Organizations are digging deeper and taking more into account to assess if they measure up
Organizations are becoming much more sophisticated in how they tackle the art and science of benchmarking what they offer employees.
As the labour pool tightens, and competition for employees heats up, the traditional approach to benchmarking is giving way to a more sophisticated method. Whereas organizations used to focus primarily on compensation, examining whether internal pay levels were competitive in the market, they are now casting a wider net and taking into account the “total reward” offering including things like pensions and benefits.
Such analysis includes the more traditional assessment of how base pay, total cash compensation (base pay plus bonus) and total direct compensation (base pay plus bonus plus long-term incentives) are positioned against the market for an array of benchmarked jobs. But now it also includes analysis of how benefit and retirement plans compare against market comparators — including comparisons of employer-paid and employee-paid benefits. The addition of this analysis enables organizations to bundle external market analysis to determine how they stack up not just in terms of total compensation, but in terms of total rewards as well.
A more insightful picture
The objective of such analysis is to get a more complete and insightful picture of competitive positioning to support decision-making around HR and compensation investment decisions.
As a result of this new approach, external benchmarking exercises can cover a lot more than just the competitiveness of pay levels. Increasingly, organizations are interested in benchmarking other facets of HR as well. The types of data organizations are seeking can include:
•eligibility criteria (in what types of jobs and at what organizational levels are employees eligible for incentive pay, stock options and car allowances);
•types of incentive measures used;
•prevalence of different types of HR or total rewards programs (such as profit sharing, recognition, flexible work arrangements, technology subsidies and wellness initiatives);
•turnover statistics;
•training investment per employee; and
•organizational design data, such as the ratio between the number of employees and the number of HR and other corporate support staff.
The evolving demand for market benchmark data is also leading to an evolution in how organizations collect data. Consulting firms and other third-party providers continue to revisit and revise their major published surveys to keep pace with both the types of jobs to be covered as well as the types of compensation and HR elements to be benchmarked. Organizations also conduct and participate in highly tailored custom surveys, sometimes geared towards a particular industry group or companies of a particular size to generate more detailed and sophisticated survey results that address specific business and HR challenges.
Looking inwards
Just as externally focused market studies have evolved to consider a wider variety of reward elements and deeper questions, so too have internally focused studies. Traditionally, many organizations conducted employee surveys to measure “employee satisfaction” with respect to the employment deal. Such internal benchmarking efforts offered some insights but, in some instances, did little to shed light on what factors might actually influence employee performance and retention.
As a result, many organizations are taking a more holistic view of what to examine in internal benchmarking. While understanding employee views about their work and the employment deal is still important, exploring these issues within the broader context of understanding how to optimize performance through increased levels of employee engagement and performance is growing in significance.
‘Productive engagement’
Watson Wyatt developed a model for what it calls “productive engagement,” which suggests there are four key considerations that influence employee performance and productivity. This model indicates that employees who are productively engaged:
•have a direct line of sight between what they do as individual contributors and the company’s overall performance (alignment);
•are fully capable of performing their jobs (capability);
•have the tools they need to do their jobs (resources); and
•have the desire to do a good job (motivation).
These criteria go beyond the assessment of employee satisfaction and can be measured through employee surveys. Such surveys can provide insights or lead indicators into what organizational factors are supporting performance and productivity and what factors might be barriers.
Survey results also help organizations measure progress in addressing issues over time by comparing how results change from one survey period to the next.
Action, not the research, counts
Benchmarking exercises — both external and internal — can yield a lot of valuable insights. Traditional market analysis on pay competitiveness remains fundamental in ensuring pay programs support the attraction and retention of talent. Total rewards analysis can paint a more complete picture that can greatly support decision-making regarding the types and levels of investments in reward programs. And inwardly focused employee research can provide insights on how employees perceive their employment experience and the factors that support or inhibit their performance and productivity.
