How not to pay your people too little (or too much)
HR budgets are tight, especially in times of economic uncertainty. Attracting, retaining, and motivating great talent are challenging activities even at the best of times. But when resources are limited, they can seem next to impossible.
Unfortunately, growth ambitions have no limits. So, what do HR leaders typically do to get insights into what they should be paying their people?
- Use crowdsourced data:
Providers such as Glassdoor and PayScale can provide you with some insight into what competitors are paying for similar positions.
While they are free to use, which makes them an attractive option, the bad news is that the data is self-reported by users. This means the data may be inaccurate as well as outdated. In addition, you may not be able to create a clear industry comparison.
- Ask candidates about their current salary:
Some companies rely on the age-old technique of asking candidates for their salary and then applying a flat rate increase to it.
With the emergence of pay transparency laws, this practice is not only illegal (in many locations worldwide) but also inequitable. Traditionally, people from underrepresented communities have been paid less, so using existing salaries potentially increases gender pay gaps.
- Analyze job postings
Reading through job adverts of other companies for similar roles can provide some insight into prevalent market practices.
But this approach is likely to provide insufficient and inaccurate data points. It is relatively unlikely that you will be able to find companies of similar size and scale, location, and strategy as you.
- Ask recruitment partners:
If you have a recruitment firm on retainer, you can check for relevant pay ranges with them.
However, because their commissions rely on the salary offered to candidates they provide, they may have a vested interest in ‘over-reporting’ salaries. In addition, they may also inflate salaries by reporting the ‘bid away rate’ instead of the actual pay for the role.
- Use validated survey data:
Compensation surveys from consulting firms such as Aon, Mercer, or Willis Towers Watson typically provide the most accurate data.
Their sources are employer payroll data, which means there are no gaps in the information you get and no challenges to reliability.
Of course, they are the most expensive option, and they are 90 days in arrears to real-time data due to data privacy laws. Apart from these drawbacks, they serve as the most reliable sources of compensation data.
Conclusion
Ultimately, no source of data is absolutely perfect. Depending on your specific need, the budget, your industry, and your location, you may need to consider multiple sources of data for a fair comparison.
But while doing so, ensure that you are not in violation of local or federal laws. In addition, plan to refresh data at regular intervals to prevent it from becoming obsolete.
Finding the fine balance for compensation can seem daunting but data is your ally in this process. As long as you remember that people are not a part of your business, they ARE your business, you will be able to create the right rewards roadmap for them.
To design a market-aligned compensation structure that factors in your budget and your growth goals, reach out to [email protected].
About the Author
Sumit Singla
Founder of eleventHR Consulting.
Sumit has been working in HR & HR consulting roles for 16+ years across sectors and verticals and specializes in organization design, wellbeing, storytelling & design thinking, and performance management. In his career with consulting firms such as Aon, Deloitte, and Accenture, he has successfully led programs aimed at total HR transformation for clients. Recently, as Associate Director for India Consulting at Deloitte, he worked with clients on cultural transformation and HR process and policy design. He also organized and spoke at conferences and events about a variety of topics relevant to HR today. Now self-employed, he works with clients across the globe on a variety of HR solution areas.
Howard Nizewitz
Howard’s extensive expertise in compensation management comes with a 25-year track record of implementing strategic and successful compensation programs in the financial services and technology industries with a global and regional focus. His tenure includes positions at Barclays, Citigroup, and JPMorgan. Other areas of expertise include HR consulting, Deferred compensation, incentive plan design, and talent management. If you want to learn more, please contact Howard at [email protected] or schedule a free consultation on the compteam.net website.
