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After a tough couple of years of surviving a pandemic, there were mixed feelings about individuals’ financial well-being. For some, this time presented a saving opportunity:  a non-existent social life meant that the money we would have spent on the weekly trip to the pub, or lunch out was instead put into savings. For others, however, it meant they needed to dig into their savings to make up for the shortfall in furlough pay or redundancy.

Fast forward a year, throw in a global cost of living crisis with soaring energy (& everything!) prices and the outlook makes a pretty grim reading across the board. Having been dancing with recession for the last year, companies are watching the pennies as much as their teams, who are keen to see their salaries rise to match their outgoings.

It’s a question many of our clients have been grappling with as they approach salary reviews (planned and unplanned). At a time when the disparity between wealth and poverty has never been greater, it presents employers with a bit of a conundrum: How can we support our team, without putting the business and the whole workforce at greater risk?

Salary benchmarking is a critical part of any business’s compensation philosophy that involves gathering data sources internally and externally to ensure that employees are paid fairly and equitably to each other but also to the external market. There is a lot of sensitivity about how salaries are calculated, especially now, and so in order for your team to feel they are being paid fairly, they need some reassurance that you’re not plucking salaries out of thin air. Typically this would involve internal and external benchmarking.

It’s not just the ££ that attracts people to your business

The benchmark for your business greatly hinges on the reasons why people choose to join you. For the most part, many people look to work for smaller businesses to gain practical experience, take on responsibility, feel ‘part of something’ and broaden their knowledge base: they are not always drawn to your company solely because of exorbitant salaries or a prestigious ‘name’.

Therefore if you’re looking in the market and being quoted sky high salaries, it’s important to recognise that you are not necessarily always in direct competition with these larger, more prominent organisations. These entities function in a completely different arena, often paying their staff in the 85th percentile or higher. Conversely, as a start-up or scale-up, you would typically fall within the 50th percentile for base salaries, and perhaps add equity or bonuses to supplement earnings.

Why one size doesn’t always fit all

There are lots of different ways to look at how you calculate your salaries. Some companies use a robust formula applied across the board, however others prefer the flexibility of being able to use guiding principles and fundamental data points to ensure they’re making data driven decisions should things in the market or their business change. Typically these will be influenced by the following factors:

  • Getting your internal benchmarking right:  This is about making sure your team is within the same pay bracket as each other if they have comparable roles and skills. This doesn’t mean you need to pay everyone the exact same salary, but it does mean you make sure there are not huge variances in these for people doing the same roles with the same experience. For context, 10% is the variance most companies are typically comfortable with.
  • What are other companies paying? Whilst you won’t always be able to get specific data from your competitors you can get a generalised feel for the market and acceptable rates. Each year you should aim to review your roles against the market to see where your salaries sit against the average. You can engage TheHRhub to help you gather this or do some good old-fashioned research yourself. Once you gather the data, you should then look at the averages of all the data points collected to try and minimise any bias or anomalies.
  • Market rate of the specific skills/experiences we want or need to prioritise? It’s a matter of fact that some skills and experiences are harder to come by or more competitive than others and so you’ll need to pay a premium for these. This reflects the landscape and critical nature of these roles within the business and (quite often) the scarcity of these skills in the market.
  • What is your total compensation? This includes equity, bonus and discretionary benefits such as private health, parental leave etc. As a start-up / scale-up you shouldn’t just look at your base salary as your compensation – you should also look at other elements such as your equity, bonus and benefits.
  • Where are you based in the world? This becomes increasingly important as companies scale and international and national borders become less restrictive. Local benchmarking helps to make sure you’re competing in local regions.

Small print alert: When deciding salaries across regions, you are not comparing apples-to-apples – this is because you need to reflect geographical differences in salaries, supply and demand and cost of living. For example, our friends in America don’t have the NHS or statutory benefits like pension or paid parental leave, whereas countries like Australia have significant statutory pension contribution requirements. As a result, this doesn’t necessarily mean a role in London is paid the same as a role in New York, even if it’s comparable in ‘size’. It’s important that you consider these regional differences when paying salaries.

We can’t magic away inflation or give you an endless pot of money but we can help implement a compensation philosophy, with guiding principles and benchmarking to allow you to make data driven decisions that your team feel confident in. To do so, drop us a line via, give us a call on 0203 6277048 or pop in a diary time here.

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