According to the U.S. Department of Commerce, unemployment levels reached their lowest point in 50 years this past February, and percentages have scarcely improved. While this may be great news for job seekers eager to find a new career path, it’s not nearly as promising for employers nationwide still struggling with attracting and retaining talent.
Those employers must use every tool in their toolbox to ensure the endurance of corporate operations and productivity during a labor draught. Perhaps the most important of these tools—and often weighing in at the top of employees’ lists—is compensation.
Yet, how can organizations ensure they are competitive in their pay practices? The best way is through compensation benchmarking. By comparing your organization’s salaries to others in your industry and region, you ensure your positions and pay grades align.
While it would be relatively easy to trade salary data with other employers within an industry, the U.S. prohibits employers from directly sharing their pay data. However, employers can utilize a third-party provider, such as an independent consultant, who can confidentially gather salary information and share collective data amongst employers.
Some factors to consider when gathering this data include job titles, industry and location. These account for significant variables such as employee experience level, industry parameters and living costs in any region. For instance, you’d expect an employee living in a large Wisconsin city like Milwaukee or Madison to be more highly compensated than one in a more rural area, provided all other factors are similar.
Compensation benchmarking, when done correctly, benefits both the employer and employees. Here are five considerable benefits compensation benchmarking can offer:
- Employee retention. When making pay decisions, focus first on your current workforce, as those individuals are your greatest asset. It can cost up to three times an employee’s salary to replace them, allowing for lost productivity, hiring and training expenses and potential damage to existing business relationships. Also, consider how employee satisfaction plays into the equation—if employees feel fairly compensated, they are happier in their roles. Happy employees are much less likely to be on the lookout for their next career move.
- Smarter promotions. Internal promotions often come with compensation increases. Do you bump the employee up one level from their current pay scale? Do you pay equal to others at the same level even if the role is different? Benchmarking can ensure pay increases fit the position and compensation relies on measurable data.
- Talent attraction. It is vital to remain competitive in the war for talent, especially now, as employers scramble to fill their job vacancies. Benchmarking ensures your pay practices do not eliminate you from consideration by the best talent and encourages job candidates to compare apples to apples, as it eliminates substantial variances in pay for any given position.
- Wiser financial decisions. Compensation benchmarking positions you at an advantage by examining external factors and gathering comprehensive data to ensure fair and accurate pay. No matter the staff level, you must ensure you are neither over- nor under-compensating your employees. When setting pay scales, relying on “educated guesses” or internal data can be risky and lead to financial losses for the company.
- Equity and compliance. A key benefit of compensation studies and benchmarking is they ensure equitable compensation and eliminate biases based on race, religion, gender or other protected traits. Safeguard your organization’s reputation by implementing and following compensation standards.
One of the strongest arguments for compensation benchmarking is pay transparency, a practice of honesty between employers and current or potential employees regarding their compensation. Multiple states have already mandated transparency in compensation practices, leading to new-found employee confidence in fair wages and shifting a once-taboo subject to a sincere discussion inside and outside the workplace.
The key takeaway with benchmarking is consistency. HR leaders who follow industry pay standards take every action possible to build and retain a healthy workforce, ultimately securing organizational success, regardless of the economic outcome. Get a head start on your competition—research compensation benchmarking and salary reporting in your area.
Get a head start on your competition with a customized compensation benchmark report from KerberRose Human Resources. Learn more about the Northeast Wisconsin Targeted Salary Report at https://kerberrosehumanresources.com/salary-survey.