Posted by Gregory Stoskopf on June 17, 2013
Salary may be the most basic element of the employer-employee relationship and can also be an organization’s first line of defense—or offense—in the war for talent. Especially as organizations struggle with the talent paradox—the ongoing difficulty to fill critical jobs despite persistent high levels of unemployment—salary can be an essential tool to attract and retain talent, and confirming your pay ranges are in line with the market is a key to being competitive. Salaries are also a very significant cost that should be managed wisely to avoid overpaying for needed talent or underpaying and risking losing talent to competitors.
Establishing and adhering to a salary structure helps employers more easily and cost-effectively administer salary organization-wide. Our clients are often interested in benchmarking their salary structure and practices against those of other organizations, but a lack of current data has made such benchmarking difficult.
Now, organizations can benchmark against the recently released 2012 Survey of Salary Structure Policies and Practices, co-developed and co-sponsored by WorldatWork and Deloitte Consulting LLP. The study examines the most prevalent salary structures (Traditional, Market-based, Broadbands, and Step), use of competitive positioning percentiles, frequency of adjustment, and related topics and tools. “Market-based” was actually a term I coined in the 2002 article to describe those salary structures that are wider than Traditional structures, but not as wide as Broadbands. The current data shows that the majority of respondents (64%) have adopted the Market-based approach, with an average range spread of 47% (narrowest) to 58% (widest).
The benefit of Market-based structures is that the salary range can be wide enough that they encompass the 25th, 50th, and 75th percentile of the market data for a given job within that range. That’s important because it can give the flexibility to pay newer employees or lesser performers at the 25th percentile, solid performers at the 50th, and superstars or those with critical skills at the 75th.
In addition to organizations maintaining knowledge of leading practices related to structure design, we typically recommend that they also do a market benchmarking of salary for their jobs every two to three years. Those organizations in sectors with “hot” jobs in critical workforce segments, such as health care, IT, or compliance, benchmark more frequently—often every six months.
Are you due for a benchmark? The 2012 survey results will help you get started and see how you compare to the more than 900 respondents from the private, public, and not-for-profit sectors.
|Gregory Stoskopf is a Director in the Human Capital/Talent Performance and Rewards practice of Deloitte Consulting LLP, with a focus on broad-based compensation, performance management and talent management consulting. He is a frequent speaker and author on compensation and talent topics within the HR profession.|