Compensation and Benefits: Essentials of Benchmarking

Abstract

Benchmarking is an important tool and worthwhile investment for HR in order to support the organization by attracting and retaining the talents needed while managing salaries and costs of the organization in the right manner. From a people perspective it is important to ensure fair salaries in terms of internal and external benchmarking. This is to ensure that salary decisions are made on a solid data set which will consequently make the communication to employees and managers easier. From an economic point of view, employee costs are typically one of the major cost items within the organization. Thus, HR is in charge of one of the key cost drivers. Benchmarking helps to make the right decisions in terms of salary management and accordingly influences significantly the cost management of the organization. These two aspects have a significant impact on risk management when considering losing key talent as well as incurring escalating costs. Last but not least one should not forget the operational aspect of benchmarking. While benchmarking might seem complicated at first, some basic guidelines help to conduct a benchmarking project in a thorough approach that will lead to valuable results. It is necessary to compare “apples with apples” which holds true for the jobs that are to be benchmarked as well as to ensure that compensation elements are actually comparable with each other – both internally and externally. One should also not underestimate the definition of a relevant reference market, and when using benchmark data, it should be understood how the data has been collected, calculated, and manipulated.