or Operating Company may have access to compensation benchmarking tools or software through existing partner contracts. For example, if your benefits and payroll are managed through a PEO (Professional Employer Organization) such as Insperity or Paychex, these companies offer various forms of compensation benchmarking. Payroll and HR service providers may offer benchmarking.
There are companies focused specifically on compensation benchmarking such as Spiff, Compease and CaptivateIQ. Do your homework or engage a professional to help ensure that what you are purchasing meets your precise needs. This is not something to delegate to Finance. For example, do you have various categories of compensation to analyze including executive, commissioned, salaried, global and part time employees? What is the term of the license you are purchasing? Are there any software performance guarantees? Confirm that the software you choose handles all of these scenarios as some specialize in just one area.
Other compensation benchmarking resources include recruitment agencies you use regularly. Many create compensation reports annually and distribute to their clients. Others are happy to help clients if you make the request. If you are a repeat client, they might even perform a specific benchmark for you. Another alternative is the U.S. government. They provide salary benchmarks by geography (MSA), however the roles are often broadly scoped, and don’t include full benefits, making comparisons to your exact roles challenging.
Salary information websites such as Glassdoor, Indeed, Payscale and Salary.com are good for comparisons, but aren’t recommended as your single source of data. This is because of role differences and descriptions, which may not precisely match the role you are benchmarking. Scope of responsibilities vary, for example, for a Director of Marketing in a consumer goods company vs. in a manufacturing company. One may have P&L responsibility, the other a communications budget - requiring different levels of business experience. These sites are evolving for the better, and can play a role in your benchmark activity.
Drive Employee Engagement
One of the key drivers of employee engagement is employees’ understanding of their compensation packages. From salary to bonuses to stock options, health benefits and perks, there is much to consider and analyze. By taking the time to prepare and plan, your company preserves your most important asset - your workforce. A content workforce translates into better business performance and can serve as a referral network for new talent for the organization.
Why Choose Growth Operators as Your HR Partner?
Our Human Resources GrowthPros can evaluate your current plans, identify the right tools for benchmarking, perform the analysis and create the right packages for your company. They will also build a communication package that links to your company’s compensation strategy and train managers to have meaningful conversations with employees. We’ve done this for established companies, M&As and emerging businesses. Read this success story to see us in action.
At Growth Operators, we embed in the organization and work side-by-side with employees, building sustainable processes and programs to ensure future growth. We’re operators with experience across 20+ industries and have worked with over 60 PE firms and 120+ companies. We’ve been in your employees’ shoes, and are ready to step in and contribute on day one. Can you benefit from our assistance with compensation benchmarking? Connect with us to learn more or set up a quick call.