How Much Does a Compensation Benchmarking Project Cost?
At Helios, we are often approached by current and prospective clients to conduct compensation benchmarking for their organizations. Typically, it's because they are losing talent to the competition or having conversations with their employees about salaries they found online.
Whatever is driving your business to consider a compensation benchmarking project, the natural response is figuring out how to approach the project. Do you do the project internally or do you hire a compensation consultant?
Let's start with the basics first to ensure we all understand what the project is in its entirety.
What is Compensation Benchmarking?
Compensation Benchmarking is the comparison of internal jobs to the market. It requires taking your job descriptions and matching them to similar jobs found in multiple salary surveys to identify the external worth or market rate. This external data will help you understand what other companies in your industry, geographic location, and size are paying their employees for similar jobs.
However, it's not that cut and dry. It's recommended that you then factor in the internal worth of your organization's positions and your compensation philosophy to formalize your pay structures. And this is why compensation is both an art and a science.
Ok, so now that we know what it is, let's look at doing compensation benchmarking internally.
What is Needed to Conduct a Salary Benchmarking Project Internally?
1) Salary Surveys
If you do compensation benchmarking internally, you will need to purchase the resources to get your benchmark data. As a best practice, you will want the data from at least three salary surveys to ensure you are matching your jobs to the right benchmark jobs in the surveys and to confirm the accuracy of your analysis.
The cost of salary surveys varies greatly; it can cost anywhere from a couple of hundred dollars to tens of thousands of dollars. Just make sure whatever data you are using is reliable, as many of the free online sites are not fully accurate. However, there is one free tool that we do put our stamp of approval on. Helios HR has a partnership with PayFactors to provide our clients and community with complimentary access to their salary benchmark data.
In addition to the direct cost of the surveys, you will have an indirect cost of actually doing the work. To give you an example, as a compensation professional who does benchmarking regularly and is familiar with the surveys I am using, I usually allocate about 15-30 minutes per job. For someone new to benchmarking, it will likely take much more amount of time due to the learning curve.
The other, and probably more costly, indirect cost is the cost of not getting it right. Knowing when to eliminate data points, how to age data, and when to adjust and weight the data is critical. If your final analysis is off, you could end up leading the market when you don’t intend to or lagging the market and have trouble attracting key talent. The cost of losing competitiveness is something I cannot begin to put a price on for you.
If you have both the tools and the expertise in-house to conduct compensation benchmarking, then there is no reason to call in a third-party consultant. If you are curious to learn what it would be like to use a compensation consultant for your project, here is some insight below.
Pros Vs. Cons of Hiring a Compensation Consultant for a Salary Benchmarking Project
PRO: Survey Library and Compensation Tools
A compensation consulting firm will most likely have an extensive library of reliable, well-established salary surveys covering a number of industries, geographic locations, and revenue sizes. Additionally, they should also have tools that help accurately analyze the data.
For instance at Helios HR, our compensation tools easily allow us to compile the data from multiple sources and focus on the benchmarking and analysis instead of the formulas in an excel spreadsheet that oftentimes lead to errors in the analysis.
CON: Lack of Institutional Knowledge
Now the con to using a consulting firm to do your compensation benchmarking is that, as someone external to your organization, we do not know what your employees really do and how they interact with each other (unless of course, you are an existing client of Helios HR). We would rely on the job descriptions you provide, an org chart, and other information you provide to conduct the benchmarking project.
The fact is no matter how good our tools are, if we don’t know what the job really entails, we cannot accurately benchmark your jobs. We will ask our clients to approve the survey matches before we finalize the analysis. We want our clients to be comfortable with the way we match their jobs so they are sure the end product, what they are paying for, is useful.
So, do make sure your job descriptions are up-to-date before engaging a compensation consulting firm to do the benchmarking! Of course, if you need help with your job descriptions, third-party firms like Helios HR can help with that too.
PRO: Compensation Specialists
As a compensation consultant, I have found that most small to mid-size businesses do not have compensation specialists in-house on their HR teams. They typically have HR Generalists who have broad HR experience with little to no compensation experience. Surprisingly, compensation can be a less than desirable area for Human Resources professionals. In fact, I have worked with several people over the years who have put their foot down and said, “no, thank you!” to doing any type of compensation work. When you work with a compensation consulting firm, you are hiring specialists who do this type of work day-in and day-out. You are getting passion, efficiencies, industry knowledge and insights.
Finally, a compensation consultant can help you determine what to do with your market data. For instance, we can perform an employee equity analysis to identify which employees are below or above market and what it would cost to bring them to market, and then provide guidance on how to effectively communicate changes to your employees.
Whether you decide to do a compensation benchmarking project in-house or work with a compensation consulting firm, like Helios HR, make sure you focus on what resources are needed in order for the project to be successful.
A well-done salary benchmarking and analysis can help you control costs, mitigate legal risks, provide structure to ensure internal equity, maintain market competitiveness, and enable your organization to attract, motivate, and retain top talent.