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Have you ever thought about how you can help boost your company’s bottom line? For many businesses, the answer to this generally involves a mixture of changes like raising prices or increasing the marketing budget. While these changes can be impactful, there are other, less considered, ways to accomplish this. Evolving the hiring process, especially in regards to a contingent workforce, is one of them. Doing this right requires that you add market-rate benchmarking to your staffing and hiring strategy. This makes sure you’re hiring the right people for the right rate.
What’s Market-Rate Benchmarking?
Market-rate benchmarking has many names. Market pricing and labor rates are a few of them. While the names vary, they all mean the same thing. Benchmarking matches internal jobs and their descriptions to similar positions using market data and intelligence to determine the appropriate pay rate for a particular person and role. This process is the driving force behind any successful, and profitable, contingent workforce strategy. It’s also paramount to the financial success of a company—you can’t have one without the other.
Why’s Benchmarking Salaries So Important for Businesses?
Benchmarking isn’t important. It’s imperative. Having an understanding of labor rates helps recruit top talent, increase company-wide morale, and reduce employee turnover. Benchmarking can also create cost savings and ensure you’re not underpaying or overpaying your employees. Finally, it can help minimize company risk. Each of these benefits is vital to a company’s long-term success and sustainability.
It Creates New Cost Savings & Efficiencies
It’s easy to fall into the trap of assuming everyone’s salaries are accurate. What you paid the last person with the same experience and expertise is what you should pay the new hire, right? Perhaps, but the labor market is too complex for you to assume that. Rather than assuming your historical salaries are accurate, market-rate benchmarking taps into data from multiple sources to give you up-to-date rates, helping you eliminate labor-cost inefficiencies. You can derive a lot of this market data manually, however, adding market-rate benchmarking technology can enhance your strategy.
It Avoids Underpaying or Overpaying Employees
This sounds counterintuitive, I know, but underpaying employees can have a damaging effect on your bottom line. In fact, underpaying workers increases costs. It also introduces risk. By underpaying employees, you increase the likelihood that they’ll look for employment elsewhere. Then, when turnover rates rise, you have unforeseen costs, including recruiting and onboarding as well as lost revenue when positions remain unfilled. Underpaying employees could also lead to the loss of proprietary skills through attrition as well as reduced employee engagement. Overpaying employees can be equally damaging. By overpaying employees by mere percentage points, you could be costing the company millions of dollars.
It Reduces Company Risk and Reputation
With equal pay laws, relying solely on labor rate history to determine pay rates introduces another layer of risk. For one, you could be breaking state or federal laws. It should go without saying that that isn’t good for the company’s reputation. What if word gets out that you aren’t paying employees commensurate with their experience and expertise? Maybe the negative Glassdoor reviews start pouring in or maybe word spreads around town to steer clear of your company. Not using market-rate benchmarking opens the doors to these ramifications, all of which have an undeniable effect on attracting and retaining top talent.
A Laser Focus on Market Rates: A Must in the Modern Workplace
There are a lot of ways to boost your bottom line. Outsourcing production and manufacturing is a good example. So are layoffs. While both have their time and place, they have ramifications. Instead, consider enhancing your focus on employees’ pay rates. For one, it’s an avenue few companies consider, giving you a chance to gain a competitive edge. Taking the necessary steps to ensure your labor costs are optimized also positions your company well for long-term success and sustainability. The importance of market-rate benchmarking has never been more clear.