When your company is planning to recruit and hire internationally, it's important to understand what makes a competitive salary and what additional compensation is required in the local market. If your offers aren't competitive, you risk being unable to attract or retain the right talent, and if compensation doesn't meet local requirements, you risk penalties for noncompliance.
Salary benchmarking allows you to understand current and projected job market forces, so that you can recruit, hire and retain the right talent to position your company for growth. Salary benchmarking will also help you offer a fair and competitive salary to candidates in other countries with respect to differences in cost of living, currency exchange rates, and cultural expectations.
What is salary benchmarking and what are the benefits?
Salary benchmarking, also referred to as salary analysis or compensation benchmarking, is the process of collecting and analyzing recent salary data from outside your company to determine competitive pay ranges by position.
Not only will this analysis help you gain a comprehensive understanding of compensation trends and practices among different geographical locations, but it will also help you attract and retain top talent by offering competitive compensation packages, as well as ensure that compensation packages are fair and compliant with local laws and regulations.
Salary benchmarking involves matching local market data to a list of positions within your company, usually by job description rather than job title since titles can vary greatly among companies. It also requires aging the data so that you’re not only hiring at a competitive rate, but also positioned to retain your employees as salaries rise or fall.
If your organization has plans to hire in more than one country, it's important to complete salary benchmarking for each local market. You may also need to consider regions within a country. For example, what you pay a software engineer can differ considerably among large urban markets like New York City, midsize cities like Austin, Texas, and rural markets like small-town Idaho.
The following five steps can help HR professionals to make informed decisions and offer competitive salaries when recruiting in other countries.
5 steps to conducting salary benchmarking for international recruitment
1. Craft your compensation philosophy
A compensation philosophy outlines the objectives of your company's salaried and non-salaried compensation program. This philosophy will depend on numerous factors, including your industry, competition, business goals, which geography you're recruiting from and hiring for, and even which position. Consider what type of market you’re entering (established versus developing), as well as supply and demand relative to the labor pool and whether there’s a shortage of qualified talent.
Finally, your global philosophy should factor in how you've set compensation for your current local offices, and how that has worked for you. Your compensation philosophy may reflect what you’ve done in the past or it could be an opportunity to make much-needed changes.
According to the Society for Human Resource Management (SHRM), an effective compensation philosophy must be:
Perceived by employees as fair
Able to be effectively communicated by the organization to its employees
2. Define your positions
Each job you plan to fill should have a list of responsibilities. Besides helping you recruit the right candidates, having position definitions makes it possible to accurately compare salary ranges from different companies, since job titles often differ from place to place. Once these are formalized, you'll match internal job descriptions with external ones and target those positions for data collection.
You also need to determine the industry(s), markets and company sizes you'll sample. The goal is to ensure that when you gather salary data, it's as close as possible to matching your exact hiring conditions.
You may be able to streamline similar positions. For example, though you may hire administrative assistants in multiple departments, such as sales, marketing or accounting, you only need one salary benchmark for that position if job duties across departments are essentially the same.
3. Gather the data
Now that you know what kind of information you need to benchmark salaries for your defined positions, there are a number of places to find it. One important consideration is to make sure your data collection matches your business as closely as possible in geography (local, regional or national), industry and company size (by revenue or employees).
No matter where you source your data, you'll want to be sure it is no more than two years old, and preferably collected within the past six months. Watch out for free data available from nongovernmental sources; it usually comes from employee-reported surveys so it can be biased or unreliable. Use multiple surveys to ensure that you're getting an accurate picture of the market. You’ll also want to gather internal salary data in order to compare and align salaries across the organization.
- Purchase a salary survey: Consulting companies that specialize in compensation conduct surveys at regular intervals that they package and sell. Industry trade organizations and associations are another place to look for data.
- Commission your own survey: You can create a bespoke survey that is customized specifically to your needs. This might be more cost-effective if you have a lot of different markets or industries to cover.
- Use free, publicly available data: The Bureau of Labor Statistics collects wage data in the U.S. Other countries have similar entities that do the same, such as the Office for National Statistics in the U.K. or Statistics Canada.
4. Analyze the data
Now you need to dig into the numbers. There are multiple ways to do this, with varying degrees of complexity. Depending on your experience level, you can tackle it internally or work with an organization that will do the benchmarking exercise for you.
Match the job descriptions of internal jobs with external jobs. You’re not looking for an exact match; aim for 70% or higher match in job duties. If you can’t hit that for certain positions, you can blend data from multiple jobs to gain a more accurate picture.
Use the survey data to determine the low and high pay for each position. Any salaries that are extremely low or high may or may not be valid. If you have a local resource, they should be able to provide insight into local market forces that may provide an explanation for any outliers.
You may want to weigh the data; for example, one of the surveys may be a better match because it’s from your specific industry, it’s a significantly larger sample size or you want to rely more on national than local data.
The goal of this analysis is to determine both the market average and pay range for each position. Once you have that, you’re ready to set your own rates.
5. Finalize your salary targets
Revisit the compensation philosophy you crafted at the beginning of this process in order to decide where you want your pay rates to fall in relation to the market average.
When you set your ranges, take the following into account:
- Experience levels: Not everyone you hire for the same role will have the same level of experience or expertise. Your salary ranges should be large enough to account for levels of seniority within a set position.
- Room for growth: If you peg base salaries too high, it can make it difficult to reward employees who attain new skills or demonstrate growth with raises.
- Total compensation: It’s not enough to look solely at base salaries. You also need to account for bonuses and incentive pay as well as non-salaried employee benefits like health insurance, stock options, vacation time, profit-sharing, retirement plans, moving allowances and company cars.
- Special requirements: Some compensation may be dictated by law, union and collective bargaining agreements, and/or government or other special contracts. Make sure you factor these in.
Related: How to pay bonuses around the world
Conducting a thorough salary benchmark is key to offering a competitive salary when recruiting in other countries. Before long, it will become second nature to craft your compensation philosophy, define your positions, gather the data, analyze the data and finalize your salary targets, among other recruiting tasks.
And not only will your research help you attract top talent, but it will also be a crucial component to ensuring compliance with local employment laws and regulations.
So be sure to prioritize salary benchmarking as part of your international recruitment strategy, and regularly review and update your benchmarking data to ensure accuracy.
If there is any part of this process that you’d like assistance with, Safeguard Global recruitment services can reduce the burden on your team. Contact us today to learn more about how we can help.