The often used term when benchmarking salaries are “market” or “industry” standard, however these terms are often vague and the salaries ranges (upper-lower limits) quoted are often huge to make any real sense either to a prospective candidate or to the organization in general. Though in essence it is a handy tool to have, it often loses significance when the job requires high levels of technical or functional skills and/or it is in a knowledge intensive industry like IT or Pharmaceutical. Even for a standard role like software engineer in the IT industry, the average or median salary can fluctuate hugely based on parameters like education (including graduating college), experience, technical skills (including certifications), city, organization worked (type, reputation, size etc.) etc. Moreover the demand and supply of qualified resources in the market based on the prevailing macro-economic conditions also impacts the market standard salary significantly, wherein in a recession market it can fall well below the lower limit to bounce back the other way in a booming economy. Hence arriving at a meaningful data for a market standard salary can be highly confusing and often erroneous if not done correctly.
It however does have some merits for manpower planning and budgeting by organizations. Many organizations also have an internal salary benchmark which is primarily to ensure that no one is too underpaid or overpaid for a role he/she is playing in the organization.
There are many reasons why market standard salaries are not considered important, some of which are stated below:
1. Value to the company – when a certain person, based on his/her skills, knowledge, abilities and attributes is considered of value to the company then salary benchmarks even if accurate might not be an important factor. Such valued candidates are often paid more than his/her counterparts.
2. Criticality of the Project/Work – if an important position is lying vacant and the organization needs it to be filled quickly due to the criticality of a project, either ongoing or immediately anticipated, using salary benchmarks to hire candidates often becomes a futile exercise.
3. Experience and Exposure – the right amount of experience and exposure to a certain country, culture, process, skillset etc. which are assumed to be critical factors for success can be a significant differentiator for a higher compensation benchmark.
4. Special Skills – required Technical or Managerial skills that a candidate possesses that are desired by the company and its competitors can affect the salary benchmark significantly.
5. Education – a person’s academic career, including their alma mater, often plays a significant role in being a key salary differentiator between two persons hired for the same/similar positions.
6. Compensation & Benefits components – often no two salary packages or the way CTC (Cost-to-Company) is structured between organizations are same. Many people include variable pay (generally performance based incentives/bonuses) and other benefits (insurance premium, club membership, car & fuel etc.) as part of the CTC offered to candidate, while others only mention the fixed pay. This may result in two CTC for similar positions looking significantly different.
7. Company – the company’s image or Brand, Size (Revenue, Profits, Manpower etc.), Reputation, Type (Public, Private etc.), Industry (IT, Manufacturing, FMCG etc.), Maturity (Start-up, Growth Stage etc.) all play an important role in substantial salary variances between organizations in the same industry.
8. Cost of living – the cost of living in a major metro and a B level city can be radically different, hence the same jobs in the same company can have salary variances based on the job location.
9. Demand/Supply of Talent – When there is a dearth of talent for a particular skill or the macro economic conditions are positive, finding and hiring the right talent can be a challenging task. Hence once such a person is identified and selected, salary is often not a constraint.
10. Position – when senior level positions are to be filled, originations often go for the best fit rather than having a salary benchmark in mind. Salary benchmark often loses its worth when used for estimating senior level positions in an organization.
Moving away from a ‘market standard’ in salaries can be overall considered a good trend. Avoiding any such benchmarking of salaries with market standard helps an organization tide over some major problems like:
1) The organization can be seen as an innovator or a leader which creates its own rules and salary benchmarks based on its core strengths, values and capabilities.
2) Salary bands are created based on the actual or perceived value of each role/function in the organization, which can be significantly different than how other organizations and the market/industry values it.
3) Salary components are created based on the financial abilities which are unique to each organization. For example a start-up company may opt for a higher fixed pay to attract talent, while a slightly mature organization can instead opt for Employee Stock Options (Esops) or long-term bonuses for wealth creation and retention of employees.
