Factors to consider for compensation benchmarking
Are you getting ready to hire a new employee? Perhaps you’re delving into starting a payroll for the first time. Either way, in addition to the challenges of clearly defining job requirements, recruiting, and reviewing resumes, you’ll eventually need to figure out what your pay structure will look like.
How do you decide what to offer a new hire? According to the compensation experts at salary database PayScale.com, the key is to analyze the market in which you’re competing. However, it may not be as obvious as you think. Here’s some advice for tackling compensation benchmarking.
Who is your competition?
To HR professionals, “benchmarking” of course 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.
However, your competition doesn’t simply consist of the one other company in your region or state that does what you do. It helps to think more broadly and consider these other factors as well:
- Future business plans: Where do you want your company to be in five years?
- Location: What is the demand in your area for the skills you seek?
- Company size: Even if you’re not a large company, 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.
We’ll discuss each of these three factors in more detail, below.
1. Your business plan for the future
Is your goal to sell your product in 10 more regions? If so, you need to have the business development and sales talent on your staff to make that happen. That means hiring, setting base pay, and creating a rewards system like growth focused organization. In other words, for a critical role that affects your business success and plans for the future, pretend you’re bigger than you are.
2. Your location
Keep in mind, too, that your company’s location affects the costs of certain skills. For example, compensation for a software developer may be higher in Seattle than in Nashville 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.
In that case, it might make more sense to hire a software developer in Nashville and have them work remotely to get you started for less.
3. Your company size
Generally speaking, the larger the organization, the higher the pay because the bigger players have bigger labor budgets. That said, if you’re a small or midsize company but want the level of talent found at a larger organization, you need to adjust your compensation 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. Take the time to research your market, knowing that it may change over time depending on the job position. Then, document your choices, be responsive, and keep improving your recruitment process.
Stay informed and hire smarter
Recruiting the best talent and making smart decisions regarding compensation benchmarking requires a constant research and learning process. Thankfully, there are many tools available. Get help recruiting, hiring, and compensating your workforce by signing up for Monster Hiring Solutions’ expert recruiting advice, latest hiring trends, and more.