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HR101 Benchmarking

October 1, 2000
Related Topics: HR Services and Administration, Featured Article
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It’s an old story of the new economy: Job openings abound, employers arescrounging to fill them, and specialists in almost any area you care to imaginecan write their own tickets.

Human resources departments have always looked to others in their respectiveindustries to make sure their offerings are on a par with their peers’.Nothing new there.

But, given the ever-strengthening employees’ market, the pressure to keepup with the Joneses -- or maybe even try to leave them eating your dust -- hasprobably never been greater than it is today. As companies become fiercelycompetitive in their bids to attract and retain qualified workers, benefits andcompensation levels are shooting skyward in almost every sector you’d care toimagine, from the legal profession to the publishing industry to (need we evenmention it?) high technology.

"There is a real fear among organizations that all the talented playersare already on the floor. They’re thinking, ‘If we’re expecting to grow,then we’ve got to find the talent. And if the talented people are already onthe floor, we’ve got to steal them,’" said Jim Stewart of WatsonWyatt Worldwide, a Wellesley, Mass.-based human resources consulting firm.And, in some instances, this could force employers to take steps they wouldnormally have eschewed during a cooler employment climate, such as automaticallyplugging in certain benefits packages or increasing salaries to such-and-such alevel simply because a competitor is doing the exact same thing (not the bestpractice to undertake, Stewart and others agree).

As summer winds down and HR departments hunker down to plan future salariesand benefit levels, they’ll likely look at what others in their industry aredoing. Experts and analysts of the benchmarking industry say this information isreadily available. And as to what employers decide to do with it? That’s theclincher.

Benchmarking resources

A plethora of professional organizations, consulting firms and human-resourceoutsourcing companies, from Watson Wyattto the Saratoga Institute tothe Human Resources Benchmarking Association(HRBA), market studies that allow organizations to determine their standing inrelation to other companies.

The Saratoga Institutepublishes the annual Human Capital Benchmarking Report, which includesbenchmarking information from almost 900 companies. Clients can use theinformation in Saratoga’s studies of such areas as pay structure, return oninvestment per employee, turnover rates, and cost-per-hire and time-to-fill forkey employees. The data represents 25 industry sectors.

The HRBA is a professional organizationthat provides human resources professionals with networking opportunities andaccess to data from a number of industries. It sponsors studies and annualmeetings, and its Web site allows its members access to benchmarking informationfrom 36 industry sectors, from aerospace to higher education totelecommunications, and data for 40 benchmarking processes, from customersatisfaction to treasury management. The site also has access to informationabout benchmarking books, training courses, and links to other onlineassociations and resources.

All this being said, a company should not rely solely on external informationto ensure that its compensation packages and work environment are adequate toattract and retain choice employees.

"Another means of benchmarking is internal -- it’s when you start tolook at and measure what your turnover is and your average performance rating isfor a group or an entire organization. Other things you can look at are theeffectiveness of mergers and acquisitions, how many people subscribe tobenefits; all those things are the pulse of what’s happening in anorganization," said Sandy Visser, a chief people officer for BenchmarkHR Solutions, a New Hampshire-based recruitment and retention firm thattargets high-technology startups.

"There are a number of steps you can take. If you look at the standarddata provided, the compensation benefits , the cost of living, you can equatethose to what the needs are of your employees," Visser said.

Some companies, Benchmark HR Solutions,for example, not only provide benchmark information, but advise clients on howto implement them and offer follow-up services.

The need to stay competitive

Is the need for benchmarking more pronounced these days than it was two orthree years ago? That’s anyone’s guess. A few things are certain, though: Alot of companies are scrambling for employees, and are doing their damnedest tocompete in a worker’s market.

Not a week goes by that some business publication or other does not have astory outlining the challenges a particular industry is facing in attracting andretaining likely employees, or the previously unheard-of salaries thatorganizations are offering to keep their staffing levels up to snuff. Hightechnology is the most glaring case in point. For example, starting salaries inthe information-technology industry for this year increased an average of 6.8percent from 1999, according to a study by Menlo Park, California-based RHIConsulting. Further, the more specialized an employee happened to be, the biggerthe windfall he or she stands to make. Starting salaries for specialists insystems integration increased more than 17 percent this year over 1999,according to the study.

"Obviously talent is much more of a commodity. Executives in theInternet space are finding it increasingly difficult to bring people on board.It really becomes a matter of coaching employers on how they can better sell thepositives of their business and of the management team touting theirsuccesses," said Mike Parker, marketing and communications manager for BenchmarkHR Solutions.