However, ultimately it is the actions taken in response to such research findings that matter most. This doesn’t mean an organization needs to exactly replicate the practices and pay levels seen in the market. The total rewards offering that represents the organization’s employment deal may have, and may need, its own unique mix. Employee research, including the needs and preferences of an employer’s unique talent base, can serve as a key point of reference when analyzing market information and determining what trends and data are of greatest relevance.
To that end, benchmarking results — especially market information or information on best practices — need to be viewed within the context of where the organization wants to go and how it seeks to engage employees. While such information is valuable, the organization’s unique business goals, talent base and demographics will influence the shape of the employment deal.
Digging deeper
Addressing fundamental questions
The common theme in how external and internal benchmarking efforts have evolved over time is the emphasis on digging deeper to uncover powerful insights.
By understanding how it is positioned both externally and internally, an organization is able to make informed decisions about how it designs and manages HR and rewards programs.
That doesn’t mean fundamental questions aren’t important to address.
There is still a lot of value to be obtained from traditional benchmarking exercises that address such questions as:
•Is the organization paying employees competitively?
•What are market practices with respect to budgets for merit increases?
•By how much should salary ranges be adjusted?
•Does the benefits package meet the needs of employees?
But, not unlike mining for gold, an organization can find some valuable nuggets of wisdom by going deeper to find data that answer such questions as:
•Are there opportunities to redirect investments toward elements that would more effectively drive performance or increase the extent to which employees would value their employment deal?
•How satisfied are employees with the reward elements that really matter to them?
•How effective is the performance management process through the eyes of both managers and employees? What can be done to make it more effective?
•How engaged are employees?
•What is the organization doing well in terms of really unleashing individual and organizational performance? What could it be doing better?
•Where are we at risk, either from a financial liability perspective or from an employee performance or retention perspective?
•Do different employee groups see the organization differently? Why?
•How might demographics influence the shape of current and ¬future employment deals?
Michael Ng is a consultant in Watson Wyatt’s Human Capital Group in Toronto. He can be reached at (416) 943-6086. Liz Wright is the practice leader for Watson Wyatt’s Human Capital Group in Central Canada. She can be reached at (416) 943-6050.
As the labour pool tightens, and competition for employees heats up, the traditional approach to benchmarking is giving way to a more sophisticated method. Whereas organizations used to focus primarily on compensation, examining whether internal pay levels were competitive in the market, they are now casting a wider net and taking into account the “total reward” offering including things like pensions and benefits.
Such analysis includes the more traditional assessment of how base pay, total cash compensation (base pay plus bonus) and total direct compensation (base pay plus bonus plus long-term incentives) are positioned against the market for an array of benchmarked jobs. But now it also includes analysis of how benefit and retirement plans compare against market comparators — including comparisons of employer-paid and employee-paid benefits. The addition of this analysis enables organizations to bundle external market analysis to determine how they stack up not just in terms of total compensation, but in terms of total rewards as well.
A more insightful picture
The objective of such analysis is to get a more complete and insightful picture of competitive positioning to support decision-making around HR and compensation investment decisions.
As a result of this new approach, external benchmarking exercises can cover a lot more than just the competitiveness of pay levels. Increasingly, organizations are interested in benchmarking other facets of HR as well. The types of data organizations are seeking can include:
•eligibility criteria (in what types of jobs and at what organizational levels are employees eligible for incentive pay, stock options and car allowances);
•types of incentive measures used;
•prevalence of different types of HR or total rewards programs (such as profit sharing, recognition, flexible work arrangements, technology subsidies and wellness initiatives);
•turnover statistics;
•training investment per employee; and
•organizational design data, such as the ratio between the number of employees and the number of HR and other corporate support staff.
The evolving demand for market benchmark data is also leading to an evolution in how organizations collect data. Consulting firms and other third-party providers continue to revisit and revise their major published surveys to keep pace with both the types of jobs to be covered as well as the types of compensation and HR elements to be benchmarked. Organizations also conduct and participate in highly tailored custom surveys, sometimes geared towards a particular industry group or companies of a particular size to generate more detailed and sophisticated survey results that address specific business and HR challenges.
