How to Benchmark Salaries - Or Set Them

08/21/08

Another high-value employee just walked out the door, saying she was going to a competitor for “more money.” You’re concerned, and you suspect your company is paying below market rates. But how do you know?

You need to find out what others pay for similar jobs. But before looking at effective ways to do that, a few ground rules:

Keep in mind that salaries depend on the job, the industry, the location, the size and age of the company, and other variables. You’ll need to find benchmarks that match your job’s characteristics.
 
A job isn’t a title. A job is the sum of its content—what the person does all day, how much responsibility he or she has, etc. Make sure you’re comparing apples to apples when you check out salaries.

Sources of Salary Information
Here are three good ways to find market pricing information for a job:

Salary surveys. Surveys are among the most reliable ways to come up with or compare salaries. Your challenge: to get hold of a current survey that reflects your industry, the occupation(s) you’re trying to benchmark, and locale.

Trade associations or trade magazines often fit the bill. The Society for Human Resource Management, for example, publishes annual salary surveys for HR people. Publishers Weekly surveys publishing industry salaries regularly.

Other good bets are surveys conducted by local companies in the same or similar businesses. Your Chamber of Commerce may sponsor or know of one.

Major employee consulting firms like Hewitt Associates www.hewitt.com regularly sponsor salary surveys that can be detailed and specific to a location. One Hewitt survey, for example, is devoted to dozens of jobs in the manufacturing industry in the Dallas/Fort Worth area. (Cost: $750 if you participate, $2,050 if you don’t.)

You can always conduct your own survey. It’s work, but doable. And it’s a good way to find out what jobs pay in your area. Consult with a local attorney to make sure you don’t run afoul of antitrust laws.

The Government. Give your state labor department a call to see if it keeps wage/ salary information. Maybe it can at least provide reliable ballpark figures.

Next, try http://www.bls.gov.com, The National Compensation Survey. It offers accurate earnings for a few hundred jobs. Drawbacks: The information is usually nine or twelve months old (though you can update it yourself by adding in figures from the government’s Employee Cost Index). Also, it’s best used by those in metropolitan areas.

Job interviews you conduct. Ken Tanner, author of the Agile Manager’s Guide to Recruiting Excellence, says, “The best way to collect information about what is being paid by other companies is to ask all applicants, during the initial telephone-screening interview, what they are currently making. Adjust salaries for geography.” And tabulate what you find out.

Don’t Forget…
Once you have established benchmarks for salaries and adjusted them to reflect market prices, do an internal analysis to make sure you’re not discriminating, violating the Equal Pay Act, or annoying valued workers who may perceive inequity.