It’s not just high technology. Firms in a myriad of industries are offeringfresh-out-of-college job candidates salaries that would have made countless jawsdrop just one year ago. Take the legal industry, for example. Major law firms,those with 400 or more lawyers, are luring associates to their ranks by offeringstarting salaries and bonuses totaling well over $100,000. In some cases, an associate can make up to $130,000 with salary and bonus taken intoconsideration. The National Association for Law Placement recently published astudy indicating that some law firms have raised their 2000 starting salariesfor associates as much as 30 percent over last year’s levels.

"Everybody tries to stay competitive, and the information on whatdifferent firms are offering is pretty readily available. Not only arenewspapers listing salary levels, but the information is also out there onInternet chat sites," said Gina Sauer, assistant dean for career servicesat William Mitchell College of Law in Minneapolis. "The question on a lotof people’s minds is, ‘Where is this money going to come from?’"

Of course, the culprit behind the dearth of qualified candidates in the legalindustry, and others, is the ubiquitous dot-com. With gobs of venture capital attheir disposal and the (somewhat misplaced) promise of lofty returns from stockoptions, online companies are luring workers from a gamut of industries. Mostobservers agree that the shaky performance of the NASDAQ Composite Index and thelackluster showings of online companies that go public are taking some of thesheen off the dot-com. But in the meantime, employers are finding that the barhas most definitely been raised as far as salaries and benefits are concerned.

"What is going on is we’re hearing a lot of companies use the term ‘employerof choice.’ A lot of organizations are starting to use that language in theirmission statements," said Jim Stewart of WatsonWyatt Worldwide.

For their part, high-tech startups might do well to pay a bit more attentionto their human resource operations than they do now. According to a recentsurvey by Employee Matters Inc., anumber of executives at high-tech startups don’t have human resourcesdepartments, and don’t care to have them. Further, a number of companies don’teven have at least one person to shoulder the work-a-day HR functions, accordingto the survey.

New challenges in benchmarking

Global economy: Rarely has a catchphrase become so overused so quickly.Still, thanks to our brave new online world, your competitors are on the otherside of the street, on the other side of the continent, and on the other side ofthe Pacific. And so, if you’re competing on a world stage, are you. Yoursalary and benefits packages for employees in your home office cannotnecessarily be the same if you open an office in London or Bangkok.

"Every geography has its benchmarking issue, and every geography andevery country has its results. If you decide to manage in another country, notonly are the legal requirements different but the pay scales aredifferent," Visser said. "It’s simple to think of this as a matterof country-to-country, but just look at the Northeast versus the WestCoast." For example, a starting salary of, say, $70,000 would be a princelysum in a number of cities along the Eastern seaboard (for the time being,anyway). But, the same amount would barely get you through the year in San Jose,California.

And while salary levels and benefits packages are important factors toexplore when companies benchmark, they are by no means the only things to takeinto account. Oftentimes, an employee finds an organization attractive forreasons beyond compensation. A company may offer flex time, for example, ordaycare services, or maybe even a foosball table and a place for stressed-outworkers to nap.

Which doesn’t mean that everybody should have foosball tournaments orafternoon time-outs, industry experts insist. It’s very simple for astarry-eyed employer to look at the wonders all these perks do for awell-staffed organization and regard them as the answer to their employeecrunch. In fact, it’s probably becoming all too simple for firms to try andape another company benefit for benefit, simply because a competitor is reapingenviable benefits.

"There’s a fair amount of that going on," said Stewart. "Thecaveat in all this is that if you find out what other companies are doing andwhat works well for them, don’t just jam it in. You’re in a different place,you don’t have the same population, the same attitude, the same culture."

Instead of trying to shoehorn in a particular benefit or perk, anorganization should come up with a list of eight or 10 companies that are doingwell on the staffing and morale front, find out what they’re doing well andrequest their literature. Then, find out if some of the organization’sofferings would work, and what would be the best way to implement them.

"The topical list may include something we find interesting. That doesn’tmean we’re going to do their approach to it, but it also doesn’t mean weshouldn’t do something in that area," Stewart said. "Oftentimes theexact design of a practice won’t work for one company the way it works foranother, but the fact that a company is doing something means you should belooking at it."

When should companies begin the benchmarking process? A comprehensive studycan take at least a year to complete, most industry resources agree. A goodbenchmarking study can help employers reduce waste, improve productivity, andeven set specific performance goals and offer suggested steps to meet them.Benchmarking is a tool , but it isn’t a panacea. A company shouldn’t waitfor an annual report. Neither should it wait until 365 days go by before theyrevisit their benefits and compensation packages.

"The recurring theme here is retention," said BenchmarkHR Solutions’ Visser, "looking at that on a real-time basis asopposed to an annual basis."

Workforce, October 2000, Vol. 79, No. 10, pp.100-104 -- Subscribenow!

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