Benchmarking and Analyzing Salaries: A Fast How-To
Everyone's heard of benchmarking and salary analysis, but what are some easy tools to use? This article is adapted from a chapter in The Nonprofit's Guide to Human Resources by Jan Masaoka, to be published by Nolo Press in the fall of 2011.
To illustrate ways to analyze salaries, let's look at a simplified example of an environmental research organization. First we'll chart salary ranges, then add benchmark salaries, and then look at two ways to look at analyzing individual salaries.
The five salary categories in this fictitious organization:
This organization shows wide ranges for senior scientists, especially compared with the ranges for administrative support staff. This is typical for nonprofits, and usually reflects the reality that senior positions encompass a wide range of skill and experience. In addition, individuals who bring in restricted funds -- through grantwriting or earned income -- are often also the project managers
for those funds. In this case, for example, senior scientists bring in grants for projets on which they will be the principal investigators.
For each range you establish (particularly with wide ranges), be sure to identify the
assumptions and variations that are the rationales for paying at the high, low or mid end of the salary range. Charting the ranges gives a management team and the board a tool for determining whether salary spreads are appropriate to the multiple goals of attracting top talent, internal balance, and affordability.
To begin a benchmarking process, choose a few positions in your organization that you can compare to other organizations of your type and size. In an environmental research firm, these might be one from each category: the executive director position, a senior research biologist, a research assistant, and the office manager. Then you can find environmental organizations with similar revenue and compare those salaries to yours.
For some positions, like a senior scientist job, it may also be useful to benchmark the salary against similar positions in state and local governments. In other cases where you are competing with the for-profit sector, looking at salaries in small, for-profit firms may be appropriate.
Some ways to find comparable salaries:
You also want to take into account your geographic location in choosing what organizations to use as benchmarks. Try to find similar cost of living locations or take cost of living into account when making your comparison. Don't expect salaries in Des Moines to match those in New York City even if organizations in both places do similar work.
Here is the same chart as the one above, with the median salaries for the benchmarking organization shown with the "B" showing where the benchmark salaries fall:
Charting like this allows you to analyze competitiveness. This chart shows that the organization is highly competitive for the senior executive, project or department manager, and support staff positions but less competitive for the senior scientists and for research assistant positions.
There could be many reasons for these discrepancies, including the level of scientific work required of the senior scientists or the type of research expected of research assistants. But it may also be that your organization has simply fallen behind on salaries. Doing a chart like this allows you to get a snapshot of where you are and then you can dig in and do the analysis you need based on what you find.
You can also chart the salaries of individuals in your organization. The benchmark salary information has been removed from this chart; this is just the salary ranges for positions and the actual salaries paid in each category.
In this example, there are three people who are paid above salary range. As an accountability matter, look into the particulars. For example, were these salaries approved by management, and if so, on what basis?
If salaries seem to be clumbed at the top end of a range, again you will want to find out why. Is it because the people in those jobs have a lot of tenure? You will probably want to think about whether that range needs to be raised or whether you need to let some staff know that they are reaching the top of the range so that they have realistic expectations about their future salary growth.
Management team members will appreciate salary data presented this way in addition to a more typical salary schedule. The information is primarily useful for analyzing overall compensation strategies although supervisors also will appreciate knowing where a given employee fits in the range for a given position. You can prepare individual salary information as follows:
This article is certainly not a comprehensive overview of salary analysis in nonprofits. But these simple mapping tools will go a long way towards helping senior leadership and the board think about compensation as a whole, as well as with individuals. Compensation is an ongoing strategic challenge in nonprofits, and simple tools are the ones we are most likely to use consistently.
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