There is a tremendous amount of activity in the compensation arena right now. Many organizations did not evaluate and adjust their compensation programs in the past few years, but as the economy rebounds, those same organizations are now busy assessing their programs to ensure they are prepared to respond to retention and recruitment concerns.

If you find that you’re in a similar position, we recommend that you do this as well. Conducting a competitive market analysis will:

• Identify pay anomalies in your organization.
• Provide tools to relieve “compression” between supervisors and employees, or between new hires and longer-tenured employees who have been performing well in the same role.
• Identify if your top performers are paid appropriately compared to the market; if they are not, it will arm you with information to remedy the situation before it becomes part of an exit interview discussion.
• Help you establish competitive new-hire rates of pay as the economy rebounds.

Are you feeling as though your organization is unable to invest a significant amount in salary increases? If so, it’s important to note that just because you conduct a market analysis doesn’t mean you have to adjust salaries immediately. Many organizations use the information to help them establish a phased, often multiyear approach to getting closer to their intended level of competitiveness. Depending on your compensation philosophy, you may even be comfortable with the fact that your organization pays less than the market average. (Perhaps you’re committed to an employment proposition that significantly values the mission-driven intangible benefits of the employee experience.) Regardless, information is power, and the more informed you are of where your organization stands compared to the competition, the better able you are to effectively communicate why your organization is a compelling place to work.

How to Thoughtfully Gather Benchmark Data
Once you decide to conduct a competitive market analysis, you’ll need to consider what benchmark data to use. Many organizations struggle with how to appropriately select it. It’s important to remember that there are no magic numbers when it comes to compensation—“market” is a range of pay for any given position.

There are many sources for compensation benchmark data, including published surveys and databases, professional associations, custom surveys, and government sources. The art of compensation includes finding the right balance between relevance and availability of appropriate benchmark data. At the end of day, the best guidepost for this decision is how you answer this question: Where do you draw your talent from during your recruitment process, and where does your best talent go when they leave the organization? The following are guidelines for selecting good benchmark data:

• Don’t compare yourself to everyone. While you may have access to national data covering all organizations in all industries and geographies, remember that you likely don’t need to compete with those organizations for talent. For example, if you’re a small professional services firm in Evansville, you probably don’t need to worry about what a similarly sized professional services organization in California is paying for a like position, or what a global firm in the same industry is paying for a similar job.
• Don’t compare yourself to a select few. On the flipside of the previous point, don’t narrow your benchmarks to just a handful of organizations that are exactly like you. For example, if you’re a midsize manufacturing organization with multiple sites across the Midwest, you probably want to have a good sense of compensation at similarly sized organizations in your general industry and relevant geography, not just at organizations that make the exact same product as you.
• Do strive for a perfect balance. Allow the scope of your benchmark data to answer the question of where you draw and lose talent. Typically, this balance includes:
  • Geography that is local for lower-level jobs (e.g., you would likely recruit for a receptionist in the Indianapolis metro area), more regional for mid-level management or specialized positions (e.g., you would probably open up a candidate search for a Supply Chain Director throughout the Midwest), and national for top executive and C-suite positions.
  • Industry that is comparable but not too specific. For example, suppose you manufacture paint. It doesn’t make much sense for you to compare yourself only to other manufacturers of paints, varnishes, or enamels. Instead, you’d be better off looking more broadly, at manufacturers of other kinds of nondurable goods or at manufacturing organizations in general. After all, if your controller left, you would likely consider candidates that were in a different area of manufacturing specialty, wouldn’t you?
  • Size that reflects pay trends that influence your organization’s compensation program. It probably goes without saying that a marketing manager at a 50-employee organization probably doesn’t make the same as a marketing manager at a 40,000-employee organization.

After you select suitable benchmark sources and pull the data, you’ll want to conduct a gap analysis (i.e., examine how your incumbents’ compensation compares to the benchmark data you selected) and develop a plan for addressing discrepancies. Those steps aren’t a focus of this article, but you can learn more by reading other compensation-related articles on our website’s Resources page or by visiting our Compensation page.