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The whole salary benchmarking process is time consuming and can be a bit of a minefield. So why do it?

The most popular answer is to ensure your total reward package recruits, motivates and retains the people it needs.

With recruitment and retention challenges widespread and inflationary pressures facing employers and employees alike, offering competitive salaries can give you the edge in the war for talent. 74 per cent of respondents to our spring 2023 UK Reward Management Survey are prioritising pay benchmarking and 68 per cent will carry out benefits benchmarking.

It is important to ensure you start the process early enough. For 39 per cent of respondents to our recent Pulse Survey in July 2023, April is the most popular month for pay reviews, followed by 18 per cent opting for January. Therefore, a significant number of employers will already be looking towards their pay review preparations for 2024.

There is a belief that unless you make your terms and conditions of employment competitive, you will fail to:

  • Attract the right candidates with the right skills to work for your organisation; and/or
  • Ensure the best people want to keep working for your organisation.

So can salary benchmarking help tackle existing recruitment and retention challenges?

Before deciding to buy specific salary data, there are a series of decisions you need to make that have a material impact on the outcome.

The main questions to ask are:

1. What are the benefits of salary benchmarking?

Salary benchmarking provides an understanding about whether your existing approach is competitive, which can be really helpful when you are facing recruitment and retention challenges.  You can use the benchmarking data to:

  • reinforce or question your current approach to your reward spend;
  • identify opportunities to reposition your reward strategy against your competitors; and
  • provide the momentum necessary for implementing change, not simply within the reward package but in determining your overall employment proposition.

2. Who should we benchmark against?

Start by asking the simple question, “Where do the people we recruit come from and where do they go when they leave us?”  Add to this list those companies you see as direct competitors in your business sector, and finally consider the companies that you would like to recruit talent from to enhance your organisation’s skills.

“Where do the people we recruit come from and where do they go when they leave us?”

How can we help?

Paydata are a leading source of UK salary benchmarking data and provide the expertise, insights and tools to help HR professionals manage their pay and reward practices. Get in touch with us if you need support with your benchmarking requirements.

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The answers will be different for different groups of employees. You may find you require a number of data sources to give you a complete picture of your comparators across local and national markets, job functions and business sectors.

3. How do we choose which salary benchmarking data sources to use?

There is a lot of benchmarking data available and it breaks down into two main categories:

  1. Primary sources: These are sources where the publisher collects salary and benefits data from employers (often on an employee-by-employee basis). They generally have a job matching approach based on defined jobs and/or classes of job and may be supported by an underlying job sizing methodology.
  2. Secondary sources: These data sources may contain recruitment data, details of salary ranges (as opposed to actual pay) and surveys that rely on employees providing data about their jobs and their pay.

When selecting your benchmarking data sources, start off by asking the publisher to provide you with a list of jobs covered, some details about the job-matching approach, a participant list and a sample report.  Ask yourself the following questions:

  1. Does the publisher provide data on jobs that are relevant to my organisation?
  2. Is the job matching approach robust?
  3. How easy will it be for me to match my jobs to the data?
  4. Are the other participants relevant to my organisation?
  5. Is the salary benchmarking report easy to use and does it provide the data I am looking for?

It’s very likely that only a small number of the data sources that are available will tick all the boxes.  You may have to use several sources to cover all your roles, dependent on industry, function and/or location requirements.

4. How do we interpret the results?

Having selected the right data sources, you need to review the information provided. Most sources analyse the cash elements of the package individually e.g. base pay, bonus payments, etc., some combine all the cash elements into a total compensation figure. Many examine the key benefits e.g. holidays, private medical, pension scheme, company car etc.

To maximise the value of the data, you need to be clear about your desired market position and what you want to achieve. Analysis will then inform you as to where your reward policies and practice sits in comparison to your preferred position and the levels paid by your comparator groups. From this you can then review the approach to your cash and non-cash elements to create a well-balanced overall package.

5. How do we communicate the outcomes?

It is important to communicate the process that you have gone through to the organisation during pay review conversations. By assuring individuals that their pay is fair and competitive because it is benchmarked against the wider market, can put pay into the wider conversation of the full value that individuals enjoy from working at an organisation – whether this is culture and their working environment, their benefits, or the purpose of their work.

By communicating that benchmarking informs the organisation’s approach to setting pay, the whole process becomes more transparent and objective for individuals. It is important as an employer to underline how the whole process is a delicate balancing act of affordability against rewarding individuals as much as they can. If the organisation has stretched to offer the market average this year, being candid about this is often appreciated by employees.

Taking an evidence-based approach to design

In summary salary benchmarking is neither an art or a science, it’s both! Considering the information provided requires both interpretation and decision-making skills to enable you to use the results appropriately. The data will be telling you a story; it’s then all about how you translate this into your reward approach to gain competitive advantage.

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