Salary benchmarking: getting employee compensation right

In all of the talk of the “new normal” over the last couple of years, one trend has emerged. Things are going to continue to change rapidly.  This year, one rapid change is inflation. It’s hard to keep up, and many workers are getting left behind. 

As a result, over half (56%) of Irish employees say that they are likely to switch to a new employer in the next 12 months. You know that you have to keep up, but it’s hard to find the right balance between taking care of your employees and risking the long-term health of the business. There is a process that can help: salary benchmarking.

What is salary benchmarking?

Salary benchmarking is a method that allows a business to compare its compensation packages to direct competitors. A good benchmark highlights whether or not you are competitive, and fixing gaps in your compensation can help you with recruitment and employee retention.

Understanding the complexities of pay rises

Perfecting pay rates for employees is always challenging, but right now, the challenge is multiplied. With rapid inflation, there is a cost of living crisis. Employees need more money to keep up with the cost of living. At the same time, company revenues are not rising fast enough to cover inflation with flat pay raises.

That’s rarely financially viable. Or, as Savvi Recruitment Director, John Ennis, put it, “It might not be sustainable to give everyone a 10 percent cost-of-living adjustment, as much as businesses might like to.”

Tips for carrying out salary benchmarking

In order to find solutions, a salary benchmark can help you compare to your competitors and explore options.

When carrying out a salary benchmarking exercise, a couple of tips can go a long way.

For starters, limit the scope of the exercise. You don’t need to benchmark every salary for every position in each exercise. Instead, pick an area of focus and review it carefully.

By that same token, there is a lot more to review than just the salary, such as the total benefits package. It’s easy to get bogged down when an exercise loses focus, so narrow the range of benefits that you are comparing as well.

You can also laser focus your data sets that are used for comparison. You don’t need a list of every competitor in the world. Instead, pick two or three, or a specific data resource, and then make your comparisons.

What are the alternatives to salary increases?

If flat pay raises across the entire company won’t work, then alternative solutions are necessary. There are a few ways to address the cost of living crisis while working towards economic efficiency. Most of these solutions still involve money, but they aren’t as expensive and overwhelming as a flat 10 percent raise for everyone in a company.

One-off payments

This is a nice solution that makes it easy to control costs. A one-off cost-of-living payment allows a company to put cash in the hands of employees. Employees appreciate the assistance, but because it’s a one-off payment, costs don’t spiral into the future with ever-present increases in salary.

It’s not a perfect solution, but it shows clear effort to employees without putting the company under financial stress.

Cost of living vs pay raises

Sometimes, a one-off payment just won’t cut it and wages need to go up. Instead of giving everyone the same raise to adjust for the cost of living, it’s possible to distribute progressive pay increases. In this case, employees most impacted by the cost of living crisis receive the largest pay increases, on a percentage level, and employees who might not be struggling so much with the crisis might receive a normal pay raise.

 Again, it’s all about scaling the adjustments in a way that is financially sustainable.

Cultivating a feeling of value

In some cases, employees make enough money that they are not struggling with inflation to a significant degree. These employees may be at a point where more money isn’t always the most compelling way to make them happy.

When money isn’t the answer, the key is to find ways to cultivate a feeling of value. According to a survey by PwC, 73 percent of Irish workers say that “finding fulfillment at work is . . . very important.” Employees want to feel valued and appreciated by the company, and there are a few ways to try to do that.

Changing benefits packages around annual leave increases, work-from-home opportunities, or other non-monetary benefits can show employees that management is listening and trying.  It also helps to engage with employees and give them more autonomy over their work structure.

One of the most valuable investments is the creation of clear career paths so that employees can see where they have room to grow and why they should stay with the company.

The importance of communication

Clearly, the key to figuring out what employees want is asking them. Sometimes, the answer will be money. Other times, it won’t. The only way to know is to regularly engage with them and keep the dialogue open.

Too many managers don’t engage regularly and only really investigate these ideas during annual reviews. That’s not enough — especially during times of such rapid and dramatic change. Find a way to keep the dialogue going, and solutions will flow from there.

Get support benchmarking your salaries

If you want to stay competitive and recruit the best talent, finding a trusted recruiter to work with is a great first step. Savvi Recruitment is here to help you navigate the landscape of salaries, benefits, and employee satisfaction.