What are the key factors to consider when benchmarking your compensation against the market?

I would add information about your compensation philosophy also being about where you want to position yourself in the market against your peers. Will you pay market? above market? below market?

When developing a compensation philosophy, it's helpful to think of it as a set of commitments to your employees. It helps them understand what they can expect from you regarding compensation: How will my pay compare to similar roles in our relevant labor market? How often will my pay be reviewed? What processes, data, and structures does my company use to ensure equitable and competitive pay? What can I do to increase my compensation over time? This mindset will help you articulate a more complete and purposeful philosophy.

-An accurate job description and understanding of the level of work being done -Recent Quality survey data and relevant cut(s) & aged properly to being all data current -Premium or discount applied if added or missing typical responsibilities/duties etc -Other factors such a security clearance required -Geo differential -STIP and or LTIP For sales jobs- crucial to understand type of sales role And even with all of that … still an art not a science.

When creating your comp philosophy, consider your organization’s business strategy and whether you aspire to be "pay for performance" or "pay for presence.” A pay for performance philosophy is what it sounds like: you pay, based on individual and team performance. Pay for presence, on the other hand, means employees may expect to receive pay increases each year regardless of their contributions.

One big item that is missing from the conversation around compensation philosophy is that the philosophy may differ by organizational segment as well as by compensation component. Defining the purpose of base salary, short-term and long-term incentives by segment will help map the path forward for eligibility for different components, the design of the components, and then a plan for benchmarking them. For example: Does base salary represent pay for the skills? For experience? For scarcity of skills and experience? For performance? What are the differences in the answers to the above questions by function, by level, by job? These will help you to define the market, your compensation data sources, and how you use them.

Another important aspect is the organization's stance on using geographic differentials in pay. This plays a significant role in promoting both pay transparency and equity. Having a philosophical guideline that aligns with your business strategy can be highly beneficial in attracting and retaining talent, especially when employees might have relocation opportunities down the road. Such a guideline helps establish a clear framework for addressing a topic that can otherwise be subject to unconscious bias when managed administratively.

Clearly articulate your organization's values and goals regarding compensation. Determine whether your focus is on being a market leader, a follower, or maintaining a balance between competitiveness and internal equity.

It is also important to note that different peer groups may be used for different purposes. For example, peer groups for executive compensation are likely quite different from those used for broad-based compensation.

What’s the right number of companies to include in a peer group? A good rule-of-thumb is anywhere from 10-30 depending on your intent in creating the peer group (e.g. benchmarking pay for a specific job function vs. evaluating programs and practices.) The smaller your peer group is, the more limited data you’ll be able to generate. And assuming companies included in this sample have very different comp practices, you may not be able to glean any useful trends from the data. Pulling a peer cut with a small number of firms and a broader cut with “all firms in a given industry” can be a helpful way to see just how varied the data is between two populations.

It is crucial to understand the market, key players, and your peer group based on the size of companies or stack of technologies of type of services. For example High-tech market is big and there are services consultancy, hardware and product segments. Also, it is beneficial to know all market data providers and understand the variety of data points and positions that they can provide and market practices in the exact country what providers are used by your peers. Sometimes this information you can get from local C&B communities. It will help not only identify not only your relevant market but also use the best source of data.

With the rise of remote firms and businesses, identifying your relevant market becomes very interesting. You should be asking yourself if the requirements of the role require you to be competing for talent in high cost of living markets or not. If not, you can exclude salary data points from those markets in conducting your data analysis to set salaries and you will arrive at lower recommended ranges

Un élément complémentaire pertinent de comparaison peut être la phase de développement de l'entreprise, notamment lorsqu'il s'agit de start-up. En effet, en fonction du stade de financement de l'entreprise, les moyens financiers ne sont pas identiques ce qui influe sur la capacité de la société à rémunérer davantage en cash qu'en equity ses salariés.

Define the geographic scope and industry sectors that are most relevant to your organization. Consider factors such as talent availability, industry competitiveness, and regional cost of living.

Compensation is a blend of art and science and the Compensation team’s job is to ensure your Organization remains competitive in the labor market. Although salary surveys (the science part) provide valuable insights into market trends, the data is imperfect and only one part of the equation. Salary surveys should be used to provide directional guidance for setting pay, but the compensation team should also rely on other factors and judgment (the art) when evaluating compensation. Blending the market data with our expertise and judgment enables us to make data-driven decisions that support our company’s recruitment, retention, and engagement practices.