However totally ignoring the benchmarking of salaries, which are typically published in compensation websites or HR reports/magazines/periodicals is not advisable. Benchmarking of salaries based on a market standard can be a crucial place to start getting information about the industry and what the competitors are paying. It can also give a rough estimate whether the median salaries in the organization are above or below the market standard and tentatively by how much, i.e. at what percentile. This can be used as an effective tool to trigger salary reforms in the organization, based on its financial capabilities or strategic needs.
Excerpts of this article has been published in Times Ascent - http://www.itsmyascent.com/web/itsmyascent/hr-zone/-/asset_publisher/4htH/content/as-per-market-standards%21
It however does have some merits for manpower planning and budgeting by organizations. Many organizations also have an internal salary benchmark which is primarily to ensure that no one is too underpaid or overpaid for a role he/she is playing in the organization.
There are many reasons why market standard salaries are not considered important, some of which are stated below:
1. Value to the company – when a certain person, based on his/her skills, knowledge, abilities and attributes is considered of value to the company then salary benchmarks even if accurate might not be an important factor. Such valued candidates are often paid more than his/her counterparts.
2. Criticality of the Project/Work – if an important position is lying vacant and the organization needs it to be filled quickly due to the criticality of a project, either ongoing or immediately anticipated, using salary benchmarks to hire candidates often becomes a futile exercise.
3. Experience and Exposure – the right amount of experience and exposure to a certain country, culture, process, skillset etc. which are assumed to be critical factors for success can be a significant differentiator for a higher compensation benchmark.
4. Special Skills – required Technical or Managerial skills that a candidate possesses that are desired by the company and its competitors can affect the salary benchmark significantly.
5. Education – a person’s academic career, including their alma mater, often plays a significant role in being a key salary differentiator between two persons hired for the same/similar positions.
6. Compensation & Benefits components – often no two salary packages or the way CTC (Cost-to-Company) is structured between organizations are same. Many people include variable pay (generally performance based incentives/bonuses) and other benefits (insurance premium, club membership, car & fuel etc.) as part of the CTC offered to candidate, while others only mention the fixed pay. This may result in two CTC for similar positions looking significantly different.
7. Company – the company’s image or Brand, Size (Revenue, Profits, Manpower etc.), Reputation, Type (Public, Private etc.), Industry (IT, Manufacturing, FMCG etc.), Maturity (Start-up, Growth Stage etc.) all play an important role in substantial salary variances between organizations in the same industry.
8. Cost of living – the cost of living in a major metro and a B level city can be radically different, hence the same jobs in the same company can have salary variances based on the job location.
9. Demand/Supply of Talent – When there is a dearth of talent for a particular skill or the macro economic conditions are positive, finding and hiring the right talent can be a challenging task. Hence once such a person is identified and selected, salary is often not a constraint.
10. Position – when senior level positions are to be filled, originations often go for the best fit rather than having a salary benchmark in mind. Salary benchmark often loses its worth when used for estimating senior level positions in an organization.
Moving away from a ‘market standard’ in salaries can be overall considered a good trend. Avoiding any such benchmarking of salaries with market standard helps an organization tide over some major problems like:
1) The organization can be seen as an innovator or a leader which creates its own rules and salary benchmarks based on its core strengths, values and capabilities.
2) Salary bands are created based on the actual or perceived value of each role/function in the organization, which can be significantly different than how other organizations and the market/industry values it.
3) Salary components are created based on the financial abilities which are unique to each organization. For example a start-up company may opt for a higher fixed pay to attract talent, while a slightly mature organization can instead opt for Employee Stock Options (Esops) or long-term bonuses for wealth creation and retention of employees.
However totally ignoring the benchmarking of salaries, which are typically published in compensation websites or HR reports/magazines/periodicals is not advisable. Benchmarking of salaries based on a market standard can be a crucial place to start getting information about the industry and what the competitors are paying. It can also give a rough estimate whether the median salaries in the organization are above or below the market standard and tentatively by how much, i.e. at what percentile. This can be used as an effective tool to trigger salary reforms in the organization, based on its financial capabilities or strategic needs.
Excerpts of this article has been published in Times Ascent - http://www.itsmyascent.com/web/itsmyascent/hr-zone/-/asset_publisher/4htH/content/as-per-market-standards%21
Comments
Post a Comment