Employee Pay Analysis & Navigating Compensation Discussions

If you want to attract and retain top talent, the salary you offer is important. They want it to be enough to complete the contract. But you don't want the new employee to be inconsistent with your budget, other employees with similar tasks, and your compensation philosophy. One measure companies can take to find the right spot is compensation benchmarking.

This competitive compensation strategy can help employers make fair and competitive compensation offers. This article explains what compensation benchmarking is and how you can do it as part of your hiring practice.

What is compensation benchmarking?

Sometimes referred to as salary benchmarking, compensation benchmarking is a process that helps human resources managers and business managers compare an internal position with market salary data, salary surveys, or other compensation metrics to determine the market rate for each position.

This can help you offer fair (or even competitive) market wages and make you a more competitive employer when looking for top talent. Compensation benchmarking can also help ensure that your employees are happy and satisfied in their jobs. When employees find out they are paid less than someone with the same job title or job description, problems often arise.

Compensation benchmarking can make it much easier to balance your budget while reducing or eliminating pay disparities - a win-win for both employer and employee.

How is benchmarking carried out?

Salary surveys are a good first stop when determining salary scales for positions. Remember that survey data collected by third parties is more accurate than information provided by employees themselves. Several salary comparison tools summarize market data for specific positions.

The Bureau of Labor and Statistics has provided comparative wage data for many occupations at the national, state, and city levels for years.

Glassdoor and Indeed offer a free salary comparison tool.

PayScale, Salary.com and LinkedIn Salary require a subscription or payment to access the data but contain a large number of job titles and datasets.

Once you have the right data, compare the internal job descriptions with the external job data. This process is the core of compensation benchmarking. However, things can get a little complicated.

In many companies, especially small businesses, there are positions filled by people who wear many hats. Therefore, it is important to identify the most important characteristics of a position. If a certain position e.g. If the job involves looking after social media, you should find out about the salaries for social media marketers. Estimate the percentage of time your employee is likely to spend on social media. You can use this number to decide how high the proportion of personnel costs should be for this work. Break down the rest of the job in the same way to determine the labor costs associated with the job. However, the most valuable skill in the job description can be particularly important when determining the salary range.

Some companies hire a salary consultant to help them conduct salary benchmarking. These experts are familiar with analyzing payroll data and labor costs. They also know the best practices for comparing your internal jobs to external market prices.

Setting salary ranges and salaries

Once you've gathered the internal and external data for each of your job descriptions, you can begin to set a salary range for each position based on current market trends or a reliable salary survey. When creating your list of salary ranges for current and future positions, consider:

The size of your company.
The range in the hierarchy between the lowest and highest position.
How to calculate raises and promotions within your company.

The compensation management strategy in many companies is to aim for the middle of a salary range. You want to leave a certain amount of leeway for salary negotiations. Find the average market value for each job title based on salary data. Then calculate the range between the minimum and maximum salary for the position or the negotiating scope you want to create.

Setting salary ranges can help you stay competitive. Highly qualified applicants can fall on both ends of the spectrum.

How do I analyze compensation packages?

When putting together compensation packages, employers should pay particular attention to the type of job and the geographical location of the position rather than committing to specific salary ranges across the board. The cost of living can have a dramatic impact on the salary range. States with higher costs of living tend to pay higher average wages; Workers in Silicon Valley are likely to earn higher salaries than workers in the Midwest for the same job.

If you have a distributed workforce with employees in different states, consider adjusting wages to reflect the cost of living. To ensure an accurate comparison between salary data and roles, you should look at job duties and descriptions rather than job titles, as these often vary from company to company.

Finally, when analyzing compensation data, you shouldn't just look at base salary. Consider how you will balance salary with bonuses, performance-based raises, and other forms of equity ownership, such as profit sharing and stock options.

Can I evaluate compensation without benchmarking?

Occasionally, compensation benchmarking for a particular position is not possible because there is no survey data. Sometimes the position is brand new on the market and there is little information available to compare salaries.

In these cases, you will need to determine appropriate compensation from scratch to develop a competitive salary. You can do this by assessing the business impact of the job, obtaining background information on the job's responsibilities, and comparing the overall compensation package to similar jobs.

