14/06/2016 - 13:52

How can remuneration benchmarking impact your bottom line?

14/06/2016 - 13:52


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The changing Australian economy has resulted in a greater focus on operating costs for many businesses.  Employees are often an organisation's greatest resource, and typically they also represent the largest cost to the bottom line, so paying appropriately is critical.

Why conduct remuneration benchmarking?

Remuneration benchmarking is a powerful tool that can provide you with the information necessary to answer the following three questions critical to sound financial and employee management:

1.     Am I paying legally?  

Employee entitlements including minimum base wages are set by the applicable award, or if the employee is not covered by an award, the National Minimum Wage.

Minimum base rates increase annually on the first pay period on or following 1 July.  This coincides with many organisational pay review cycles, making this the perfect time to benchmark and ensure your pay levels are legally compliant.

2.     Am I paying consistently?

In matters of remuneration an individual’s skills, experience and performance, should result in reasonable differentiation.  However, often other factors such as negotiation abilities and length of service can influence remuneration levels, leading to disparity within groups of staff performing the same role.  Not only can this have a negative impact on financial management and sustainability, employee engagement and productivity may also be affected.    

3.     Am I paying competitively?

Paying at market rate is not just for attracting quality applicants; it also ensures key employees don’t ‘jump ship’ for an increase, and that your remuneration levels and practices are sustainable.

When using market data, consider the industry, role and region carefully; comparing an Office Manager working in a small professional practice to one working for a large corporation is like comparing apples to oranges.    

What about outliers?

What do you do if your employees are well below or above the benchmark?

1.     Assess the reason for the anomaly

You should always consider an individual outlier, case by case. If they are well below the benchmark, is it because they are missing a required qualification? Or underperforming?  

If they are above the benchmark, is it because they are a top performer? Because they are due for promotion? Or perhaps they were hired during a peak in the market?

If there is a valid reason for the employee being below or above the benchmark, there is no requirement for immediate action. However you should still work toward bringing the individual in line with the rest of your employees.

2.     Is there a training or performance issue? 

The ‘How’ of dealing with outliers is not set in stone.  An immediate pay rise is only necessary if the employee is below the applicable minimum wage or well below the market.  However, action will need to be taken if the employee in question: needs to be performance managed; should be on a training plan; needs a promotion; or if a conversation to reduce the pay level needs to be conducted.

3.     Is this sustainable?

Your top performer may be worth every penny, but is it sustainable to give them a pay rise if they are already significantly above the average?

It may be time for a realistic conversation. Explain the reason for a smaller or no pay increase, consider alternatives such as: flexible hours; training opportunities; or alternative benefits. It is critical that unsustainable increases are minimised, while avoiding demotivating the employee in question.

Outliers are an issue that will not be solved overnight. It is essential that you plan to bring individuals in line with other employees over a period of time, together with building in consideration for regular workforce increases. 

At a minimum, remuneration benchmarking will ensure you aren’t at risk of prosecution.  At best it can have a positive impact on your financial performance and employee engagement. With the minimum wage increase just around the corner, now is the perfect time to start.

Contact WCA Solutions- People & Culture Solutions if you require assistance with Human Resources and Industrial Relations on (08) 9383 3293 or email admin@wcasolutions.com.


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