How to make better compensation decisions with salary benchmarking data
Many companies don’t know where to start in determining competitive salaries because they aren’t equipped with the data and tools required to glean insight into market rates. Here’s how managers can leverage salary benchmarking data to make more informed compensation decisions and retain their top talent.
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Traditionally, managers are tasked with the responsibility of giving employees a merit increase once a year to reward them and keep them motivated. However, the world of work is changing, and compensation strategies must evolve to reflect these changes.
The modern worker not only expects a competitive salary, but they also expect greater transparency when it comes to pay. This means that as part of their compensation strategies, progressive employers must not only understand competitive salary benchmarks, but must also be able to communicate how compensation decisions are made.
Access to salary benchmarking data can be a powerful tool when it comes to compensation decisions and conversations. Here are three ways that salary benchmarking data can arm managers with the data needed to make more informed compensation decisions:
1. Make more informed merit decisions
According to the 2018 Pulse of Talent, respondents expect a median salary increase of 5% a year, and those who have been with their organizations between three and 10 years expect a 10% increase in annual salary. However, the average pay raise in 2019 is expected to be around 3.1%, and businesses expect to give their best talent a higher raise of approximately 4.6%.
Employee expectations have changed, which means a percentage increase each year based on performance and increase in the cost of living is not effective anymore. Many other factors should be considered when deciding on a fair and competitive merit increase, such as time in position, compa-ratio, and market rate. Access to salary benchmarking data will help managers understand what the range is for a position so they can then align it to other factors to make an informed merit increase decision.
Related: The new compensation strategy: Be more creative
2. Address potential flight risk
Identifying employees that are a potential flight risk is essential for companies to hold on to their best talent. However, without the right insight, managers don’t always identify these risks in a timely manner, and as a result, their top-performing employees leave to pursue other opportunities. According to the U.S Bureau of Labor Statistics, employees are looking for other jobs at an unprecedented rate. Approximately 3.5 million Americans quit their jobs every month, which is the highest quit rate in 15 years. Ceridian’s Pulse of Talent report also found that the top reason employees left their last job was because they didn’t make a good salary.
With the right benchmarking data, managers can glean insight into whether they’re paying their top-performers below market rate. This information will help managers identify flight risks so they can take proactive action before it’s too late.
3. Empower managers to have more transparent discussions about pay
Today’s employees want more transparency around pay and compensation. In fact, 33% of employees who were denied a raise were provided no rationale behind it, and Ceridian’s 2019 Pay Experience report found only 30% of workers are completely satisfied when it comes to transparency of information about their pay.
Another recent study found that in order to retain employees, it’s more effective for employers to compensate top talent at market value and discuss how pay was determined than to pay them more than market value and keep them in the dark about compensation decisions. All of this goes to show that salary benchmarking data, combined with visibility into other employee data such as performance, compa-ratio, and time in position, can empower managers to have these important conversations with employees regarding pay decisions.
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