Why salary benchmarking is vital for success

Salary benchmarking allows companies to establish whether their senior executives’ remuneration packages are in line with the rest of the market. Here, we explore it in more detail.

Why do firms need a salary benchmarking service?

In some cases, they don’t want to risk losing their top executives to offers of better pay packages from competitors. In others, they want to be able to prove to their shareholders in black and white that their senior staff provide value for money. Either way, it can be vitally important to the success of an organisation.

But getting this information can be difficult. At the most senior level, where there are simply fewer roles to compare, it is not widely available.

Salary benchmarking gives a complete breakdown of the compensation package allowing companies to compare salary and benefits available within specific sectors and named companies. So, overall it is a much more exact science than, say, a salary survey.

What is salary benchmarking?

Salary benchmarking allows companies to overcome the issues with salary surveys, such as the lack of data for more senior roles.  Benchmarking entails a complete breakdown of compensation packages which allows companies to compare the salaries and benefits in specific sectors.  

Gaining access to salary information

For listed businesses, the majority of this information is available publicly within annual company reports. But organisations will typically not have the required resources to analyse the data in the most useful way. Enlisting a third party, such as Robert Walters, to carry out this work can therefore save a lot of time and effort.

What is involved in a salary benchmarking report?

Typically, it will provide a list by company size, sector and revenue. It will also detail the package earned in terms of the value of the basic salary, cash bonus, share bonus, long term incentive plan (LTIPs) and pension of the position in question (be it CEO, COO, CFO or FD).

Establishing sector differences

Pay varies widely depending by sector.  Two businesses in the same industry with similar revenues may pay their employees vastly different rates. Salary benchmarking allows organisations to get an idea of these differences.

Salary benchmarking allows companies to establish whether their remuneration packages are in line with the rest of the market.

Establishing compensation breakdown differences

The value of different components of the package can differ greatly. Salary benchmarking considers all aspects of remuneration - including share options and LTIPs - to ensure it gives an accurate reflection of the take-home package.

Comparing with other businesses

Salary benchmarking allows companies to make comparisons of these figures between a large number of other businesses. As part of the analysis, the research can determine the overall mean, as well as lower and upper quartiles, of the value of each component of directors’ overall compensation packages. These gives a clear indication of how their directors’ pay compares with the market.