Benchmarking is a powerful tool that assists in formulating the pay posture of the business and allows an organisation to measure their competitiveness in bidding for top talent.

The aim of a benchmark is to provide the organisation with an empirical and scientifically formulated guideline regarding the correct remuneration package (within the organisations’ compensation strategy) that will attract, retain, motivate and engage talent and by implication, drive business success.

In our opinion, an exceptional benchmark is one that not only illustrates market related remuneration but also incorporates market trends (such as supply and demand factors). When incorporated with the organisation’s compensation strategy and structure, it provides the organisation with the necessary information to make an informed pay decision.

There are critical data elements required for the benchmarking process. The role, especially if it is a new role within the organisation, should undergo a rigorous job analysis process that identifies the accountabilities, skills, knowledge and determines how the role will fit into the organisation as a whole, in order to maximise on all employee’s efforts in achieving the strategic goals of the business. The findings from the job analysis should be documented by means of a clear job description. Once these fundamental activities are complete, the job evaluation and salary benchmarking process to commence.

However, when benchmarking a role, there are certain traps that people can easily fall into:

  1. Benchmarking the current incumbent in the role and not the role itself. Very often benchmarks are elevated because the current incumbent in a role is a top performer who continuously goes above and beyond the job requirements. It is critical not to confuse individual pay for performance with a salary benchmark.
  2. Benchmarking the role in the future rather than the current responsibilities. Frequently, clients will tell us about how a specific role will be growing new business units and as such will be expected to have a large team in the next 12 months. However, currently as the role stands the incumbent does not have direct reports or leadership accountabilities. Therefore, the question arises do you benchmark the role with a managerial premium or not? We would suggest not, as the additional managerial accountabilities are not yet required. When the size of the team increases in the next year, a salary adjustment should be motivated given the increased scope of responsibility of the role or preferably, the new role should be benchmarked.
  1. Benchmarking job title and not content. A common pitfall with regards to benchmarking is job title matching. For example, if there is an Accountant in the Business and the salary survey has an Accountant position one might presumes these are the same roles. However; qualification, years of experience, scope of responsibility and the consequence of error factor are not duly considered in this approach. It is critical to identify the optimal position benchmark best suited for the role. World at Work Organisation states that there should be a minimum of 70% similarity between the role and the position benchmark.
  2. Not selecting the optimal Salary Survey Market Data. Salary survey data is critical in the salary benchmarking process. The various vendors compile data from different industry segments and may have a bias towards a specific industry. It is of paramount importance to identify the optimal survey by scrutinising the participating companies, their corresponding industries and even the geographic locations. There has been a marked increase in the attractiveness of Reward Brokers, who assist in providing an independent and objective recommendation of the most appropriate salary survey for a given organisation, taking into account the factors above.

If these pitfalls are avoided and the benchmarking process is done correctly the business will be able to reap the rewards, which would include:

  1. A competitive advantage on attracting talent. Talent is the secret weapon to any business success and growth. Accurate benchmarking would assist in achieving this.
  2. Keeping abreast with remuneration movements and trends within the Industry. In any industry there are leaders and creators of trends and then followers; having good, quality, objective data at your fingertips gives you the opportunity to identify trends to ensure your organisation becomes the compensation leader in the field and concomitantly, an Employer of Choice.
  3. Avoid overpaying for talent. Securing excellent talent should be a priority for any organisation. However, there are scenarios when the company negotiates with the candidate resulting in an exorbitant package to secure what is an assumed top talent. However, after a few weeks it is evident the incumbent cannot function in the role or is not a suitable fit within the organisation, which results on a drain on the Company’s resources. An adroit benchmark will prevent this.

Benchmarking is both a skill and art. One requires insight into the business and market in order to translate market data into an insightful recommendation that can assist in driving the business performance. When a role has been correctly benchmarked, the data and input into the decision making process brings the organisation one step closer to achieving its strategic goals by attracting top talent and maintaining a competitive advantage.