Finally, you need to get senior management buy-in for the new salary structure. Document your process to make future reviews easier. This is important, among other things, because a market salary for the new position will emerge and influence future salary benchmarks.

How do employees react to salary benchmarking?

Because compensation benchmarking provides greater transparency and equity in compensation, it is typically well received by employees - especially when it also applies to promotions. This goes a long way in increasing employee retention and improving morale.

Of course, compensation is about more than just money. Fair and competitive compensation also includes benefits such as 401(k), paid time off and vacation. When determining the levels at which employees will be promoted and what those promotions entail, keep in mind that a promotion can involve a mix of these elements.

Because compensation benchmarking helps ensure you are not underpaying your employees, both compared to their colleagues and external competitors, you can establish yourself as a competitive employer with high job satisfaction. This helps attract the attention of top talent.

The value of a compensation philosophy

If you're responsible for recruiting, hiring, and retaining talent for your company, then you know the challenge of competing with other companies to find the right people. By using compensation benchmarking, you can protect the interests of future and existing employees while positioning the company for sustainable growth.

Compensation Conversations: Why They’re Important and How to Go About It

How often do you talk to your employees about compensation? Many managers find discussions about their employees' compensation uncomfortable. Still, it's important to regularly talk to employees about their compensation and benefits and compare their current salaries with the market rates for their positions. In this article, you'll learn how to start a conversation about compensation and why these conversations are important.

Why is it so important to talk about employee compensation?

The conversation about employee compensation opens a dialogue about wages and benefits. Managers have the opportunity to discuss the salary range for the employee's role and discuss scenarios in which they might be eligible for a raise, promotion, or bonus. If the employee has already taken on additional work and responsibilities, the perspective is slightly different. The employee is given the opportunity to discuss their current salary and justify why they deserve a raise.

Why are salary discussions difficult?

Salary discussions with employees can be difficult for a variety of reasons. One of them is the fact that many people find it inappropriate or impolite to talk about topics that others consider to be "taboo topics." These usually include politics, religion and money. Compensation talks are about money. Because of this, many people simply don't feel comfortable or don't know how to bring up and discuss the topic. But even if a transparent salary policy is not the norm in a social environment, it is still a necessity in an employment relationship.

9 tips and discussion guidelines for compensation discussions

If you're nervous about having a conversation about compensation, don't let it deter you. These tips will help you address the issues that matter most to you and your employees.

1.Review your company's employee compensation data

Before you begin the compensation conversation, you should find out about your company's wage and salary policies and all current compensation data. You can use this information to get an idea of how your employees are compensated for their time. This can help you approach the topic in a logical way.

2.Review your company's policies for promotions

Reviewing your company's promotion policies will help you discuss options with your employee. This is especially helpful if the employee is currently up for a promotion or you see a promotion in their future. The conversation can then naturally shift to the next steps in the employee's career.

3.Review industry salary data

What are the salaries of other people in the field in question? Is your employee's salary appropriate given their level of education and experience in the field? This step allows you to determine whether an employee is being paid fairly and ensure that they are not being underpaid. Employers who want to retain good talent seek salaries that match or exceed those of other companies.

4.Start salary discussions early

When it comes to discussing salaries and salary expectations, it's best to start early. Most potential employees want to see your salary expectations in your job advertisement. This means the employee knows immediately whether you can pay them their desired salary. If you don't list the salary range in the job advertisement, you should mention it as early as possible in the interview, ideally during the first interview. From the employee's perspective, this shows that you are open about your salary and benefits and are likely transparent in other areas of your company as well.

5.Review the employee's performance

If you want to discuss compensation with an existing employee, you should review their performance in advance. Did he submit his reports on time and meet or exceed all performance targets? Does he show initiative? Have they completed all the training for their position and inquired about more? If so, your employee may deserve higher compensation.

If you find that your employee is participating in a performance management or improvement plan, be prepared to discuss their current salary and how they can achieve a higher salary level or a raise.

6.Start on a positive note

Regardless of the content of the salary discussion, you should always start the conversation with a positive or neutral comment. When speaking to a new employee, simply remind them of your salary range and ask them if that range is acceptable.

