Of all the effects the events of 2020 have precipitated, turning inward has been one of the most pronounced. For many of us, we’ve spent more time at home and in our own company than ever before as the external world has become less knowable.
The same is true of organisations in many ways, but particularly in relation to how rewards are managed. In challenging economic times it’s natural to adopt a more internal (versus external) focus on rewards management, perhaps even passing on external benchmarking for now.
This feels sensible in the current environment, where many organisations are just surviving. However, it could be short-sighted. Organisations seeking to strengthen their employee value proposition cannot afford to lose sight of the external market. That’s why, as our research shows, organisations globally have identified external benchmarking as a major area of focus as workforce preferences evolves and a remote and virtual workforce will be increasing common in the months and years ahead.
In some economies, companies are moving away from an “extreme” micro-market benchmarking approach to a “rational” benchmarking process that is more deliberate, focused, and streamlined.
But this is not so in some APAC markets, particularly organisations in developing markets with less mature HR practices, tend towards overly simplistic benchmarking processes and adopt a “one size fits all” approach. This can lead to pay policies that are ineffective in attracting scarce talent or overpaying roles outside of market practice.
Modern benchmarking demands a more thoughtful, multi-faceted approach that can balance internal and external drivers. Our pragmatic approach to benchmarking elevates this dual focus: taking cues from the external market when it comes to key roles, hot jobs, and staying ahead of the competition, while also making sure the changes are right for each individual organisation.
Six priorities for change
To operationalise this more nuanced and thoughtful approach to external benchmarking, we’ve identified six priorities for change.
1. Rethinking the “job model” approach to benchmarking
The “survey benchmark job” that remains stable across organisations is an increasingly rare thing. Today the classic “General Manager” role may well vary within functions in the same organisation, let alone when compared to the external market. Instead, organisations should focus more on consistent job levelling and talent assessment processes, sizing roles by job content and job level, not simply job title.
2. Quality over quantity in survey utilisation
More does not necessarily mean better when it comes to the number of surveys organisations use. Focusing on a smaller number of higher-quality surveys from a global provider can offer a more cost-effective, consistent, accurate, and representative way to approach benchmarking. In addition, benchmarking the aggregate investment in the organisation’s pay programs can offer a different perspective on cost structures.
3. Industry-specific insights
COVID-19 has only reinforced just how differently one industry may perform compared to another. This can play out dramatically in benchmarking data where, for example, industries like hospitality, non-essential retail and oil and gas which have extensively deployed layoffs and furloughs will see significant differences in year-on-year data. Others, not so much. The takeaway? Organisations need access to insights on policies and trends year-on-year, not just bare numbers.
4. Competitive zone frameworks
When deciding on a market competitiveness approach, the million dollar question is always: what figure should we put on it? Today’s more pragmatic benchmarking approach demands greater flexibility than a pinpoint percentile target can offer. Instead, the trend is towards adopting a competitive zone, for example, between the 35th and 65th percentile. It then becomes all about how the zone is implemented to enable consistent decision making, while also maintaining flexibility.
5. Segmented market positioning
Increasingly, organisations are considering differentiated compensation targets for high value-creating functions and for key contributor roles across the business compared to core functions like HR and finance. This of course raises questions about internal pay equity, so it’s vital that such an approach is supported by clear and justifiable criteria, for example, evidence of supply and demand pressures.
6. Optimising business and employee needs
Ultimately, external benchmarking is a table stakes process in good times and bad. Why? Because no matter what, compensation will always be one of the biggest costs for an organisation. Benchmarking enables rational decision making to justify these costs as an investment in the organisation’s most differentiated source of competitive advantage – its people.
Our latest paper looks in detail at current external benchmarking trends – in particular, the shift away from overly mechanical market benchmarking postures and explores the six approaches in more details. Download the paper.