10 Steps to researching competitive compensation practices

Every organization hopes to have competitive compensation practices so that they can attract and retain top talent. In order to do this, you must have a research-driven understanding of your competitor’s compensation practices. If you fail, you may find that you are missing out on valuable insights on how you can stay ahead of the competition.

In this article, we will guide you through the ten-step process of competitive compensation research. These steps will provide you with a detailed overview of the market landscape so that you can make informed decisions about your own compensation practices. Let’s begin by looking at the first step.

Specify Your Target Audience for Compensation

Before you start your competitive compensation research, you need to define your target audience. This will be the type of job candidate that your organization is seeking. Whether it is entry-level candidates or highly experienced professionals, specifying your target audience will help inform you of the salary ranges you will research.

Identify Your Market Competitors

When beginning to conduct competitive compensation research, it’s vital to study the landscape of your market. First, identify who your direct competitors are. These competitors depend on the nature of your organization, which means they could be in your industry, or they could just vying for the same talent.

Once you identify who you are competing with, you need to find out what they are offering to their employees. Analyze their current compensation packages and find out which benefits they offer their employees. Understanding what others are offering can help you benchmark your own compensation practices to ensure they are both competitive and attractive.

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Research Current Salary and Benefits Trends

Looking at your competitor’s compensation practices isn’t always enough. You should also try and get a sense of the current salary and benefits trends. To do this, you can look at:

• The median salary for each position you wish to fill
• The range between the highest and lowest paid salaries that are paid for each relevant role
• Salary increments for employees that are based on performance or the length of time they have been at an organization
• What organizations offer as an average benefits package
• Equity/stock options offered to employees at a senior level

Understanding the average industry pay for specific positions can help you ensure that you’re offering a competitive compensation package. You can take into account what others are offering and try to build on it to create an improved compensation package. This will show your current and future employees that you value them and want to invest in their future.

Analyze and Adapt to the Demands of the Job Market

The job market imposes demands on your compensation practices. To stay ahead of the competition, you need to stay on top of these demands and adjust your own practices accordingly to remain competitive. This will require both internal and external analysis to understand what your competitors are doing, as well as why you’re offering certain compensation packages in your organization.

External analysis is about understanding what other employers are offering in your industry and geographical location. Internal analysis is about reviewing and understanding why certain jobs in your organization receive the compensation offers they do. Comparing both internal and external analyses like this can help identify any potential gaps or discrepancies in your compensation practices. If effective, it can help you craft a compensation package that stands out from the rest.

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Calculate Adjustments for the Cost of Living

When conducting compensation research, you will reach the stage where you need to calculate adjustments for the cost of living. A salary that may be high in one city may not be as attractive as in a city where there are higher expenses associated with living. Being aware of this can help you develop a compensation structure that is adjusted for location and regional differences.

You can use an online cost-of-living calculator to compare different cities and regions. As well as this, you can research the local real estate prices, taxes, childcare costs, and medical costs that could potentially affect how much money a new hire will receive. Lastly, you can consider any long-term financial decisions an employee may make such as education costs or retirement planning.

Establish Range of Pay by Role

You should now have a better understanding of what the going rate for certain positions is. You can now establish a pay range for each role. To do this, be aware of the following pieces of information:

• Base pay
• Cost of living differential
• Performance-based incentives
• Benefits

When you take into account these four criteria, you should be able to find a fair pay range that is appropriate for each role. You can then move on to focusing on individual salary negotiations with new hires or existing employees.

Establish Performance-Based Incentives

You’ve now done the groundwork for mapping out what a competitive compensation package looks like. Establishing performance-based incentives is the next step that will help you give your compensation package an extra kick. When creating them, you need to think about how they will influence your overall salary structure.

You can break down goals into measurable incomes to inspire effort and performance. Specific metrics will need to be measured over a specific amount of time. Rewards from these incentives should be meaningful to reflect an individual’s hard work.

Take Into Account Internal Equity

The next step is to take a closer look at internal equity within your organization. You will want to make sure that you compensate a worker fairly for the work they are doing. This is true for both new employees and existing ones.

Conduct job evaluations for each position to determine their relative worth to your organization. If some employees aren’t being paid a competitive and equitable rate, make adjustments. Ensure that you stay in compliance with policies and laws when making any changes to compensation.

Develop Policies That Support Your Organization to Reach Its Goals

Developing policies in relation to your organizational goals can help get workers on the same page as you. Determine your policies, benefits, and other elements to help make you more competitive in the market. Policies can include:

• Offering flexible working arrangements for employees
• Establishing a clear vision for an employee’s career development and growth
• Ensuring that training tools and resources are available to enable employees to succeed and progress in their roles
• Subsidizing education programs

These are just some policies that you can consider. The key is to align any policies with your organization’s values and objectives. They should be flexible enough for you to make changes and keep up to date with any market trends when necessary.

Evaluate Your Results and Adjust Accordingly

Once you’ve finished your compensation research, you can evaluate your results and adjust accordingly. Look at the data collected and consider how they will affect your organization’s reward system. Taking the time to do this will help you make informed decisions to ensure that your compensation practices remain competitive. You should do this regularly to keep on top of any changes in demands from employees or the market.

Final Notes

We have now covered the ten steps you need when conducting compensation research. It’s a time-consuming task that isn’t always easy for an organization. If successful, however, you can implement what you find in your own compensation strategy and get ahead of competitors.