When addressing salary issues with existing employees, let them know that you would like to schedule a discussion about their current salary, benefits, and career goals. At the beginning of the conversation, explain the topic of the conversation again and ask for questions in advance.

7.Ask relevant questions

During the conversation, ask relevant questions for information and clarification. These questions could be:

How do you like your current position?
Do you feel like you are being paid appropriately for your position, experience and education?
What job title or position would you like to pursue next?
Do you know the average salaries or salary ranges for people in your field?
Are you ready to further your education or learn new skills to position yourself for a possible promotion or raise?

8.Remember to listen

When asked questions, you should listen and not interrupt. They can make you aware of points that you have not thought of now or in the future. For example, do you need to better inform employees about your benefits plans or the company's expansion plans? Provide relevant and informative answers. Also try to understand how the employee views his position, the company and his opportunities for advancement.

9.Regular review of compensation

Schedule a regular review of each employee's salary and compensation package. Compare them to national averages for similar positions. You don't want an employee to fall behind the pay scale, especially if you value their performance and work ethic. Also analyze the other key compensation metrics you have established to gain insight into the effectiveness of your current plan. In general, it is advisable to review salary and benefits packages annually.

When it comes time to talk about salary and salary expectations, there's no need to be afraid. Instead, be confident that you are giving the necessary attention to the important elements of mutual growth and stability. Use the opportunity for transparency and positive dialogue. For current employees, the compensation conversation may include personal development, career goals, and next steps toward achieving those goals. Discussing salary with potential new employees is a first step in establishing a good match between employer and employee.

Compensation Questions: 6 Problems to Control

HR managers and hiring managers often walk a fine line when it comes to employee compensation issues. If you're involved in the hiring process, you've probably already looked at the compensation structure and salary levels for existing and new employees. If not, chances are you will at some point.

The Bureau of Labor Statistics (BLS) reported on December 2, 2022 that average hourly wages increased 5.1% compared to the previous year. However, this was below the inflation rate for the same period. This means employers could face challenges when it comes to compensation.

In the following sections, we'll address 6 of the top compensation questions HR managers often face when developing a compensation strategy for new and existing employees.

1.Compensation planning

Compensation planning means you don't leave it up to chance whether you attract and retain top talent. A strategic, long-term approach, when implemented correctly, can help keep employees happy and reward them for their performance. Many companies find it difficult to balance compensation needs with their current financial position and future goals. But that is more of an argument for rather than against the plan.

Compensation planning involves weighing salary rates, bonus structures, salary increases and other benefits. Finding the best balance between compensation and company finances can be difficult. However, finding it can help a company fill its positions with top talent and gain a competitive advantage.

2.Internal justice

Internal equity means that you offer equal compensation to all employees who occupy comparable positions or require similar skills to perform the same or similar jobs. The compensation includes:

Basic salary
Social benefits
Workplace perks

If you do not develop equal treatment internally, you risk losing employees and possible legal action, as equal pay for equal work is required by law.

3.Fairness perceived by employees

The way your team perceives justice is crucial. Even if they get what the market demands, they may feel underpaid if they think they are overworked. As soon as they have the impression that someone or a group is being treated favorably, the perception of injustice can quickly grow. This often leads to lower engagement and lower morale. Certain things promote the perception of fairness: information, transparency, an open ear for employees' concerns and compliance with standards for how managers treat their employees. The aim is to show employees that they are valued and receive appropriate compensation.

4.Lack of a human resources department

Many small and medium-sized companies do not have a dedicated human resources department that deals with compensation issues. As a result, errors may occur, some of which may damage the brand or violate labor law.

Hiring a compensation consultant can help small and medium-sized businesses deal with compensation issues such as:

Determination of salaries and salary groups
Make salary adjustments
Recommendation of bonus structures
Initiation of retirement savings
Setting other compensation standards

With this type of expert help, small businesses can keep up with the latest compensation trends. Both compensation consultants and compensation management software can help a company address key compensation issues, stay competitive, and avoid legal issues.

5.Geographical differences

Technology has dramatically increased the talent pool, and employers have the ability to hire people from across the country or even the world. However, companies must consider factors such as local cost of living when deciding whether remote workers make enough money. At the same time, they have to weigh up the demand for equal pay for equal work.

