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 to benchmark salaries?
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 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.
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. In one of our recent reports, two specific businesses from within the scientific & instruments and manufacturing industries, with similar revenues, paid their CEOs basic salaries of £288,000 and £175,000 respectively. Salary benchmarking allows organisations to get an idea of these differences.
This allows companies to establish whether their senior executives’ 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 to ensure it gives an accurate reflection of the take-home package.
Comparing with other businesses
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.
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