While building the foundation, Benchmark positions should represent a ~80% relative match to the market source. Unique or niche positions can be slotted into a range after the valuation of strong matches sets the framework.

Analyzing job matches is a key component of any compensation structure. It has been my experience that this should be a collaborative exercise between compensation, the business and HR partners. I like to provide my partners with the company Job Description and the market job description. The conversation is then centered around roles and responsibilities vs hunting for numbers.

This is a favorable time to engage with your leadership team and reassess your job hierarchy, ensuring that job roles and titles are well-aligned. This collaborative effort underscores the importance of consistently monitoring the job structure, allowing you to gain insights into potential realignment opportunities or growth areas. By setting up a regular schedule for this review, combined with job matching, you'll establish the long-term governance necessary to maintain a clear and effective course.

Asking your HR partners and business leaders to validate your survey matches not only helps ensure you're accurately matching jobs but also builds credibility and ensures they're bought into the overall compensation market pricing process. This extra step can be time-consuming but can make all the difference in building awareness around your company's benchmarking approach.

I agree with the comments that this can become an opportunity to review your compensation design strategy with leaders. By framing job matching in your overall career architecture, you can conduct an organized review of how you're matching roles with leaders of the functional areas and other stakeholders. This will likely surface the need for specific skill sets and responsibilities, and you can show how you're translating them into the comparisons used for matching jobs and tying to compensation recommendations.

Ensure accurate job matching by comparing roles with similar responsibilities, skill requirements, and complexity. Pay attention to nuances in job titles and responsibilities that may affect benchmarking accuracy.

Job Title & Responsibilities: Ensure you're comparing apples to apples. Look for titles with similar duties and required skills. Don't just rely on the title itself. Experience Level:Are you comparing yourself to entry-level or senior roles?Factor in experience requirements when evaluating salary ranges. Location:Cost of living varies significantly. Use location adjustments like purchasing power parity (PPP) to compare salaries across regions. Industry Standards:Research salary trends specific to your industry.Look for reputable salary surveys that target your field. Company Size & Profitability:Larger,more profitable companies tend to offer higher salaries. Consider the company's financial health when evaluating their compensation package.

Market data, regardless of your source(s), is an imperfect representation of the market. It's a sample. A snapshot in time. A common mistake I see clients make is to use the market data as-is without carefully considering how the market data fits within their existing compensation and job structures. Is market data critical to an effective comp strategy? Absolutely. But it's inherently flawed and needs to be polished. Carefully review and adjust the data in the context of your established job families, career paths, promotion and merit practices, internal equity, etc.

Market data isn't precise, but it is usually accurate. Understanding where the market data excels, and where it may fall short is imperative when making adjustments. When adjusting your market data, you should consider the following: Age the data based on forecast market movement (the Atlanta Fed is a great source). You must choose to lead, lag, or lead/lag market. Consider geographic differentials and how much of the geographic differential may be built into the data, already. Consider where your talent actually comes from. Don't rely too heavily on industry, revenue, or company size unless you can demonstrate that your employees actually come from specific labor pools. Above all: Use your discretion. The data is imperfect.

Consider making adjustments for variations in company size, industry-specific factors, and other relevant benchmarks. Account for regional differences in compensation trends and economic conditions.

If unsure how wide your ranges should be from min to max a rule of thumb is salary should be 20% wide and equity 30%. To test, ask "how long will someone be in this range for?" and see how many 4% increases you can give in that range. Tenured talent can be in a role for years without a promotion - so the range width may need to reflect that. If wondering how to determine the distance between levels (called progression) ask, what is the average % increase for a promotion? If 15% is expected (which I recommend) then have 15% between midpoints. If you anticipate needing a smaller/larger bump, adjust the delta accordingly.

Pay ranges serve as an integral part of the compensation foundation and as pay transparency proliferates, so too does the importance of getting them right. Your pay ranges should be reflective of your compensation philosophy, and knowing how the minimum and maximum of each range align to the market 10th percentile and 90th percentile can help to inform how wide your ranges are set. The most common range spreads, according to a 2023 study by Deloitte, ranges are: - Nonunion/hourly: 46% spread - Salaried/non-management: 50% spread - Salaried/Management: 54% spread - Officers/Executives: 59% spread Midpoint progressions typically range from 11% to 15% by pay grade.

