The Covid-19 pandemic has impacted the way work is delivered resulting in significant adjustments as organisations adapt to the changing environment. Employees are now demanding more flexibility at work whilst organisations seek to return to pre-pandemic profit levels. A key question is how to competitively price job offers in the new environment?
At the core the basic steps of deciding the salary offers remain the same.
1) Obtain Data on Market Salaries
It is critical that you are aware of what your competition is paying for similar skills before deciding on what you want to offer. Participation in salary surveys provides this analysis with the information quality improving based on the survey participants. Purchasing off-the-shelf survey reports can provide some guidance but with limited accuracy / reliability.
2) Decide on the Salary Budget
A firm budget on how much an organisation spends on employee reward must be put in place and communicated to relevant departments. Awareness must be raised to all decision makers on what is affordable and what is not. Salary increases, recruitment for any vacant position and promotions should be guided by how much money is available to spend for each department.
3) Build Salary Ranges
Salary ranges are an effective way of managing employee reward as this easier to align to the organisation budget. The ranges should provide room to make inflation increases, adjustments for experience, and performance related increases without exceeding the budget. For larger and where it is administratively feasible, a number of salary ranges can be built to reflect the different skillset employed by the organisation. This makes the ranges more competitive as they are agile to respond to different market demand for different skills.
4) Individual Expectations
For new offers, after deciding the salary range for each job, the next step will be to consider the candidate's expectations. Offers must be priced within the organisation range and any candidates requesting higher amounts should be negotiated to within the limits in order to preserve internal equity. Exceptions should be very minimal and require stricter governance before approval.
It is important that no offers should be below the range for suitably qualified candidates even if the candidate has asked for a lower amount. Organisations have a responsibility to ensure transparency and fairness which means that if an employee has under-priced themselves this should be corrected and not taken advantage of.
The Pros and Cons of Some of the Benchmarking Approaches
The decision on how much to offer employees (new hire or existing) is a balance of 3 factors which work well in combination. We highlight some of the key pros and cons for each of the 3 approaches.
Internal Comparisons
Pro: This is key to ensure that the role is rewarded in line with existing hierarchy within the organisation and hence results in an offer that is internally consistent. This makes budget control easier.
Con: This might miss the fact that salaries for the role could have significantly changed on the market as this might not reflect in the internal hierarchy. There is a risk of making an uncompetitive salary offer.
External Benchmarking: Salary Surveys
Pro: Salary surveys provide an independent analysis of market pay and hence this will give reliable insight on externally competitive offers. This approach increases the ability to attract new employees.
Con: The internal worth of a particular skill may be different from the market perception resulting in a misalignment of what the market pays and how much the organisation wants to pay.
Candidate Proposal
Pro: A candidate proposal gives a good indication of how the individual values themselves, it provides the level of pay that will make them accept the role.
Con: In many cases this tends to be overly inflated as most candidates want to draw as much economic benefit as possible from the employment relationship.
Our Thoughts
Salary offers must reflect the value that the employer places on a job and should be decided following the guidance of an updated Reward Policy. The market data and the candidate feedback should be used as balancing factors but the primary point should be the value the organisation receives from the role.
What’s your take, do you feel there is enough transparency being applied in salary offer decisions? Kindly leave comments below.