Benchmarking is an inevitable truth of our lives. In the absence of it we live a life of no one and reach no where. Since childhood, we use benchmarking. When we start to go to school, our parents benchmark the schools we go to, they benchmark our grades to be achieved. As we grow up, we benchmark our likings in clothing, places where we eat, we enjoy, even the college that we complete our higher studies from.
At every stage of our life, we follow benchmarking to make ourselves better than what already are. Similarly, for the lifespan of an organisation too, benchmarking plays a very important role. We benchmark ourselves at many different aspects of the business lifecycle, out of which one of the most important benchmarking is Salary Benchmarking.
Ironically many organisations confuse themselves between, Benchmarking and Competitor Analysis. We need to understand the basic difference between the two, as Benchmarking is journey of What to How, whereas, Competitors analysis is nothing more that just a “wannabe approach”. While analysing yourself against your competitor is not a bad deed at all, but it is widely different from Benchmarking.
When you do benchmarking, you actually look for the blind spots that are stopping you to be better than what you already are, and work towards improving them. This is not a one time exercise, rather it’s a continuous improvement process. You discover the best practices in the Industry and Market, to achieve the best performance results for an organisation.
Salary benchmarking is the process of matching the market rates for each position for the internal job descriptions with external jobs with similar responsibilities. In this process you want to ensure that while you hire a resource from the market for a certain role, you don’t end up over or underpaying the resource for that certain role. There are many external and internal factors that must be considered while doing the benchmarking for a certain role i.e. geographic location, company size, and education level factor.
Types of Benchmarking
While searching for the right point where an employee would be considered as rightly paid resource for the right kind of job, you may have to look in all directions, inside, outside and beyond.
In Internal benchmarking you compare internal salary parities to a similar role inside the organization in maybe a different department to acquire the best internal benchmark. For example, at the Managerial level, two department might have two different set of requirements and the complexity of their roles, still what we need to check is that there is not a huge disparity in their salaries. However, it could be a possibility that Manager in an IT Department might earn a little higher salary than of a Manager in an Admin team, as there are lot of many other factors fall in for that. Still, it should not be the case that a manager in department A earns ‘n’ salary, whereas in department B a manager is earning (n)x10. This would be a huge disparity and may become a cause of internal discomfort among employees
The external benchmarking much similar to the internal benchmarking, with one major difference is that you compare your salaries, benefits and other best practices with the other companies in the similar or different industries (Preferably in the similar Industry). However, doing an external benchmarking with a different industry is also a good approach, as it might show you the blind spots of your industry as a whole too.
You might notice that most of the multinational companies have a slightly different work culture and policies, the main reason behind it is that they benchmark themselves not only to the local practices and cultures, but also to what best practices are followed in different parts of the world. This kind of benchmarking doesn’t only help you in looking at fresh new perspective, but also in innovating to ensure higher level of employee engagement. While doing such benchmarking, you might find some good compensation related practices which you might overlooking, all for the reason that it is not a normal practice in your geography.
Steps in doing a successful Benchmarking
An ill defined Benchmarking process, will lead to no good, rather it might end up creating lot of confusion in the end. Hence, while doing the benchmarking one much keep the below points in the list to be completed for sure
Define what you want to Benchmark
- Understand where you are right now
- Document the current status, it will reduce
- Wastage of time and resources in collecting and processing already existing data
- The chances of deviating the focus
- Define appropriate Comparators
- What to measure
- How to measure
- What to keep
- What not to keep
- How to calculate
- Develop the Data Collection plan, and tools to be used
- Convert Data into Information and benchmark
- Develop the implementation plan and implement it
- Update and Recalibrate
To complete the process of Benchmarking, one could adopt multiple tools to ensure that the Benchmarking is effective and relevant. You could use Internal as well as External tools.
How Salary Benchmarking Defines a Company’s fate
It all starts with people. Company is nothing but a group of rightly aligned highly engaged people working towards one single objective of making the organisation successful.
It’s been observed that highest number of attritions that any organisations in any industry sees is due the “Better Opportunity” that their attritting resource have received from the market, which many a times is with the better salary and other benefits than what they have been getting as a package at some other place.
On the contrary, many organisations face dreadful fate as they ignore the important fact of Salary benchmarking and go ahead in offering sky high salary figures to the talented resources and hire them not in ones or twos but in masses, and as a result they run out of cash to pay salaries even before those highly talented resources become productive enough to get the ROI on their salaries. Many startups has fallen for this trap already, ruining their fate as a company and careers of employees they have hired and later left them with no choice but to leave and join other opportunities with lesser packages and benefits, with which they have live forever, until they reach that level once again
The benefits of right salary benchmarking can be defined in a timeline as below
Hence, it will not be wrong saying that rightly done Salary Benchmarking does play a vital role in deciding the fate of any organisation if they will fall or rise.
About the Author
Dr. Manan is the founder of #GlocalizedHR and a 360º HR Setup and Transformation services company Fortune Architect. He is a scholar of Human Resources and works closely with companies design their data-driven talent acquisition strategies that drive effectiveness, growth, and competitive advantage. He also speaks, writes and chairs conferences on HR Development and management.
Follow his articles : https://glocalizedhr.wordpress.com