Pay ranges are undergoing a massive transition with pay transparency and the requirement for job-based ranges to be disclosed. Companies should consider ranges that reflect a way to manage compensation but in consideration of how best to communicate as well. This means narrower ranges and putting them in a career context. Framing ranges in terms of functions/job families and career paths will help you determine the appropriate range widths and midpoint progressions. By refining designs to reflect (1) what you pay individual jobs and (2) how folks typically progress through those career paths, you are well-positioned for increasing disclosure requirements as well as better conversations with employees to enable opportunity transparency.

Develop competitive pay ranges based on the benchmarked market data. Consider the organization's compensation philosophy, internal equity, and the need to attract and retain top talent.

A helpful tip for effectively communicating pay practices is to think about it as an ongoing conversation rather than an annual message. There are many points in the employee journey when communication and training on compensation are meaningful: during the recruiting and offer process, during the onboarding experience, in periodic company-wide town hall meetings or employee newsletters, during 1-1s with managers, and, of course, during regular pay review cycles. Vary your messaging medium (videos, FAQs, manager talking points, etc.). Hearing the messages regularly will reinforce your commitment to them and build their confidence in your pay practices.

Throughout my career I have seen many opinions as to what should be communicated around pay practices. I have found transparency of design, data and parameters lead to the best outcomes. The information should answer the following: Why did we do this, how did we do it, what materials did we use, what is the purpose of said design/outcome.

A few considerations: 1-Who is communicating? There may be different levels of details that need to be communicated by (or at) different levels. Adequate training is required for ‘communicators’ to navigate formal and unplanned pay conversations. 2-What should be communicated? The level of transparency may depend on the maturity of the organisation, the culture and/or pay programs. Pay clarity is an ongoing journey. 3-Defining effective communication channels – e.g. email, hardcopy flyers, internal intranet, in-person meeting – is important to enable access to information, clear understanding and build trust. 4-Providing a feedback mechanism to address employee queries, concerns or views about what is being communicated.

Depending on the maturity of your programs, you can develop a "Comp 101" training that provides an overview of your job architecture and levels, your comp philosophy, and the purpose behind each of the elements of comp you offer whether it’s base salary, bonus, or stock. Other helpful topics to discuss include eligibility for comp programs, a timeline of how and when comp allocations are made, an explanation of key compensation jargon like compa-ratio (base salary divided by midpoint of the comp range), an overview of what it means to be paid in one part of the salary range versus another, exemption statuses under the U.S. Fair Labor Standards Act, and how salary structures are determined.

Communication is the key. It's essential to not only rely on direct enablements from the Rewards team but also to equip managers, who may possess varying levels of skill and experience, with the necessary toolkit for conducting compensation discussions.

Employees today have more information about compensation than some of us did when we started as compensation professionals years ago. We need to help our companies "own the story" by using simple language to explain why we pay what we pay and doing it OFTEN. Begin by answering simple questions - What do we mean by competitive and fair? By "pay for performance?" - and be specific about how these principles show up in pay and broader rewards. Stay away from the technical aspects that we all enjoy "nerding out" to. By engaging employees in a regular discussion about pay and assuring them we engage in rigorous processes to design, administer and monitor pay programs, we will engender trust and higher levels of engagement.

Clearly communicate the compensation philosophy, strategy, and pay ranges to employees. Foster transparency by explaining how performance and other factors influence compensation decisions.

In today’s labor market, understanding the concept of “competitive pay” is crucial for both employers and employees. For employers, competitive pay is a salary or wage that aligns with the market data for job(s). For employees, competitive pay usually means how much companies are willing to pay for their talent and skills. The intersection of these two definitions is an important one in the employee and employer contract. While Compensation teams should use data to make decisions about pay, the importance of good judgment should not be overlooked when the data doesn't align to reality.

Market Trends: Stay updated on evolving market trends and adjust your compensation strategy accordingly. Legal Compliance: Ensure that your compensation practices comply with relevant labor laws and regulations. Employee Feedback: Solicit feedback from employees to understand their perceptions of the fairness and competitiveness of the compensation structure. Competitor Analysis: Regularly assess the compensation strategies of key competitors to remain agile and responsive to market changes. Total Rewards: Consider the entire spectrum of benefits, including non-monetary perks and career development opportunities, when evaluating your total rewards package.

Ensure that you're not solely relying on market trends. Examine internal metrics such as band usage (the distribution of employees within bands), assess the placement of new hires in comparison to tenured employees, and analyze attrition and offer rejection rates. These metrics can provide valuable hints and additional insights into your market competitiveness.