How to Do Salary Benchmarking: Tips for Attracting and Retaining Talent
With today’s rapidly changing hiring trends and job markets, employers should always make sure their compensation packages are competitive and relevant. Keeping an eye out for what competitors are paying top talent, as well as the current rates offered in the market or industry, is a must. As such, knowing how to do salary benchmarking – and doing it better – is crucial to attracting and retaining top talent.
In a nutshell, salary benchmarking, or compensation benchmarking, involves gathering data on existing salary packages and current market rates for specific job roles or similar positions and comparing them with your company’s current offerings. It also includes looking into other benefits and perks that employees are receiving from other companies. This form of talent management strategy enables employers to craft competitive compensation packages that meet the needs and expectations of top employees.
Why salary benchmarking is important
The past few years saw the world grappling with the COVID-19 pandemic, as well as unprecedented phenomena like the Great Resignation and quiet quitting. This has led to high demand for top talent globally, as candidates can afford to be more selective with the jobs they apply to and offers they accept. Of course, there are many other factors that can affect a candidate’s decision to accept a job offer or an employee to leave a company. However, compensation is, without a doubt, one of the major considerations. When they feel that they are not valued for what they can offer or rewarded for their efforts, it becomes easy for them to consider exploring other employment opportunities.
Therefore, with salary benchmarking, your company will be able to attract top talent and prevent your best performers from jumping ship to your competitors. It will enable your HR team to craft a competitive compensation package that gives you the best chance to keep up with industry standards and attract the best candidates.
Effective salary benchmarking may also save your company on hiring and talent management costs. It will help you keep employees happy, appreciated, and motivated, which in turn will minimise the turnover rate.
How do you calculate employee compensation?
In today’s highly competitive hiring environment, a high fixed salary is not enough to interest talented candidates. As such, companies have been investing as many resources as possible to provide an attractive employee compensation package.
Total compensation refers to the package that includes the base salary plus the value of other employee benefits provided. These include:
Bonuses: While bonus pay is not mandatory, companies often give this to their employees as a performance-based reward or token of appreciation for years of work/service.
Commissions: This percentage-based compensation is based on an employee’s sales performance. Companies that provide both salary and commissions typically offer lower fixed salaries to incentivise the employee’s performance.
Tips: Typically given to workers in the hospitality industry, service workers receive tips from customers on top of their base wage.
Incentives: To further boost employee or team performance, companies may also provide incentives for special assignments, perfect attendance, or meeting quota. This may come in monetary form, extra leave credits, and flexible working schedules.
Allowances: Some companies offset lower base salaries with allowances for communication, clothing, food, or transportation.
Insurance: Health insurance, whether individual or family package, remains one of the most popular employee benefits, especially since we still cannot completely rule out the threat of COVID-19.
How to do salary benchmarking to attract and retain talent
In-depth and accurate salary benchmarking is more important than ever. However, it’s understandable if your HR team or organisation is still finding a more effective way to do it. Below are four simple steps on how to do salary benchmarking not only to attract and retain talent but also to save your company some time, effort, and money.
1. Note down the job roles or positions in your company. First, you must create a database of all the job roles and positions in your company. Take note of the current salary, any extra benefits and incentives, and the job description for each. It should also include an outline of all the duties, responsibilities, tasks, qualifications, and competencies required or expected of the employee.
2. Research current job market insights and salary data. Next, use your list of roles to research current compensation metrics and salary data that are relevant to your sector or nature of business. Consider looking up related positions as well, so you can cover industry standards that apply to future roles that your company may need. Use as many reputable sources as possible, and classify information according to location, company size, and industry.
3. Evaluate your current employee compensation packages and strategies. Once you’ve gathered enough data, it’s time to compare your existing employee compensation package with what the competition is offering and what the current industry standards are. Your HR team and upper management will also need to consider the company’s current budget for compensation, financial performance, and system for rewarding top performers. Other factors you may want to account for include educational attainment, work experience, and cost of living in your area.
4. Establish a salary range for your job roles and departments. Finally, use the information and analysis to set the salary range, which will be part of the compensation strategy for your company. Determine the minimum and maximum wage for a position and find the middle ground. This can serve as the minimum rate that you can pay for new hires. The next step for your HR team is to come up with a policy that allows new employees to move up in the salary range. For example, they may get a raise after one year of employment or once they reach a performance benchmark.
Salary benchmarking is an essential tool for companies to attract and maintain talent. By keeping up-to-date with the pay ranges in their industry and similar roles in other companies, you can craft a data-backed compensation package when recruiting new talent and retaining competent staff. However, there’s more to an attractive package than a high base salary, so hiring managers should also make sure they include other employee perks and non-monetary benefits.
If this is new to your company, you may need to ask your HR staff to get acquainted with the best practices on how to do salary benchmarking. They will need to consider factors such as the industry, size, and location on the company side, as well as training, educational attainment, and skills or competencies on the candidate side. Then, they will also need to determine what competitor companies are offering and compare their findings and analysis against candidate expectations. This process allows your company to stay relevant in an increasingly competitive hiring market.
Ready to apply these salary benchmarking tips to attract and retain top talents in your company? Make sure to download the 2023 Salary Report to plan your hiring strategies and support your salary benchmarking metrics. Register now on Jobstreet by SEEK to stay updated on the latest talent acquisition and management trends on the Employers Insights page. You also get instant access to over 5 million talents in Malaysia through Talent Search.