Looking inwards
Just as externally focused market studies have evolved to consider a wider variety of reward elements and deeper questions, so too have internally focused studies. Traditionally, many organizations conducted employee surveys to measure “employee satisfaction” with respect to the employment deal. Such internal benchmarking efforts offered some insights but, in some instances, did little to shed light on what factors might actually influence employee performance and retention.
As a result, many organizations are taking a more holistic view of what to examine in internal benchmarking. While understanding employee views about their work and the employment deal is still important, exploring these issues within the broader context of understanding how to optimize performance through increased levels of employee engagement and performance is growing in significance.
‘Productive engagement’
Watson Wyatt developed a model for what it calls “productive engagement,” which suggests there are four key considerations that influence employee performance and productivity. This model indicates that employees who are productively engaged:
•have a direct line of sight between what they do as individual contributors and the company’s overall performance (alignment);
•are fully capable of performing their jobs (capability);
•have the tools they need to do their jobs (resources); and
•have the desire to do a good job (motivation).
These criteria go beyond the assessment of employee satisfaction and can be measured through employee surveys. Such surveys can provide insights or lead indicators into what organizational factors are supporting performance and productivity and what factors might be barriers.
Survey results also help organizations measure progress in addressing issues over time by comparing how results change from one survey period to the next.
Action, not the research, counts
Benchmarking exercises — both external and internal — can yield a lot of valuable insights. Traditional market analysis on pay competitiveness remains fundamental in ensuring pay programs support the attraction and retention of talent. Total rewards analysis can paint a more complete picture that can greatly support decision-making regarding the types and levels of investments in reward programs. And inwardly focused employee research can provide insights on how employees perceive their employment experience and the factors that support or inhibit their performance and productivity.
However, ultimately it is the actions taken in response to such research findings that matter most. This doesn’t mean an organization needs to exactly replicate the practices and pay levels seen in the market. The total rewards offering that represents the organization’s employment deal may have, and may need, its own unique mix. Employee research, including the needs and preferences of an employer’s unique talent base, can serve as a key point of reference when analyzing market information and determining what trends and data are of greatest relevance.
To that end, benchmarking results — especially market information or information on best practices — need to be viewed within the context of where the organization wants to go and how it seeks to engage employees. While such information is valuable, the organization’s unique business goals, talent base and demographics will influence the shape of the employment deal.
Digging deeper
Addressing fundamental questions
The common theme in how external and internal benchmarking efforts have evolved over time is the emphasis on digging deeper to uncover powerful insights.
By understanding how it is positioned both externally and internally, an organization is able to make informed decisions about how it designs and manages HR and rewards programs.
That doesn’t mean fundamental questions aren’t important to address.
There is still a lot of value to be obtained from traditional benchmarking exercises that address such questions as:
•Is the organization paying employees competitively?
•What are market practices with respect to budgets for merit increases?
•By how much should salary ranges be adjusted?
•Does the benefits package meet the needs of employees?
But, not unlike mining for gold, an organization can find some valuable nuggets of wisdom by going deeper to find data that answer such questions as:
•Are there opportunities to redirect investments toward elements that would more effectively drive performance or increase the extent to which employees would value their employment deal?
•How satisfied are employees with the reward elements that really matter to them?
•How effective is the performance management process through the eyes of both managers and employees? What can be done to make it more effective?
•How engaged are employees?
•What is the organization doing well in terms of really unleashing individual and organizational performance? What could it be doing better?
•Where are we at risk, either from a financial liability perspective or from an employee performance or retention perspective?
•Do different employee groups see the organization differently? Why?
•How might demographics influence the shape of current and ¬future employment deals?
Michael Ng is a consultant in Watson Wyatt’s Human Capital Group in Toronto. He can be reached at (416) 943-6086. Liz Wright is the practice leader for Watson Wyatt’s Human Capital Group in Central Canada. She can be reached at (416) 943-6050.
