How Can I Use Salary Benchmarking As a Recruitment Strategy?
Last Updated on October 12, 2022 / Benefits & Compensation, Recruitment
Like many companies, we’re struggling with recruiting right now. I’ve been tasked with doing salary benchmarking to see if compensation is part of the problem, but I’m not sure how to go about doing it. Can you advise me on how to tackle the benchmarking process?
Attracting and hiring talent is one of the most challenging yet critical processes for any organization. Descriptions of a welcoming work environment, rich benefit offerings, and career growth are frequently at the top of the most attractive attributes that organizations tout in their job ads, but one feature stands out among the rest – salary. If you are struggling to hire the talent that you need and your organization has not assessed the market pay rates for your positions, or if it has been a while since you’ve done this analysis, then it will be very beneficial to gather salary benchmarking data to ensure that you’re offering a competitive and attractive salary, particularly in a candidate’s market.
What is Salary Benchmarking?
Salary benchmarking is a process in which companies compare their internal salaries to those of other competitive companies to understand the market average. This allows them to create compensation structures and programs that can meet (if not beat) other competitors in the industry and attract top talent.
But beyond attracting talent, salary benchmarking can also take steps towards reducing costs, rather than just increasing them. Consider the average amount of time and money that goes into hiring, onboarding, training, and equipping new employees. Then, picture your bottom line should a candidate leave soon after joining the team for a higher, more competitive salary – one you had the ability to offer in the first place. And now, the process has to start all over again due to a more competitive offer. So how can organizations reduce the frequency of these situations through salary benchmarking?
How to Begin Salary Benchmarking
First, determine the roles you want to benchmark and create descriptions for each of them. The descriptions should include key job responsibilities, skills, education, and experience criteria. Next, determine the market criteria you want to compare against. Factors to consider are companies within the same industry, geography, organizations of similar size, and cost of living.
After you have established your criteria, conduct external research and compile salary data by comparing your roles against similar roles in the market(s) you’ve identified. Salary data can be found through several sources including the U.S. Bureau of Labor Statistics (BLS), online salary surveys, job posting websites, compensation reports, and third-party providers. Keep in mind, when using free online resources, be sure to reference several sources as the data may not be up to date or completely accurate.
Once you’ve compiled external salary data for each job, establish an internal pay range that aligns closely with the external market. Salary ranges should include a minimum and maximum pay range, and a mid-point that lies within 50% of the range. Once you understand what your organization is able to pay, use the salary range to create a compensation and recruitment strategy for your organization. For example, are you able to pay “at market”, meaning your pay is at a level that matches the market average salary for a specific job? Alternatively, you may opt to pay ‘above market’ and offer a higher rate of pay than other companies in the market. Company and employee performance, the company’s financial ability to pay, and overall business strategy should drive the compensation philosophy you adopt.
I Have My Compensation Strategy… Now What?
Adhere to your compensation strategy and salary ranges to maintain both internal and external salary equity for your employees. In other words, internal employees within the same job classification and similar experience levels should be paid similarly to their internal counterparts. New hires should be paid within the established pay range of the position and their pay should be commensurate with their level of experience. An employee’s placement in the salary range should align with their overall experience level and tenure. Entry-level hires should be paid toward the lower 25% percentile of the range while more experienced employees should be paid between the 50% mid-point or 75% percentile of the range.
What About My Current Staff?
What happens when the candidates you’re recruiting for all have higher salary demands than the salaries of your current staff? It could mean your salary structure is out of date and lagging behind what the market is offering. Or, there may be dynamic forces in place which have drastically shifted salaries – such as inflation, increased competition, or a major market event.
In either case – it’s best to research, validate, and adjust the starting salaries for the positions you’re recruiting for rather than continue to offer below-market wages. These lower wages can not only hurt your recruitment efforts but also compound any “below-market” compensation issue you’re experiencing. Instead, conduct an internal analysis of positions and/or employees who are being underpaid and develop a strategy to bring pay up in line with the marketplace. This may require an immediate adjustment to salaries or, a long-term plan which brings salaries up over time.
Lastly, in addition to starting rates and salaries, hiring managers and HR professionals should also benchmark what other perks are being offered to attract talent. Sign-on bonuses, flexible work hours, and enhanced time-off benefits are just a few of the perks offered by employers today to help attract staff and retain staff.
Special thanks to Terry Salo, Senior HR Business Partner, for contributing to this HR Question of the Week.
Need assistance in benchmarking your organization’s salaries? Strategic HR can help! Contact us to get started.