How much should I pay my employees? This is a question that companies pour hours and countless resources into answering.
Understanding the intricacies based on a multitude of factors can mean the difference between keeping and losing top talent. That's why compensation software is getting a makeover on G2.
Introducing G2's latest category, Salary Benchmarking Software, which assists HR departments in understanding where workers are placed salary-wise alongside the competition.
What is salary benchmarking software?
Salary benchmarking software organizes workers into salary bands and determines appropriate employee compensation rates based on skills, experience, and other factors.
While other compensation categories focus on designing individual compensation packages, creating budgets, communicating pay levels to essential stakeholders, or building bonus and incentive programs, salary benchmarking is focused on how employees stack up to their peers company- or industry-wise.
For products to be added to this new G2 category, we have four requirements that organizations must qualify for:
- Calculate an appropriate salary based on market prices.
- Create compensation bands or salary ranges for roles based on their job title, description, and other factors.
- Adjust salaries continuously as factors change.
- Prepare reports, break down factors, or generate written paragraphs of rationale to increase pricing transparency to internal or external stakeholders.
The most prominent key feature of salary benchmarking software is organizing potential and current employees into salary bands, giving them a range of potential salaries based on skills, experience, and other factors.
While salary benchmarking is an essential part of compensation, it’s not the only software that aids in planning, managing, and carrying out compensation and incentives. This begs the question: What makes salary benchmarking different from other similar tools?
How salary benchmarking is different from other compensation software
On G2, we have three main compensation categories: Compensation Management, Compensation Planning, and Salary Benchmarking. Each serves a different purpose.
Compensation management is a more comprehensive solution designed for everything from designing and deploying incentive programs to providing a C-suite-level team with a high-level view of how pay is happening at a global company level.
Compensation planning, on the other hand, is more focused on individual compensation packages. When you want to design salary and benefits packages for specific employees who don’t need some of the higher compensation budget functions, this solution may work best.
A related but separate category is Pay Equity. However, these solutions specifically deal with identifying pay gaps concerning protected demographics like race, gender, sexual identity, veteran status, or other such characteristics. They flag instances of inequity in an organization and suggest necessary adjustments.
Together, all four tools are valuable for properly paying employees. So, why use salary benchmarking specifically? Let’s look at some organizations and industries that benefit from using this software.
G2 data reveals which industries need salary benchmarking
According to G2 data, salary benchmarking is the most in-demand in mid-market companies (businesses with between 51 and 1,000 employees).
One possible explanation is that small companies have fewer employees, meaning fewer top talent they need to retain. Meanwhile, enterprises have more disposable income to retain their talent. It’s in the mid-market where resources are competitive, and departments need more information to ensure they’re putting together a reasonable and competitive package for salary and benefits.
Next, let’s examine the use by industry. Multiple industries use salary benchmarking to ensure relevant, competitive pay scales. At the top are IT & Services and Healthcare. This is no surprise, given the number of in-demand skills in both industries.
In the U.S., an aging population combined with people living longer lives means a shortage of healthcare workers. One study from AAMC predicts a shortage of 86,000 physicians by 2036. In tech, labor shortages have become commonplace because of the relentless pace of technological changes. As a result, more workers than before lack the necessary skills, according to an article by IBM. Computer software suffers from the same talent gaps.
Marketing & Advertising and Non-Profit Management industries follow close behind in the usage of salary benchmarking software. Nonprofits are suffering worker shortages right now, with one survey conducted by PMCA indicating three out of four nonprofits report job vacancies.
Marketing, on the other hand, doesn’t have the same kind of labor shortage. However, the skills necessary for marketing have changed wildly, and even writing a job description can make it challenging to find the right talent. Companies may be at a loss to compare jobs, let alone compensate them.
Salary benchmarking is here to stay
As long as the current pay landscape remains competitive, users need salary benchmarking. It aids in placing employees in their proper pay bands based on their experience, skills, and other relevant factors.
When used with other software like compensation management, compensation planning, or pay equity, it creates a suite capable of managing pay across an organization and communicating that decision to stakeholders. Due to the complexity of the compensation or the high demand for labor, it’s especially useful for mid-market businesses and industries such as IT, computer software, healthcare, and nonprofits.
No matter what, one thing is clear. For the foreseeable future, salary benchmarking is going to be a mainstay at organizations that want to keep top performers and ensure fair compensation.
Reinvigorate your workforce, and avoid productivity paranoia!
Edited by Jigmee Bhutia
Ensure fair employee compensation
