Forum - March 2009

BRAINSTORMS

Benchmarking Basics

How can you find out what it means to be fairly compensated in today’s market? Salary surveys, according to The Management Association of Illinois. Employers use surveys to ascertain whether they are setting their total reward strategies at, above or below the marketplace. The importance of using surveys has grown exponentially in recent years. Additionally, with the new IRS Form 990 asking for more information on how CEO compensation is calculated, survey data is even more critical.

Benchmarking, or market pricing, is the most popular method used to determine how much to pay employees. Benchmarking is the act of matching a job and its duties to published salary surveys to determine worth. Organizations that choose to benchmark their jobs have a focus on external equity. These organizations are concerned about how their wages compare to competitors in the same labor pool. This method is particularly popular with organizations in highly competitive business environments. The following are some benchmarking basics:

1. The first step in benchmarking is to get to know your jobs. Job analysis is the systematic, formal study of the duties and

responsibilities that constitute job content. Job analysis is used for many purposes: It helps write or update job descriptions, identify qualifications required for a job posting, and is used for documenting work methods and processes for training purposes. The process seeks to obtain important and relevant information about the nature and level of the work performed and the specifications required for an incumbent to perform the job at a competent level. Sources of information include direct observation, individual interviews, group interviews and employee questionnaires.

2. Once the nature and level of work performed are determined, the second step is to select appropriate salary surveys to be used for comparison. Fortunately, many different survey sources now are available to employers. Surveys typically are attained through industry associations and human resources consulting firms. Look for surveys that cover your labor pool. Labor pool can be defined in many different ways. The Association Forum of Chicagoland pub-lishes its data via its compensation and benefits survey by using budget category, classification and geographic scope. For information about the 2008-09 survey, con-

ducted by MAI, see page 9 of the February 2009 issue of FORUM.

The marketplace is always moving, so using current surveys is imperative. Always try to use a survey that was published within the current year, and never use a survey that is more than two years old.

More than one survey source should be used to ensure the accuracy of the data presented. Get familiar with your survey sources. Review the participant list, understand the statistical methods used to compile the data, and ask about the survey manager’s philosophy. For example, was the data “scrubbed” prior to being calculated? Were outlying data points addressed, and if so, how? Employers must always check for data reliability, good job matches and large data sampling.

3. The third step is to match the benchmark job to survey data. When looking at a job and comparing it to external market data, it is important that job duties reflect the survey job duties by at least 70 percent or more.

Ideally, one would benchmark each job within an organization to survey data in order to create a pay structure. However, this isn’t entirely practical. Each organization has unique jobs that are not found in published sources. World at Work, formerly the American Compensation Association, reports at least 50 percent of all jobs within an organization must be benchmarked to build a valid salary structure. Unique jobs can then be slotted subjectively into the pay structure developed by the benchmarked jobs.