Preparing the annual salary review: pay benchmarking

Pay bargaining for 2013 is just getting underway in the private sector, with employers beginning to think about what they hope to achieve from their annual salary review – this may be based on one or more of the following: affordability; cost of living increases; internal pay differentials; or what competitors are paying.

This year, affordability is likely to be the biggest concern for most. But XpertHR research shows that many organisations will be hoping to make a pay increase in 2013, even if only a modest one.

Having the right data has to be the starting point of any pay decision-making process. Here, the finance department will guide on affordability; official statistics provide information on inflation rates while HM Treasury produce inflation forecasts; and HR can help with data on internal pay levels and job comparators. But when it comes to what competitors are paying, employers need to ensure they are gathering robust data to support their pay decisions.

There is a plethora of information available for external pay benchmarking. When choosing the most appropriate, factors employers should consider include:

Which aspects of reward information is required on. This may include basic pay, bonuses and commission payments, allowances or wider benefits.

The relevant labour market. This is likely to vary between jobs of different levels, with, for example, a local labour market for more junior positions, but an international one for the most senior positions.

The level of data breakdown required. National data is unlikely to provide the required level of detail, so survey data will need to be sourced for specific occupations, sectors, locations or company sizes.

The job matching system used by the survey provider. Not only should the chosen survey employ a robust process of job matching, it should enable users to acurately match their job roles to those in salary survey to ensure they are comparing like with like.

Sample sizes and timing. Survey data may be based on employer- or employee-provided information; the former is likely to be more accurate. Also check the timeliness of the data in the survey – older survey data may need to be ‘aged’ to bring it up to date.

Cost and participation. Some surveys are only available to participants – which could entail considerable input from the organisation in order to access the data. Surveys can also be costly to purchase, especially for non-participants.

Organisations are unlikely to find the answers they are looking for in just one survey – so be mindful that collating data on all occupational groups and variables may require numerous data sources.

Ultimately, however, the salary survey is not going to do the job of the HR and reward specialist – they will need to use their professional judgement to interpret the data and decide how they will act upon the results. But by going through a thorough benchmarking exercise, they will have the data to hand to justify the recommendations and decisions they make.

Whether the result of a pay benchmarking exercise is a pay rise for all, some or no employees, the final decision is more likely to be accepted if there is transparency around the decision-making process and evidence used.

Sheila Attwood

Pay and Benefits Editor, XpertHR

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