Compensation Benchmarking

Compensation Benchmarking- Compensation benchmarking is the process of comparing a company’s compensation levels and practices against those of other companies (i.e. the “market”). It involves defining, valuing, analyzing, and summarizing
market data and comparing against the target company. The output of benchmarking may serve as one of many factors in the compensation committee’s executive pay decisions.

• evaluate
• classify
• compare
• adjust
• monitor.

The benefits of pay benchmarking

One of the primary goals when setting the level of remuneration for a job is to match it to the ‘market rate’. In simple terms, this means paying enough so that you can easily recruit and retain your staff, while not paying more than you have to (which would have an inflationary and detrimental effect on budgets). To determine the prevailing rate for a job, organisations can benchmark jobs against data from other organisations and industries, comparing the rates of pay offered for similar jobs.
In the private sector jobs are often valued using a market pricing approach. With the market pricing approach, people are compensated in relation to the market value of their job, regardless of their level in the organisation. Within local government, jobs are required to meet internal equality standards, so that similar jobs are compensated at similar levels. This can create tension between the need to meet equalities duties and the desire to target pay at the right rate for the market (although as we will see later this can be overcome through the use of market supplements). Despite this tension, pay benchmarking remains one of the single most important elements of accurately assessing the levels of pay that an organisation should offer.

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