-Salary Comparisons are a tool many organizations use, helping them adopt compensation principles to ensure fairness and equity in pay rates, ease of salary administration, and transparency in compensation practices. Effective compensation policies are based on objective and up-to-date job descriptions, effective job evaluation, performance management, and relevant salary administration factors.
Organizations are constantly being confronted by employees, managers, and members of the Board of Directors with queries about comparative internal compensation levels, or Internal Equity. There are often questions about compensation levels paid by the organization compared to similar external organizations, which is known as External Equity. Which do you think is more important? Time’s up! Internal equity trumps external equity most of the time. Salary comparisons can play an important role in determining pay levels, but pay levels might not be as important as you think.
We are often asked to do HR Reviews for organizations with limited budgets and lower comparative salaries. You might be wondering, does the organization lose all their staff? Is the organization dysfunctional? Are employees unhappy, dissatisfied, and constantly looking for other opportunities? No. Why? Most often it is because the organization has a strong corporate culture where managers create a nurturing and happy work environment, and where compensation levels within the organization are well aligned so that no one feels less valued when compared to other jobs within the same organization.
Each time we are asked to interview staff or to do an employee engagement survey, we find the same result. Employees are unlikely to seek other, higher paying opportunities if they are
- happy in their jobs,
- connected to the organizational culture, and
- doing quality and valued work.
We specifically ask “Would you cross the street and work for $10,000 more in the same job for another organization?” The resounding response is “No”.
Benefits of salary comparisons
Salary comparisons have several benefits for organizations.
- Salary comparisons establish pay levels that accurately reflect the talent in the broader market and within your organization. This provides an accurate snapshot of what the market is paying for comparable positions and enables your organization to benchmark compensation levels and make informed pay decisions.
- Salary comparisons can help to reduce costs and improve effectiveness and profitability through employee retention and streamlined recruitment processes.
- Salary comparisons can help to reduce time and administration spent by Human Resources and Management on compensation decisions.
The salary comparison process
A salary comparison is relatively easy to prepare and is predominantly based on common job families and common geographic areas.
Typical salary comparison research methodology starts with comparing similar jobs across job families, organizations, sectors, and geographic areas regardless of job title. Even in cases where job duties are very unique, it is possible to objectively and successfully make salary comparisons across the market.
Establishing a transparent and easily defensible compensation structure based on internal and external salary comparisons helps promote a healthy financial underpinning for organizations. This process can positively impact employee recruitment and retention, resulting in an improved bottom line for organizations of all sizes.
Developing pay levels based on random notions of what is “right”, or historical trends, can quickly lead to resentment, hostility, and lack of collaboration among employees. In turn, this contributes to reduced levels of productivity, poor morale, and potential legal battles. Formal salary comparisons, both internal and external, can effectively assist in removing these challenges.
Depending on the type of business, different methods are used to establish compensation scales based on external salary comparisons. It is important to determine what other organizations within your industry and region are paying. The second consideration is to establish what kind of training is necessary for employees to be successful in their jobs and how that affects the bottom line of your business.
Salary comparison structure variations
Different structures look at what the employee can do and less on the formal job description.
- Skill-based pay is determined by skill level rather than job title. As employees master the skill levels that have been established, they receive pay increases.
- Competency-based pay and performance systems look at how well employees acquire and execute the core competencies needed to do their job well.
Organizations often broadband several related jobs into one category or job family and assign a pay range to that group, regardless of the job title. Most often, a combination of pay methods is used to establish compensation scales that are specifically tailored to suit to the needs of the organization.
Salary comparison ROI
The return on investment when using salary comparisons comes through improved and objective compensation levels. The actual cost of human resources with an organization is always significant and can range from 25% to 85% of the organization’s total budgetary spending. Salary comparisons help manage this cost more effectively. This leads to improvements in efficiency and profitability. Depending on payroll costs, improved management of remuneration costs by a mere 0.25% can make a sizeable impact. Additional savings are realized through improved employee retention. The typical cost for an organization to replace an employee at an annual salary of $100,000 can be up to $100,000 or more, so it is important to get the pay right!
Salary comparisons are about more than just wages
While compensation traditionally refers to employment wage or salary, best practice in today’s workplace considers total compensation to include base salary, bonus or incentive plans, benefits, and non-cash compensation. Pensions, perquisites, holiday and vacation pay, overtime rates (where applicable), site uplifts, living allowances, deductions, gratuities, and other elements are also important factors that are reviewed in salary comparisons
A salary comparison can be a useful tool for any organization. We are happy to help with your salary comparison process. Contact us today for a free, no-obligation chat and find out how we benefit you!