March is traditionally a time for employee pay reviews in many organizations. In order for salary negotiations to be productive and meet the requirements of both employers and employees, it is important that the organization has clear and understandable information about how the fixed and variable part of the salary is formed, whether the salary of the relevant position in the organization is higher or lower than the relevant position salary market, etc. Data-driven compensation decisions help organizations avoid a number of significant risks, such as disproportionately high or low compensation, which can affect the company’s competitiveness. Additionally, workers who experience pay stress are about twice as likely to decide to look for another job and are nearly eight times less likely to be successful in their day-to-day responsibilities.
By using quality data on compensation (both within the organization, the industry and the market as a whole), an organization can maintain compensation competitiveness as well as promote employee satisfaction. An organized, easy-to-understand and transparent remuneration system significantly facilitates negotiations with employees about remuneration, as well as the attraction of new talent. The mentioned data can be obtained in different ways, but it is important to evaluate whether the appropriate methodology is used in the data collection, which determines whether the data is reliable and reflects a sufficiently large market share, respectively – allowing the organization not only to respond reasonedly to employees’ questions about remuneration, but also to organize pay system and even be proactive in negotiating pay changes.
Compare only works of similar value
For instance, Figure Baltic Advisory the salary survey collects data once a year. As part of the research, its participants (companies, organizations) provide information on the real salary of employees – both on basic salaries in various positions, as well as on the variable part of the salary, benefits offered to employees, etc. , that the data finds and aggregates the same or very similar positions and compares the pay at that level. It is important to understand that you cannot evaluate, for example, the salaries of all accountants, but it is necessary to distinguish between different levels of complexity within one position. This principle applies to all positions. When performing this evaluation, it is determined in which job positions work of equal or similar value is performed. The concept of “work of equal value” also becomes particularly relevant in the directives of the European Parliament and the Council approved in the spring of 2023 (EU Pay Transparency Directive) in the context of strengthening the legal framework for fair pay in the EU.
Evaluation of all positions according to uniform, pre-defined criteria
Determining work of similar value means that the employer will have to be able to clearly define which employees in the company are doing work of similar value, and accordingly provide these employees with equal pay. In order to determine this, all positions must be evaluated according to uniform, pre-defined criteria that exclude any discrimination – work of similar value is measured according to the necessary knowledge and skills in the respective position, the complexity of the work, the scale of cooperation, responsibility for decisions and resources, working conditions and other criteria.
As part of the research, we conduct negotiations with each organization in order to find out what the responsibilities of each position are, the necessary qualifications, etc. This helps to understand which positions are or are not comparable. It should also be remembered that currently information on salary can be obtained from various sources, for example, by collecting information from job advertisements, which tend to show very wide salary ranges, which most likely include not only the salary of the specific position, but possibly even a wider range of salaries in the company. When analyzing data from job advertisements, it should be remembered that this is only a salary projection that the company offers to attract candidates. You should also pay attention to whether you are comparing positions that are really comparable to each other, because often different vacancies with different experience and the content of the work to be performed are advertised with the same job title.
Less time resources are needed every year
When implementing such a study, active involvement of organizations is also necessary – sharing data, information, as well as participating in conversations with research consultants, but the more organized the company’s internal personnel management and accounting systems are, the less time it takes. By participating in the study again, it is only necessary to update the data and make changes in each subsequent year, which requires less resources from the organizations. In addition, we can see that participating in such a study and evaluating positions according to the research methodology allows companies to gradually organize their remuneration systems. Taking into account the methodology and the time that needs to be invested by both the participants of the study and those conducting it, the optimal frequency of the study is once a year. In order to respond to drastic changes in the economy, such as inflation, it is possible to conduct, for example, pulse surveys that provide an idea of current trends in the labor market, recent changes in pay, and summarize plans and forecasts for the next year in terms of pay and personnel management.
Successful salary negotiations with employees
A large number of organizations make decisions about salary changes in the first quarter of the year, but the research data can be used throughout the year. Considering that about 10% of the entire labor market participates in the study, representing all major industries as well as different regions, organizations can use the information obtained to make improvements in the remuneration system, as well as to organize successful salary negotiations with employees, one step ahead of potential issues rather than just reacting to them.
An orderly remuneration system that is regularly reviewed helps reduce the likelihood of situations where an employee turns to the employer with dissatisfaction. This, in turn, reduces the risks of ill-considered decisions – if the employee declares that he is dissatisfied and wants to terminate the employment relationship, the employer becomes the driver and can make a forced decision on remuneration that does not correspond to the duties of the position or the necessary competencies. Employees who know how their pay is structured and that it is regularly reviewed are more satisfied.
The author is Figure Baltic Advisory senior consultant