Benchmarking 101: How to Pay Your New Hires
By Bridget Quigg, PayScale.com
Are you ready to hire a new employee, or perhaps your first payroll employee?
If so, be prepared for several challenges.
One hint: It may not be as obvious as you think.
Benchmarking: Who Is Your Competition?
In Human Resources “speak,” benchmarking is the term used for assessing your competition and putting a price on talent.
When benchmarking, you determine what the market is paying for the job skills, education, expertise, geography and other factors that can affect pay for the job.
Your competition is not the one other company in town that does what you do. You have to think broader than that. Instead, consider these other factors:
1. Future business plans. Where do you want your company to be in five years?
2. Location. What is the demand in your area for the skills you seek?
3. Company size. Even though you’re small, you may need to pay certain professionals a big company salary.
“Many people think about their organization exactly as it can be described today – geography, size, product, etc. – when determining pay. But, if you do this you may be missing out,” says PayScale compensation consultant, Stacey Carroll, CCP, SPHR.
Is your goal to sell your product in 10 more stores?
If so, you need to have the business development and sales talent on your staff to make that happen.
That means hiring like an 11-store organization for your sales or business development person.
To do so, you will likely need to pay a base salary like the 11-store guys and set up a reward system for this talent to get you there.
The takeaway: For a critical role that affects your business success and future, pretend you’re bigger than you are.
Keep in mind too that your company’s location affects the costs of certain skills.
For example, the pay trends show that software developer compensation is higher in Seattle where a developer earns more ($88,420) than one Chicago ($82,600,) a difference of over $6,000 per year in median annual pay for a professional with eight years of experience, according to PayScale.
Why the difference? Because in Seattle, top talent is fought over by numerous, successful tech companies like Amazon, Microsoft and Nintendo. Plus, pay in Seattle is simply growing faster.
The takeaway: You may be wise to hire a software developer in Chicago and have them work remotely to get you started for less.
Your Company Size Matters
Generally speaking, the larger the organization, the higher the pay because the bigger players have big labor budgets.
That said, if you are a small company but want the level of talent found at a larger organizations, you need to adjust your benchmarking.
For example, if the quality of your company’s web design will enable you to compete with larger organizations, you’ll want to recruit graphic designers, content producers and network support staff who can produce outstanding results.
Compensation Is Complicated
In the end, compensation is complicated. Hundreds of factors can influence a pay decision.
Out of respect for your new hires, and to avoid legal trouble, take the time to research your market, knowing that it may change depending on the job position.
Then, document your choices, be responsive and keep improving your recruitment process.