“Where’s the market data to support your proposal? What are other companies doing?”
“Why do we need to give this benefit? What’s the market prevalence?”
A part of being a HR professional, particularly in the rewards or compensation functions, involves analysing market data to support any updates or changes to policies, with the ultimate aim of ensuring the company remains “market competitive”. What that means is management always wants to be assured that their compensation and benefits are on par, or better than other companies and ergo, they will be able to retain employees and attract talent.
This practice of market benchmarking is a PITA (pain in the ass), and although it keeps people like me gainfully employed, I do caution companies about overly relying on it for policy-making. Even when all the data points to you being market competitive, you might actually not be. Here’s why.
- You might be following the wrong market
Market data providers typically segment the data by industry. A medical devices firm will look at bench-marking against pharmaceutical companies, and a wafer fabrication plant against other semiconductor companies. While it makes sense for certain jobs, when you’re hiring for roles which don’t require industry-specific skills, you end up comparing against data from a smaller pool of talent. Or you unintentionally exclude data from jobs that require similar skills but may reside outside of the industry.
- You’re chasing a self-fulfilling prophecy
Companies are often asked to submit annual wage increase forecasts to market data providers way ahead of the budget cycle so there is time for them to process the data and send the results back to the companies to use as the basis for budgeting. Last I checked, HR professionals don’t have crystal balls to look into the future, so most of them just submit the previous year’s figures. The result?
2018 Actual: 4%
2019 Forecast: 4%
2019 Market Data: 4%
2019 Budget (which is set based on the latest market data): surprise, surprise – 4%!
- You will never stand out
I laugh every time someone tells me that they differentiate themselves from the market by intentionally pegging themselves at a higher percentile. Even if you decide to compensate or provide benefits at the 90th percentile (your family will receive 400% life insurance payout if you die in my employment – Yay?), candidates and employees will not be wow-ed the way they are with Netflix’s unlimited annual leave policy or Airbnb’s travel stipend benefits, both of which were completely unique in the market when first launched.
So the real question is whether you are content with being competitive with the same old, same old, or if you dare to be a leader with truly innovative offerings that isn’t found in any market data. That is, until you bring them to the market!