The purpose of Salary Benchmarking is to compare the pay levels within your organisation against a relevant comparator group, in the market in which you compete for skills. The mix of both guaranteed and variable pay should promote attraction and retention of superior talent.
Remuneration, one of the key elements in the Total Rewards Model, remains the most critical factor for the attraction, motivation, and retention of staff to an organisation.
To remain competitive organizations should review the way they establish their pay levels.
Role Profiling, Job Evaluation and Salary Benchmarking can help organisations to overcome various issues. Crucially, this is a much more focused and detailed process than simply interrogating a traditional salary survey to establish a salary range for a given job title.
Role Profiling helps you create profiles that replace complicated and poorly structured job descriptions, often no more than a ‘Duty List’ with reference documents that are far more useful for employees, managers, and hiring teams. These role profiles form the basis of key talent management applications — from recruiting and onboarding to development, grading of positions, and succession planning. Properly constructed Role Profiles serve to establish role clarity and, in doing so, mitigate conflict arising out of uncertainty.
Job evaluation allows you to understand the relative complexity of various roles in your organisation. It makes a systematic comparison between jobs to assess their relative worth for the purpose of:
- Providing a logical basis for salary benchmarking & designing an equitable pay structure (internal & external equity);
- Determining the difference in complexity between positions/roles, using the same systematic approach;
- Developing a logical and consistent hierarchy of roles within the organisation;
- Compliance with Equal Pay legislation;
- Creating career paths;
- Gaining control of remuneration processes & administration; and
- Providing a common language and defined point of reference for salary & wage negotiations.
Salary benchmarking is a process by which an organisation jobs are matched (typically, at least 70% match) to similar jobs and descriptions in a selected salary survey or other source of market pay data.
The information obtained for Role Profiling and Salary Benchmarking are typically used:
- To obtain relevant, accurate, representative data on levels of pay and benefits for specific jobs in the organisation;
- To adjust the pay levels of employees in response to changing market conditions;
- To analyse pay-related problems;
- To set the pay mix (guaranteed vs. variable);
- To offer appropriate starting rates;
- To design and modify salary structures and pay scales;
- To determine acceptable rates of salary progression; and
- To provide guidance on pay review decisions and well as salary levels of individual employees.
Companies often come to us wondering whether their senior executives’ remuneration packages are in line with those offered by other organisations of similar size. Few employers routinely have access to this information and gaining it can be challenging. Pay varies widely depending on sector and many other factors. Salary benchmarking allows organisations to get an idea of these differences, while at the same time finding out pay levels typical in their own sector.
Some businesses have remuneration committees in place for exactly this purpose but, without any guidance of the compensation packages offered by other organisations, it can be difficult to know where to start. Salary surveys can be useful for benchmarking at more junior levels, particularly with the significant volume of data that can be generated when comparing pay for roles that are relatively common in the marketplace.
The value of different components of the package can differ greatly depending on the employer. Salary benchmarking considers all aspects of remuneration to ensure it gives an accurate reflection of the package, this may include Basic Salary, Cost-to-Company, Benefits and Incentives/Variable pay.
Most importantly, salary benchmarking allows companies to make comparisons of these figures between many other businesses. As part of the analysis, for example, the research can determine the median, lower and upper quartiles, as well as various percentiles of the value of each component of compensation packages. These then give a better indication of how pay levels compare with market levels.
In developing a suggested pay-line and salary scale structure the organisation’s policies on remuneration must be taken into consideration, such as skills shortages and premiums, competitive position, review dates, lead/lag policy, etc.
One needs to identify the market segment with which the organization should compare itself – typically defined as to where the organisation may either recruit staff from, or lose staff to. In addition, the organisation should select the position within that market for which you strive, e.g. median, upper quartile, etc.;
It is important to extract the information from the selected data sources and develop pay-lines using graded information or by analysing benchmark roles linked to guideline job levels or grades if necessary. Overall, salary benchmarking gives an impartial and accurate idea of pay information to help businesses make informed and effective remuneration decisions, while at the same time accounting for variations that need to be considered.
Government has made significant changes to Employment Equity reporting requirements with the goal to improve the accuracy and efficiency of collecting data about wage disparities between the highest-paid and lowest-paid employees. It hopes that this will enable the Department of Employment and Labour to identify wage gaps and set benchmarks for different sectors. In the past, for Employment Equity reporting you only needed to report the total remuneration of all employees within an occupational level, population group and gender.
The new requirement demands that organisations report the total remuneration of the individual who is paid the highest remuneration in each of the occupational levels by gender and population group. Only active employees should be included in EEA4 reporting, unlike previous years, when terminated employees were included. Reporting remuneration of individuals will simplify the detection of wage gaps.
Organisations further need to report the average remuneration received by the top 10% and bottom 10% of their organisation. In addition, this means declaring the median earners’ total remuneration. Organisations will have to indicate the vertical gap between the highest-paid and lowest-paid employee, and whether the remuneration gap in an organisation is aligned with your policy.
Companies’ remuneration structures, policies and practices need to be carefully evaluated to identify and quantify cases or possible patterns of remuneration and conditions of employment which may fall foul of the grounds listed. Failure to do so may be costly as it can potentially expose employers to hefty penalties to be imposed should the Department of Labour conduct an equal pay for equal work audit.
The Employment Equity Act and its Regulations provide protection to all employees in that a difference in terms and conditions of employment between employees of the same employer performing the same or substantially the same work, or work of equal value that is directly or indirectly based on any one or more of the grounds listed in section 6(1) of the EEA is an act of unfair discrimination.
Employers must ensure that they have policies and mechanisms in place to resolve remuneration gaps and avoid unfair discrimination, real or, perceived. If there are disproportionate differences in remuneration that are not justifiable, they need to take measures to progressively reduce such differences or face possible consequences in the years to come.
With the correct Role Profiling, Job Evaluation and Salary Benchmarking technology, we are able to aid in helping you quickly build consistency across the organization. It is our pleasure to assist companies in these critical areas of attraction, motivation, and retention of their staff.