In today’s competitive business landscape, organisations are striving to attract and retain top talent while ensuring fair and competitive compensation practices. In the interests of balancing the books and maintaining a strong foothold in the market, one crucial piece in this tricky jigsaw is pay benchmarking. This invaluable process provides insight into industry standards and helps organisations of all sizes make informed decisions regarding compensation.

Here we delve into the best practices and strategies surrounding pay benchmarking and some of the best tech tools available to enable its smooth implementation.

What is benchmarking?

Benchmarking is the practice of evaluating something by comparing it with an accepted standard or norm. In the context of pay and reward, it involves collecting pay and benefits data for equivalent jobs and comparable businesses or sectors to establish how an organisation's compensation compares with the competition. The process does not only focus on pay, but the whole range of reward elements, including base salary, allowances, bonuses, pensions, maternity leave, recognition schemes, employer branding, and other benefits and non-financial rewards.

How to Benchmark

Generally, there are four steps in good benchmarking:

1. Purpose - determine the purpose of your benchmarking exercise (why are we doing this?)
2. Market - identify your comparator model or market (i.e if you are a not-for-profit organisation you may want compare yourselves against other regulators, UK charities, museum operators)
3. Data acquisition - determine and acquire appropriate data to benchmark against (eg survey providers such as QCG salary surveys, or pay clubs).
4. Data comparison - Compare your internal data against external data sources (employee salaries, benefits, recognition practise etc.)

If you acquire market data, make sure that it meets the following criteria:

• The data is from organisations you typically recruit from or lose employees to – and ideally in the same sector
• The data is from organisations of a similar size or budget range as yours
• The data is ideally taken from organisations in a similar geographical location
• Crucially, the source of data should be robust. Salary surveys from companies like QCG or large data houses like Korn Ferry Hay and Willis Towers Watson provide more reliable data than job ads or crowd-sourcing platforms like Glassdoor.

How often and when to benchmark?

Pay benchmarking should be conducted regularly and not seen as a one-off exercise. This enables you to keep your finger on the pulse and monitor the competitiveness of your compensation practices. The exact frequency will depend on your organisation's reward philosophy but we recommend benchmarking at least once a year to keep your pay structures and market rates current.

Why? Market rates are used as a material factor of defence in Equal Pay Tribunals. Furthermore, in the current landscape of economic uncertainty - and fluctuating inflation - it is never a bad thing to keep tabs on the market as the pay landscape can change quickly. By benchmarking at least once a year you should be able to maintain a strong sense of where your pay is compared to the market and stay up to date with industry standards.

How benchmarking and tech tools can help organisations in making pay decisions

Compensation benchmarking is important because it helps organisations determine if they are offering competitive and fair compensation packages to their employees.

Having the numbers at hand and visible through a user-friendly dashboard provided by a tool like PayLab, managers can be more confident in conversations with employee and pay decisions can be justified on the spot with data-backed confidence. As a result, in the current climate flight risks can be managed and guarded against far more effectively.

If you are tired of benchmarking with a mass of spreadsheets that give you little in the way of output, consider switching to a platform like PayLab for a simpler and more intuitive solution.

Use Pay Benchmarking in context

Benchmarking is a valuable tool in informing compensation decisions, but it should never be the sole determinant in making decisions. Generally, the three main contributing factors are:

1. Internal job size/ pay relativities
2. Individual performance, contribution and experience
3. External market positioning and data (as outlined above)

In these uncertain times, other key factors will also impact decision-making. An organisation’s overall reward philosophy will often be a key driver; the nature and value of the total reward package will steer business leaders; and other practical affordability constraints that place material pressures on recruitment and retention. Rather than buying in market data and simply taking it at face value, it is important to interpret the numbers considering, and balancing, all these relevant factors.

In summary, robust pay benchmarking has become a cornerstone of effective compensation management, providing organisations with valuable insight into industry standards, informing pay decisions, and maintaining internal relativities. By adopting best practices and strategies in pay benchmarking, and using the best tech tools available, organisations can ensure competitiveness, fairness and transparency in their pay practices, ultimately driving employee engagement, retention and organisational success.

If you have a benchmarking enquiry please get in contact with Lisanne at Lisanne.winter@qcg.co.uk

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