Transparent pay practices are gaining momentum, especially salary benchmarking. So much so that the EU and a number of US states are even making it a legal requirement. So in the next couple of years, millions of organisations will be forced to make a number of changes, including:
- Publishing pay ranges when they advertise jobs
- Removing confidentiality clauses surrounding pay
- Ensuring that average pay level information is available for employees who ask for it
However, even outside of these countries, some recruitment websites are now enforcing the same transparency rules. For instance, salary ranges must be included in job advertisements, or the ads won’t be published.
In order to attract the right candidates, we need to recognise the growing importance of pay transparency for the next generation of employees. In fact, a survey from Adobe showed that 85% of Generation Z are less likely to apply for a job without a visible salary range.
But before we can publish salary ranges, we need to carry out salary benchmarking as part of an ongoing process.
Where Do We Start?
When we benchmark roles, we have to begin by sourcing the right data. This means asking questions like:
- Where do we typically recruit from?
- Do we recruit nationally or from our local area?
- Do we recruit from a particular industry or from all different sectors?
- Is this the same for all types of roles?
Once we know the answers, there are two main approaches to choose from.
One way we can carry out salary benchmarking is based on the location of our offices and employees.
For example, an organisation based in London will use London data to benchmark pay. The salaries they find are probably going to be much higher compared to other parts of the UK. The reason for this is that living in London is more expensive, so companies tend to pay more to help their employees cover the high cost of living in the city.
The second approach is to not think about location at all. Instead, organisations can offer what their industry typically pays employees in certain roles.
For example, a technology company would benchmark salaries based on data for that sector—regardless of whether they were based in London or in Belfast. This means that employees doing the same role would be paid the same salary, no matter where their office is based.
Pros and Cons
There are pros and cons to both approaches and one may suit a certain organisation better than others.
Using industry-specific data without considering location can lead to underpaying employees in more expensive areas and overpaying those in less expensive regions.
Market rates of pay depend on factors such as cost of living, and supply and demand. Locations with higher demand for talent, like London, often offer higher salaries as a result.
Location-based salary benchmarking can be challenging with an increasingly remote and flexible workforce.
Every time an employee moves to a different area, we must decide whether to adjust salaries based on local market data. This can lead to pay disparities or a complicated pay structure.
To navigate benchmarking and pay structure decisions effectively, we should consider our work models, including office-based, hybrid, and remote work.
With this work model, we are typically recruiting from the local market or surrounding areas. As a result, it makes sense to benchmark against the local area.
For a fully remote workforce, using national data without adjusting salaries based on location is recommended. People can choose to live anywhere and choosing a particular location is not a job requirement. Therefore, differentiating pay by location may result in equal pay disparities.
This approach simplifies the pay structure and removes the need for constant salary adjustments with employee relocations.
With hybrid working, the local market starts to expand and so a simple pay structure is the best approach.
Most jobs do not have significant pay differences based on location.
However, exceptions like London, where salaries are generally higher, may require separate salary ranges for London-based employees coming to the office and a national range for others across the UK.
Salary Benchmarking Summary
Pay transparency is rapidly gaining traction, and organisations need to start thinking about disclosing salary ranges.
Considering location-based or industry-based salary benchmarking is an important first step. The former acknowledges the higher living costs in certain areas, while the latter ensures equal pay within the same role, regardless of location.
Pay transparency laws are making their way into new countries, so organisations should ensure they are getting ahead of the curve.
If you’d like further answers surrounding this topic, take a look at our other blog posts:
Salary benchmarking: What, why, how
4 Ways Benchmarking can help your talent retention strategy