What is a foreclosed compensation benchmark study?
Foreclosed compensation benchmark studies are about getting an impression of the compensation level and structure in the relevant labor market.
In foreclosed compensation benchmark studies, participationg companies (frequently direct competitors on the labor market) closely cooperate to compare their salary data pseudonymously. Only the participating companies receive the results - aggregated and anonymized. Foreclosed compensation benchmark studies follow very high standards with regard to the reliability of the compared data.
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Meet Dr. Uwe Machwirth
Dr. Machwirth has been a consultant for compensation systems, performance management and organizational development for 20 years now. His industry experience includes wholesale and retail, IT, telecommunications and the electrical industry. The focus of activity is on the design of compensation systems that are geared to the specific challenges of the company, as well as the creation of compensation structure and level transparency for his customers through individualized, closed compensation benchmarks.
What are the benefits for participating companies?
Salary costs represent the largest ongoing investment for many companies in knowledge-driven industries. In contrast to other types of costs, salary data usually only know one direction: upwards. In knowledge-driven industries, know-how is the most precious asset. So compensating this asset in the most efficient way, with a truly market-driven salary, is crucial for the financial success.
Compensation benchmark studies provide important insights:
No more guesswork
Reduction of uncertainty as to how other companies in the "catchment area" actually compensate their employees
Increase managers' commitment to salary corridors. Since their managers usually have to control, if not fend off salary increase requests from their employees, they need a data basis that they also trust. A benchmark with surrounding companies fulfils these requirements.
Reduction of uncertainty for future development: Since salary data are the basis of the exchange anyway, the circle of participating companies can be used well to exchange information/expectations for the upcoming compensation round
Good starting point for structuring compensation within one's own company through knowledge of salary
Quick and precise recognition when certain positions suddenly start to change strongly
Lasting cost effect: salary-related undesirable developments in one's own company can be identified and slowed down, thus avoiding a permanent and costly misallocation of the compensation budget
increases of credibility towards employees
As companies participate in this benchmark, their credibility of “knowledge” of fair and market related compensation levels increase dramatically
No "iceberg syndrome"
You are not dependent on assumptions about what others might pay
No dependence on the pure expectation (or the “stories”) of the applicants
And beyond that?
Experience shows that the benchmark group evolves over the years. If you talk about salaries, it is not far to exchange views on other topics as well. These can be, for example:
Exchange of experience on all human resources topics
Companies often bother with the same (administrative) problems. An exchange of experiences helps all participants here without jeopardizing the market position of the participating companies
Human resources cooperation
Advanced compensation benchmark groups also form cooperation to increase (joint) visibility at the location or in the sector, for example in the context of joint human resources marketing campaigns to achieve a higher reach among applicants. Or through cooperation in the area of training or studies to attract suitable applicants in the first place.
Whether, when and how the benchmark group would like to address these topics, however, is determined by the participants among themselves.
How does such a benchmark study work?
Executing the comparison
The actual comparison of the compensation data is based on so-called "job descriptions", which briefly describe the position to be compared. When forming a benchmark circle, these job descriptions are coordinated among the participating companies in order to achieve the best possible fit for the companies and a common understanding of the descriptions.
Within the framework of this vote, it is also determined - based on a standard proposal - which compensation elements are reported by the companies within the framework of the benchmark.
Based on this information, the compensation data is then collected annually by the companies and sent for evaluation. These preliminary results are discussed with the participating companies in a joint meeting as part of quality assurance. Here the participating companies can discuss problems of understanding concerning the matching of the job descriptions.
Evaluating and discussing the outcome
Clean up and re-order data
Afterwards, any incorrectly assigned data are corrected: Only on the basis of the data secured, the final evaluation will be carried out. This ensures that the benchmark is of a very high quality and that apples are not compared with oranges in terms of content.
From which number of participants onwards does such a benchmark make sense?
It is probably not possible to ensure the significance of the data by means of a compensation benchmark. But in order to achieve a good qualitative starting point, about 10 companies should participate in the benchmark in a limited regional environment.