When is the Best Time to Benchmark Compensation?
It’s the middle of autumn and you just received notification that the new compensation surveys have been released and are now available so you can start benchmarking your jobs.
The next logical thing to do is heat up your pumpkin spice latte and jump right on it, right? Well, not so much if the following items have not been addressed first...
Before Starting Your Salary Benchmarking Project, Do These 5 Things First
1. Fully Understand the Strategic Plan for the Business
As workforces emerge and companies look to be more competitive, the business strategy and approach for the coming fiscal year must be taken into consideration before starting the annual benchmarking process.
For example, let's say the company is coming off of a record year financially and there's potential for expanded product/service offerings. Therefore, the coming year may have a heavy emphasis on hiring and growing current talent. If that is the case, then the organization’s focus might be around attracting and retaining top talent which might alter your compensation philosophy as it relates to where you set pay.
On the flip side, future sales projections might be dismal or stagnant and the firm might not have the resources to invest in updating the compensation structure.
No matter the situation your company finds itself, it is critical to understand the direction the company is headed to better inform how you should price your roles and pay mix offerings.
2. Discuss the Feasibility and Impact of Budget Changes with Finance
Now that you’ve met with executive leadership on the strategic focus of the firm, you might want to put some time on the calendar with Finance to discuss whether the organization can handle salary ranges increasing in value.
As the company hires, promotes, and plans for salary and merit increases, compensation always refers to the salary range to make pay decisions. As midpoint values grow so will the salary range minimum and maximum, and it is critical you keep this in mind and cushion the salary budget accordingly. Additionally, it is imperative both the HR and Finance teams are aware of any employees who will potentially fall below the range minimum to enable the green circle exercise once the new structure goes into effect.
Obtaining buy-in from Finance during salary budget season and allotting for a larger or flexible salary line is essential before you start updating your salary range structure.
3. Review and Update Job Descriptions
Before you get started with pricing, you should revisit job descriptions that might need to be updated or were revised during the year as a result of any reorganizations or shift in responsibility. When jobs either grow or shrink, the job descriptions should reflect these changes and these modifications, ultimately, will inform how you match and price your jobs.
4. Identify Hot Jobs
Next, it’s time to identify if there are any hot jobs that are either hard to fill because of the scarcity of this skillset in the market or are critical in the execution of the organizational mission. Knowing about keys roles and hot jobs will help you formulate your approach on pricing during the benchmarking process.
For instance, if the majority of your hot jobs are priced at the 50th percentile, you might want to look pricing them at the 75th or the 90th percentile depending on recent experience with turnover and issues with attracting talent. It is important for organizations to stay current with workforce trends and employ a different strategy for jobs with key impact on the overall success of the organization.
5. Define your Organization’s Pay Mix Strategy
Okay, so now we have consulted with management on the annual strategic plan, you and the CFO are on the same page, and Recruiting/HR has provided you revised job descriptions and a list of hot jobs. It is now time to consider revising the pay mix for key roles.
The use of variable pay is on the rise and companies are finding that employee and company performance is improving as a result. Sales roles and other jobs that drive revenue and other key business objectives should be reviewed annually. It's recommended each year you look at what proper amount of their pay is tied to company performance goals. Knowing this information prior to pricing your jobs is important so you can keep an eye out for any changes in the market and maintain a competitive position.
Once the above mentioned items are addressed, you can finally get to pricing! Now, about that latte...