January 26, 2024

The Importance of Compensation Benchmarks

I have it on very good authority that Google makes all its people decisions supported by science and data. After years of HR work, particularly on the topic of compensation, I’m still a fan of the art and science approach to managing comp. That said, there is no replacement for the peace of mind that comes with making significant spend decisions backed by reliable data. There is no other way to effectively and consistently manage employee compensation.

All strategic decisions relative to workforce planning, recruiting, business growth (particularly with new innovation and technology), company core competencies (including leadership) and promoting or hiring is best done with reliable data.

Greg Manns at Industry Insights has become an important vendor partner to WG. He is a self-described geek for data, particularly pay data. Greg is the man behind the curtain who captures the raw pay and benefits information painstakingly submitted by WG members who participate in our annual compensation and benefits survey. Greg and his team compile and deliver the aggregate results and turns it out in the form of survey reports that are easy to understand and digest for WG members.

Greg shared recent Industry Insights survey results where employers were asked about their major concerns and issues. The results are not surprising as leaders overwhelmingly responded with finding qualified candidates and keeping them as their two highest-rated concerns.

Having good reliable data is a start. Having a strategy for compensation management and a plan to attract and retain is another task altogether. Most WG members do NOT use a system of salary ranges or broadbands to manage pay in a proactive, calculated, preplanned manner.

“If you are trying to be fair, or just simply competitive, you can’t make good decisions on compensation without good data,” said Bob Gray, former Chair of the WG Board. “And the more data the better, since the competition for talent is intense and the right offer is essential.”

How does an organization literally plug pay data into a manageable, sustainable format? It takes good job descriptions to start. Then the job description is compared and contrasted to highly reliable pay data. The Estimated Market Value (EMV) is plugged into a range with other jobs with similar survey outcomes. Ranges are consistent percentages across and between midpoints. The EMV rules in this structure.

Take for example this hypothetical accounts payable clerk located in Central Valley with an employer of $150M in annual review. The location and size of the organization are critical data cuts to prevent an employer from paying too much or too little for a job. Our data suggests a starting base, annual salary of $46,467. Note: nearly all WG members pay a bonus in good years. As such, base pay and bonus is referred to as total cash compensation (TCC). We also provide this information in the annual survey.

The average, median, upper and lower quartile gives the employer the flexibility to decide to pay the long-tenured, preferably high-performing individual in the upper quartile. Those just starting out in their careers or have just begun learning the skills and growing capabilities should be paid in the lower quartile. This is a highly defensible position particularly in California where we remain cognizant of the Pay Equity Law. It also lends to the necessity of job descriptions in that they should exist and be very clear about how many years’ experience one should have to command certain pay.

Salary ranges address the challenge of managing pay in a linear, planned fashion. Additional benefits make up the total remuneration of compensation (such as 401(k)/ retirement), health benefits, all monetary and nonmonetary benefits. These matter too. But what employers commit to paying should be supported by a comp strategy and plan.

Small print: if you’ve never created salary ranges or broadbands, please seek professional assistance. All members should be contributing to the WG compensation and benefits survey, (the survey is free to those who contribute data, which is simply unheard of in the pay survey industry). The 2024 WG compensation and benefits launches January 2024 goes through mid-April, results ready in late June 2024. Western Growers Financial Services offers a beautiful 401(k) retirement plan in the form of a Multiple Employer Arrangement (MEP) where WG files the 5500 (for employers with more than 100 participants in the plan) for you, offers great investment options and helps with 404(c) compliance.