Here is a paraphrase of a LinkedIn question asked recently : “How do you make sure each role benchmarked for salary purposes has the same responsibility ? Is there legislation on this ?” This is a question a Compensation specialist often gets from managers. Here is what you can reply when you get that question :
When Compensation & Benefits professionals benchmark jobs, they normally use the services of professional service providers such as Hay, Towers Watson, Mercer, McLagan, Birches Group and others.
These companies are specialised in this area. The benchmarking process is based on a thorough “job matching” methodology. Of course each provider has a different methodology but the overall principles are :
- They provide a job description of the survey role for participants to compare to their internal positions.
- They also provide an easy way to compare job “level” or “grade” either through a description of the main levels, or some points factor etc…, something that every company can relate to and ensures consistency in the level of responsibility being compared between survey and internal job.
- They provide support (training, online, a consultant…) for proceeding to that job matching.
- They have a thorough quality assurance process focused on checking a number of criteria such as reporting line, years of experience, salary, position in the hierarchy, consistency with other jobs being submitted by the participating company etc etc
The main criteria for the benchmarking is based on the job description. You are not supposed to compare jobs if the internal company position is not at least a 70-80% match with the description from the survey provider. This ensures that all companies that participate in the survey, are comparing apples to apples.
The benchmarking is not based on title even though title may be an indicator. The benchmarking is also *not* driven purely by the position in the organisation (for example, our Corporate Tax department reports into Treasury, but may belong to the Legal or Corporate Support functions in the survey – this does not matter as long as the jobs are a match).
Benchmarking a job is about the role, not the individual. For example the person holding the job in your company may be more or less experienced than the “typical” job holder. This will probably reflect in his/her salary, and many survey providers offer the possibility to add a plus / minus / equal modifier to take that into account.
Individual job holder characteristics such as commitments or results delivered are linked to individual performance but not to the job and therefore are not relevant for job benchmarking. They may however be relevant when the company processes salary reviews or bonus / incentive payouts.
I would like to highlight that there are regulations as to the sharing of compensation data between companies.
These regulations have been developed to ensure the respect of privacy (especially important in the European Union which is known for having the most stringent protection for the privacy of employee data in the world) and also to ensure that there is no agreement on fixing salaries between companies.
Here is an overview of the US DOJ/FTC Antitrust Safety Zone Statements and what is required from companies looking to benchmark salaries :
- The survey is managed by a third party
- Data is more than 3 months old; and
- There are at least five company participants, no company data represents more than 25% on a weighted basis of that statistic, and company can’t be identified through the survey results.
Most of the large/multinational survey providers (including in the GCC) actually self-impose more stringent rules in how they handle the information and ensure not only quality of data, but also that it is not possible to identify any given employer from the survey results.
As far as the EU is concerned, the data protection is very high there, higher than in the US. At one of my previous employers, most of the Germany-based employees refused to share their information in the HR systems with our Corporate HQ in the USA because the data is much less protected there. It was a bit messy for us to handle (we had to have a compensation analyst based in Germany so that the data would not get out of the country) but this is EU regulation and we followed it strictly.
Salary benchmarking is essential for companies as it helps them identify in which areas they may have retention or attraction issues (eg : they pay significantly less than the median market, or their incentive system is not as attractive). It also allows a company to maintain cost control over salaries (eg : we want to pay at the 75th percentile in order to attract the best talent… but let’s not pay in reality at the 90th percentile as we have decided this would not be sustainable for us). It helps ensure that there is not only internal fairness of salaries, but also external consistency.
But I agree that when we benchmark, we should follow some rules to protect the privacy of the data of employees as well as ensure that there is no violation of anti-trust regulations.
Finally, I have included a wikipedia overview of the regulations of employee data transmission from the EU to the US and a related random example from a safe harbor policy adopted by a US-headquartered company that has employees in the EU and Switzerland.
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That’s great information, personally for me to know such regulations. Thanks Sandrine.
My pleasure Anuraag !