Depending on the size of the company and whether employees work in the field or in the office, geographic differences can complicate compensation programs for many employers. Not only do you have to determine compensation, but you also have to explain location-related differences to other team members.

6.Executive Compensation

Good leaders and senior executives are key to achieving positive business results and strong organizational performance. Executive compensation packages play an important role in attracting top talent. This usually includes the following points:

Basic salary.
Health benefits.
Retirement benefits.
Short-term and long-term incentives (e.g. stock options).
Bonuses.
Other additional services.

Not all companies can afford to offer extensive executive compensation packages. However, companies can offer more flexibility and creativity in compensation to attract good managers.

Keep compensation issues under control

Employers who address compensation issues in a timely manner can create an employee-friendly environment that attracts talent. Problems can arise even in the most organized companies, but a proactive attitude gives you the best chance of success.

Compensation Comparison Best Practices

Whether you're an entrepreneur looking for a new job or an employee looking for a new job, one word will always be at the top of your list: salary. Comparing salaries can seem a little intimidating for employers. How do you know if you are offering the right salary? And how can you ensure that your employees’ salaries continue to be right in the future?

Let's take a look at some best practices for comparing salaries and determining salary for employees.

What is the best way to determine my employees' salaries?

In this article, we will discuss 5 best practices for salary comparison and salary determination.

Determine the value of the job.
Research the average salary rates in your industry.
Set a salary range.
Consider discounts and additional benefits.
Stay flexible.

1.Determine the value of the job

Hopefully you already have a detailed job description for the position. (If not, you should do this step first - here's a post to help you). Think about variables like:

Job title
Tasks
Hours worked per week
Travel
Seniority
Required Education and Experience

Remember to be honest and mention both the good and bad sides.
Now think about how much time and energy you will spend on work. What would you expect to get paid for it? Also think about the value this position brings to your company. Does this person have basic skills or is this a specialized job that your company cannot do without?

2.Research average salaries in your industry.

You want to be competitive. You can only attract the best employees if you pay at least as much as other companies in your industry. You also want to be sure that you are paying your employees fairly and not overpaying them.

Research the average salary for each position in your company. You can use this information to estimate what salary a new employee can expect. You can also get an idea of how an employee's experience, education level, and other qualifications affect salaries in the industry.

To do this, use software with reliable and statistically significant data. Be sure to consider your area of expertise, the size of your company, the benchmarks of similar companies, and the details of the position.

3.Set a salary range

Now that you know the average salary for your position, you should be able to determine a minimum and maximum salary that your company is willing to offer. Of course, it is important that your salary range is feasible. If you offer a salary that you can barely afford, you may not be able to hold that job in the future.

Ask yourself: What is the minimum amount an applicant would likely accept? What is the maximum amount I can comfortably afford? This is your salary range.

Including salary ranges in job descriptions can give you a competitive advantage in attracting top candidates. In a LinkedIn study, over 70% of participants said they wanted to be informed about a job's salary in the first message from a hiring manager.

4.Consider perks and benefits

Typically, base salary is the most important component of your compensation package. But you may have other perks that could sweeten the deal for a potential applicant. Don't just think about the usual benefits like health insurance and retirement planning. Can you offer tuition reimbursement? An employee discount, stock options, paid time off, wellness programs, and weekly lunch are other ideas. Many employers offer attractive benefits and perks that make their workplace attractive to employees.

Be sure to identify your company's goals for the benefits program and the budget available for benefits spending.

5.Stay flexible

Depending on your personality type, you may love or hate haggling. Regardless of where you stand on the issue, you should expect that new employees and even existing employees will try to negotiate their salary. This is actually a positive trait. When employees know their value and confidently negotiate on their own behalf, it means they are capable of doing the same for your company.

It is important for employers to remain flexible in these negotiations. Don't give more than you can afford, but try to compromise when you can. This will help you improve relationships with your employees.

Although a compensation comparison can seem a little intimidating for some employers, it doesn't have to be. Use these best practices to ensure you're offering the right salary to attract the best employees.

Leverage tools like IceHrm to streamline compensation benchmarking. Secure top talent and maintain fairness in pay.