Unleashing the ROI of Pay Benchmarking: the Impact on Your Business
Pay transparency is becoming a hot-button topic for employees — and the companies they work for. It’s probably no surprise that pay is one of the first things that people look at when searching for a new job and as the EU pay transparency directive comes into force, companies need to consider if their compensation philosophy is sending the right message.
Investing in a salary benchmarking tool is one of the best ways to ensure you’re offering competitive yet fair salaries. But, getting approval from finance for new technology often means demonstrating exactly how you expect that investment to pay off.
The good news is that when done right, benchmarking can offer great returns. In this article, we’ll look at some of the returns on investment (ROI) that you can expect when you make pay benchmarking part of your process.
How to conduct a salary benchmark?
You might know all the salary ranges for different roles at your company — but how do those compare to market rates? That’s where pay benchmarking comes in. Benchmarking is the process of comparing internal roles and pay ranges to the same or similar roles at other companies. Knowing the market rate is a key step in setting fair yet competitive salaries that not only encourage recruitment but drive retention as well.
For HR, benchmarking is a key part of working toward better pay transparency and equity, by openly disclosing salary information across the board. A 2022 study by Beqom found that 60% of employees would actively switch to working for another company if it offered better pay transparency. That means moving towards pay transparency needs to be a priority.
But to be effective, benchmarking needs to be completed using up-to-date and reliable data to help you understand where your company stands and whether the pay you’re offering is fair.
The ROI of salary benchmarking
When done right, pay benchmarking can offer a great return on investment. From boosting retention to saving time, here are some key ways to maximise your ROI.
If you’re not offering an attractive salary then your employees may look elsewhere. Replacing them can significantly impact your bottom line — because the recruitment process is expensive.
The Society for Human Resource Management (SHRM) estimates that the total cost of replacing an employee can cost anywhere between three to four times their salary. That cost can further be broken down into 40% hard costs and 60% soft costs. If a few employees are leaving per year, then these costs end up taking a huge part of your budget.
Pay benchmarking can help improve retention rates by clearly showing employees that you value their expertise by offering a competitive salary. By clearly advertising salary ranges, it’s also easier for employees to visualise pay increases as their career develops over time, rather than feeling like they need to switch employers to climb up the career ladder.
Competition for top talent is fierce. When looking for a new job, salary, and benefits are the most important factors for employees, with a 2022 survey by Randstad finding this is the first thing that 66% of employees in Europe look for.
Potential new hires want to know they’re being offered a fair salary in return for their expertise. If you don’t know what salaries your competitors are offering it can be hard to know where to set the pay range for each role, meaning you either miss out on attracting top talent or spend your valuable budget on salaries that are way above market value.
When scaling a company, investors want to see clear evidence of salary policies that can evolve as the business grows.
As a hypergrowth company, Lucca pitched for a series A funding round worth €65 million. As part of the proposal, the HR team had to present a solid and scalable salary policy, which was backed up by Figures benchmarking data.
Manually trawling through competitors’ job adverts and Glassdoor reviews to discover salary data takes a significant amount of time. Once that’s done, there’s still plenty left to do, especially if you’re manually making compensation decisions for new hires and during performance reviews for existing employees.
A 2021 study by Zapier found that by making the most of automation (for example, pay benchmarking tools!) HR professionals can save up to eight hours per week.
When JobTeaser started using the Figures pay benchmarking tool, the HR team slashed the amount of time spent structuring salaries — but was still able to strategically set salaries that helped attract and retain talent. That saved time could then be spent focusing on creating a positive company culture, something that also impacts retention.
FAQs about salary benchmarking
Got more questions about pay benchmarking? We’ve answered some of the most popular queries, right here.
If Google or Glassdoor is free then why not use just that?
It might be tempting to use a free tool to benchmark your pay — but in the end, that decision can end up costing more than you might think.
Using unreliable and unverified data often means the salaries you set don’t accurately reflect market rates. Set your salaries too high and they’ll end up taking up too much of your budget. Set them too low and the top talent won’t even bother applying.
We previously did a deep dive into this topic and found that the unverified salary data from Glassdoor rarely matches the verified data from a platform like Figures.
What’s the difference between using data from a real-time compensation benchmarking platform vs. a one-time salary survey?
A one-time salary survey might be a good way to get a snapshot of what your competitors' salaries look like right now, but what do you do when the pay review season rolls around? Your HR team has to spend hours repeating the process, that’s what.
Instead, switching to using accurate real-time data is the best way to get an edge over your competitors. A pay benchmarking tool like Figures gives you instant access to real-time data for specific market segments, for powerful insights into compensation.
What are some of the challenges in pay benchmarking?
One of the biggest challenges for accurate pay benchmarking is finding good data. Inaccuracies can lead to some serious consequences, including losing top talent, overpaying or underpaying your employees, and negative impacts on employee engagement. The time taken to complete pay benchmarking manually is also a big hurdle.
Luckily, these challenges can be overcome by choosing the right pay benchmarking tool, that does all the hard work for you.
Can pay benchmarking help with meeting obligations of the EU pay transparency directive?
Yes! Soon, European companies with over 250 employees will need to make salary information openly available, including publishing salary ranges on job ads. Pay benchmarking forms a large part of preparing for this directive, helping you set accurate salary ranges and improve pay equity.
What’s the difference between pay benchmarking vs. compensation benchmarking?
They’re essentially the same thing. Pay benchmarking is sometimes called compensation benchmarking or salary benchmarking — depending on where you look.
We use the terms interchangeably however some companies differentiate with pay benchmarking meaning strict salary, and compensation including other benefits and perks and bonuses.
Maximise your ROI, with Figures
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