Using salary benchmarking to overcome the talent crisis
Your people are one of your business’s most valuable assets and significant operational expenses. To get the most from this asset, you must strike the right balance between paying the market rate and keeping a close eye on costs. When something shifts that balance, such as the current lack of top talent, having up-to-date information about what constitutes as a fair and equitable salary can keep your hiring and retention strategy on track.
In this article, we explain how salary benchmarking can help you create a successful reward strategy to navigate the current skills shortage. We also look at the benefits of pay benchmarking and how you can implement it successfully in your organisation.
Do you know where to pitch salaries in your business?
Your people are one of your business’s most essential assets and significant operational expenses.
To get the most from this asset, the right balance needs to be struck between paying the market rate and keeping a close eye on costs.
It is a critical time for HR and business leaders that are navigating the current talent crisis to ensure you have a fair and equitable pay structure, which motivates your workforce.
Building an equitable workforce
49% of HR leaders who undertook a Glassdoor employee retention survey in 2022 cited that they didn’t know their organisation’s market position on pay. 31% also said they needed a pay review strategy to tackle their current recruitment needs, and 54% cited that they needed to carry out salary benchmarking despite seeing higher employee turnover and struggling to recruit skilled workers.
Know your base level
Being confident you’re paying the market rate on salaries and maintaining your competitiveness is paramount in today’s competitive market, and carrying out professional salary benchmarking is critical to delivering sustainable success for your business and overall people strategy.
A recent poll of 1,000 employees from the Talent Insights Survey 2023 identified remuneration, or cash incentives, as a significant deciding factor in employees’ decisions to stay or leave their current employer.
45% of respondents cited that a salary increase would retain them, while just over half of the respondents (51%) suggested they’d leave their current employer for a salary increase, and 32% said they would switch employer for better cash incentives or rewards.
How to end your talent crisis and retain your people
A sure way of achieving this is through fair remuneration. To keep your business competitive, you need up-to-date knowledge of market trends. Our clients often come to us wondering whether their remuneration packages align with those offered by other organisations of similar size, as variations in pay could be the difference between retaining or losing top talent.
Our reward team at Moore Kingston Smith People Advisory provide strategic reward solutions to navigate the talent crisis, backed up by 25 years of reward expertise and experience, and can support you and your organisation in maintaining that competitive edge by providing market data insight.
What is salary benchmarking?
Salary benchmarking, also known as compensation or pay benchmarking, is where your company compares its reward components and structures against other leaders within your industry sector. This process involves current information about pay and benefits (bonuses, commission, perks, shares etc.) already collected from your competitors and comparing this against your data.
No doubt your marketing team conducts competitor research into the products and services that you offer to customers. The salary benchmarking exercise effectively investigates how your competitors reward their employees to create a competitive environment within your organisation to retain, attract and reward employees.
Benefits of salary benchmarking
Salary benchmarking gives employers a better understanding of the job market and pay scales within their industry. They can use that information to track changing trends and remain competitive in markets where the right skills are hard to find. Some of the other benefits include:
Higher rates of employee retention
A higher rate of employee turnover affects productivity and increases costs, with the true cost of hiring someone to replace them estimated at twice their annual salary in the first year. Salary benchmarking allows you to set salaries in line with the market rate and adapt your compensation strategy to retain your best employees.
More satisfied employees
Salary benchmarking can also help to boost job satisfaction, as you can ensure your teams receive salaries that are fair and comparable with the wider industry. And when employees know they are being compensated fairly, they are typically more satisfied in their roles.
Better talent acquisition and recruitment
Salary benchmarking enables you to compete with other firms in your industry for talented and in-demand individuals. For roles that are particularly difficult to fill, offering a generous compensation package may help you attract qualified and experienced candidates from rival firms without actively pursuing them. The promise of regular salary reviews in line with market rates can also be an attractive USP.
A commitment to equal opportunity
Transparent communication about the decision to benchmark salaries shows a commitment to equity and inclusion. According to a recent survey, only 32% of employees think their pay is fair and 34% feel it is equitable. Showing that pay has been determined by standardised industry data and communicating that can boost pay equality.
How to implement salary benchmarking
Here’s an overview of the steps you can take to implement salary benchmarking in your financial services company.
Identifying relevant job roles and functions
Different organisations can have different titles for roles with very similar responsibilities. You’ll probably be familiar with some of these varying titles already. To overcome this problem, you need to dig a little deeper into the job descriptions so you can match them with the like-for-like roles in your organisation. You can then see how the salaries compare.
Source reliable salary data
The next step is to find and collate reliable salary data. Published data from pay surveys in your industry are an excellent source as they indicate what employees are currently being paid and not just what firms are offering new hires. You can typically find these in HR publications and data-sharing networks. You may have to pay to access the most up-to-date data.
Recruitment sites, particularly those that specialise in finance roles, will also give you a good idea of what salaries for new hires look like in your location.
Analyse and interpret the benchmarking data
It can be time-consuming to compile and analyse the data yourself, which is why paid, aggregated data may be worth the expense. If you do analyse the data yourself, clearly document the approach you take to reach the final benchmark. Showing the methodology behind the figures will allow you to repeat the process in six or 12 months.
Create fair and competitive salary ranges
Once you have usable data, you can create fair salary ranges for each role. When determining a salary range, think about the maximum spread you want to have between the least and most experienced employees within that role. That will also determine how you respond to requests for salary reviews from your team.
Also think about your compensation strategy when hiring. Do you want to offer highly competitive salaries to attract the best people or are you happy to take a median figure?
How we’ve helped other clients
The reward team at Moore Kingston Smith People Advisory delivered a significant global salary benchmarking exercise evaluating c.100 roles, covering numerous departments and countries.
The initial salary data provided some challenges for the client to carry out their own meaningful salary benchmarking in that their job titles were quite niche, and they had no job hierarchy in place.
With access to leading salary survey data and market insight, Moore Kingston Smith’s reward team completed a more thorough analysis to determine the correct market comparators for this client and a benchmark for their positioning in the sector.
Providing reliable salary benchmarking data from trusted sources and backed up by insight and analysis and information from our own data gathering, we were able to create a personalised action plan to tackle their issues on talent acquisition and employee turnover and working with the client on a longer term to implement a robust reward strategy.
During the last six months working with this client, they have seen their employee turnover reduce by 19% and a positive impact on their profit, saving c.£400K on recruitment costs alone.
This project delivered an impressive 92% return on investment for this client.
What it would look like for you
We use the latest market salary data and our expertise and industry knowledge based on over 25 years of practical experience to ensure we conduct a thorough analysis of your salary data.
Our input to your reward project frees up your internal resources from the day-to-day operational tasks to focus on the wider picture and strategy on delivering your overall people and reward strategy.
The access we have to leading data sources provides us with the most accurate industry-specific market data, which is personalised to your business to create a targeted action plan based on reality to identify where your remuneration package is already generous and those areas that need further emphasis; working with you, we highlight the areas that need enhancing to make the overall package for your business more attractive.
Obtaining a clear understanding of the current salary trends in your industry is fundamental. Apart from simply salary, you must ensure your bonus scheme, long-term incentive plan, and benefits package are appropriate for your workforce.
Reimagine and re-energise your reward strategy with our expertise
Moore Kingston Smith People Advisory provide personalised consultations, guiding your business towards innovative, sustainable solutions. We tailor our strategic HR services to address your unique challenges backed by data and industry insights.
Ready to transform your talent crisis into an opportunity for growth? Contact us or call us on 02045821000 today to discover how our bespoke reward solutions can drive your business performance.