Why is compensation benchmarking important to your organization?

By - June 8, 2017

Compensation benchmarking is a method that compares an organization’s compensation and practices against those of other organizations (i.e. the “market”).

Choosing the right compensation and benefits policy is critical for organizations of all sizes.  It is important that employers have a clear justification as to why they have chosen to pay their employees a certain rate, especially in the age of the Lily Ledbetter Fair Pay Act.

As an employer you have a choice whether you want to lead, lag, or match the market when it comes to compensation. Usually, if you are a market leader (leading the market) you gain an advantage or may attract talent away from the competition. For the most part, organizations do not typically choose to lag the market (pay below market average). Some organizations decide to match the market normally paying an average salary for a similar job that is equal to the relative labor market. Regardless of whether an employer is leading or lagging the market, organizations must decide the degree to which they will fluctuate from the average.

An organization who is conscientious about their compensation package, understands both external and internal compensation factors, and the importance of prevalent laws and how these factors can be beneficial to their business.  Therefore, whether an organization is a public or private sector organization, having some form of a compensation philosophy in place ensures that the goals of the organization are being met.  Additionally the compensation philosophy assures that the organization remains competitive in the market, recruits and retains quality employees and top talent, increases employee satisfaction and motivates their top performers.

Benchmarking compensation helps organizational leaders determine the cost associated with salaries and other compensation components.  Compensation benchmarking can be used for several reasons; it assists with pay decisions, salary adjustments, and compensation budget planning.

The company’s human resources professional can benchmark compensation by working with managers to ensure accurate job description content.  However, compensation benchmarking can be a cumbersome and time consuming task. Therefore for some organizations a more feasible option may be hiring a third-party consultant such as RSM US LLC,  to provide compensation benchmarking services.

An organization that takes time to review their compensation practices will ultimately ensure that the organization is market competitive and is in alignment with fair pay practices.

To find out more about this or other ways that RSM can assist you with your business needs, contact RSM’s management consulting professionals at 800.274.3978 or email us.


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