Turning Salary Benchmarking Data into Compensation Strategy

Having (A) been in the compensation industry for nearly a decade, (B) run Option Impact, a pre-IPO salary survey, for 5 years, (C) worked with over 5,000 startups and 300 VCs, and now (D) helped companies streamline comp cycles, I’ve seen just about every compensation strategy, or lack thereof, under the sun.

Spoiler alert: There’s not a magic playbook that will tell you exactly what you should do when building out your compensation strategy. Your company is unique, your budget is unique, and your compensation strategy will be unique, too. To get started, you’ll need to figure out how to best motivate your current and future employees in a way that fits your style and resources. 

When all is said and done, the true measure of your compensation strategy’s success is how many people are saying “Yes!” to your offers and sticking around for the long haul. If your team feels like they are being treated right, they are more likely to stay with your company through thick and thin. If you’re getting more “thanks, but no thanks” responses to offers or a few too many farewells, it’s an indicator that you should revisit your compensation strategy, as long as the budget allows.

        Step 1: Get compensation benchmarking data

        Step 2: Make high-level compensation strategy decisions

        Step 3: Combine the data and strategy

        Step 4: Review

‍

‍

Step 1: Get compensation benchmarking data

Benchmarking is the first place to start if you’re looking to build out ranges for your compensation strategy. Whether you’re using Comprehensive.io, guessing, asking your VCs, or using another source (Salary.com, Glassdoor, Option Impact, Radford, Pave, Croner, ERI etc.) – you need to get some sense of which data you’d like to attribute to which roles. (Psst. Comprehensive.io culls market data from active job posts and aggregates it to provide a new, dynamic dataset. It’s free – no survey input nor integration required.)

‍Common mistakes:

Companies often rely too heavily on market data that’s not quite perfect. The goal should be to find a dataset that is pointing you in the right direction and fits your budget, then tweak it to align with the company’s resources and roles.

Private companies shouldn’t only look at private company data—if your equity is non-existent or less than compelling, you’re competing on cash. That’s why it can be smart to take a peek at what public companies are up to. The key is to find a balance between cash and equity that works for you.

Every company has its own story and that includes how much funding it has tucked away. Instead of just looking at data based on funding rounds, it can be smarter to look at how much cash a company’s raised or its revenue. That way, you’re closer to comparing apples to apples.

Don’t get too caught up in finding an exact match for unique roles, employee counts or companies, either. Sometimes, aiming for a bigger pool of data gives you a clearer picture in the end. 

‍

‍

Step 2: Make high-level compensation strategy decisions

Consider multiple factors for your cash compensation strategy—where you’ll play in the labor market, the value of your equity, and the value of jobs at your company.

• Salaries are all about keeping up with the job market and jobs in high demand come with a bigger price tag. When you’re figuring out where to set your salary ranges, it’s important to keep it real. Consider what you can afford and also the amount of competition for hiring each role. This means you might aim for the middle for those everyday jobs, but target higher percentiles for tricky-to-fill positions (ex. technical roles).

• Companies that enchant prospects just by flashing their logo might breeze through the recruiting process, relying less on cash and more on flash. A dollar is a dollar is a dollar, but one share at one company does not equal one share at another. Companies that are at an earlier stage or have lower-valued equity will probably need to sweeten the deal and sell their story (the potential upside of their equity), or bump up their cash ranges to offset the lower equity value. It’s all about finding that balance.

• Start simple, by grouping similar jobs at your company together and then creating ranges to cover them. This way, you won’t have to rely too heavily on market data, especially if there isn’t a clear pattern in the numbers. For instance you might consider paying all business roles (Finance, HR, Legal, etc.) with the same set of ranges. This will ensure consistency as your ranges evolve over time. Another trick is to pay Technical Services, such as QA, a bit less than your technical ranges to keep things balanced. As your company grows this framework can grow with it and become more sophisticated along the way.

Common mistakes:

Just like your company, compensation is always evolving, but they might not evolve at the same pace. Resources and the need for simplicity or complexity can change in the blink of an eye, especially at early stages. That’s why it’s important for companies to reassess strategy with each compensation cycle to ensure it is still a match for where the company’s at right now.

‍

‍

Step 3: Combine data and strategy in your compensation benchmarking

Benchmarking is super useful, but it alone is not a strategy. You need to zoom out and take a big-picture look at your data to ensure it makes sense relative to a role’s level and value at a company. Follow these steps to benchmark salaries at your company.

• Group your roles into what you might consider a job family. Using the example before, maybe you have Finance, HR, and Legal in the same group based on relative value to your company.

• Decide what job families you’ll use to create each range. Typically you’ll use whichever has the strongest data set (most data points), but you could also go with the highest compensation or a blend of all the roles. Perhaps you have a large-enough Engineering department to consider multiple separate job families - in this instance, you could create multiple ranges for a department.

• Use your target percentile to set your mid-range then add in a range width to calculate the high and low ends. The goal is to have overlap from the high of one level to the low of the next to allow for career progression within a level.

• Pull all levels for the entire set to see trends in the data and identify any skews. Keep an eye out for oddities such as higher levels getting less comp than lower levels, or if there’s not a smooth progression in the mid-point numbers between ranges. If things look off, look towards the market data with the highest number of data points and then adjust the other levels accordingly.

Common mistakes:

Using benchmarks as ranges without a second thought can lead to a bit of a mess between different levels and functions. Market data can be all over the place for a number of reasons like last-minute hires, incorrect leveling or mix ups with job titles/families.

Don’t set it and forget it. It’s a good idea to check in every 6 and 12 months to see if anything’s changed in the market and adjust accordingly. This will ensure that you’ll be able to remain competitive.

On the flip side, don’t change your ranges too frequently or you’ll just be chasing fluctuations of the market.

‍

‍

Step 4: Review and refine your compensation strategy

Refining your compensation strategy is an iterative process—it takes some finessing to develop something that’s consistent, aligns with your philosophy, and fits your budget.

• Review your workforce with department heads in a visual framework. By looking at actual employee names and titles in peer groups, you’re able to see if there are any levels or job families that need to be tweaked.
• Overlay current employee compensation in comparison to your ranges and adjust as needed. If you find most of your employees soaring above your salary range, you’ll want to aim for a higher target percentile to keep up with the current compensation scene. Likewise, if your employees are dipping down toward the lower end of the range, think about nudging the midpoint down a bit, especially for less competitive roles.‍
• Decide how to allocate salary increases for your employees. Range building and revisions typically precede compensation review cycles where you’ll need to weigh market adjustments, merit increases, promotion, and budgets. At first, salary increases might follow a set formula, but then it's time for managers to step in and add their opinions. They'll provide input on how these suggested increases match up with performance and all the things their team members bring to the table.

Compensation review cycles are extremely manual, time-consuming, and error-prone when you’re capturing all of this information and tracking recommendations via spreadsheets. But, comp reviews don’t need to provoke a sense of dread.

Comprehensive integrates with your existing HR systems to provide a seamless experience for managers, executives, and cycle administrators alike.

Calculate increases, solicit feedback, and calibrate employees with ease and confidence. Then communicate compensation to employees with automated award letters and a total rewards dashboard.

If you’re still running your comp cycles like they did when dinosaurs roamed the earth - stop immediately and let’s chat about how to modernize your compensation management!