In the fiercely competitive landscape of the tech industry, attracting and retaining top-notch executive talent is crucial for organizations seeking to stay ahead of the curve. To achieve this, businesses must implement a comprehensive and data-driven approach to compensation strategies.
Salary benchmarking emerges as a powerful strategy that enables organizations to gain a competitive edge in the talent market by aligning their executive compensation packages with industry standards.
As a bespoke executive search firm committed to fostering sustainable leadership within the tech ecosystem, we have conducted in-depth analyses of the essential factors influencing salary benchmarking. Discover how harnessing the power of benchmarking can drive a company’s success with the right talent in tow.
Factors Influencing Salary Benchmarking
For C-suite executives hiring, salary benchmarking is not a linear process. Several factors directly or indirectly impact salary negotiations.
1. Geography Specifics:
The location of a company is a critical factor in salary benchmarking, as it significantly influences the cost of living, regional economies, and talent market dynamics. Different countries and regions have different laws and regulations such as tax policies, disclosure requirements, shareholder rights, and pay caps, that affect executive compensation.
Analyzing the local job market allows companies to tailor their compensation packages strategically, ensuring they strike the right balance between attracting talent and maintaining financial sustainability.
2. Competitor Analysis:
Competitor analysis plays a pivotal role in salary benchmarking as it provides essential insights into the compensation structures in the industry. By understanding what competitors are offering in terms of salaries and benefits, organizations can ensure that their compensation packages remain competitive and attractive to top talents.
During our research on salary benchmarking, we handpicked 15 different companies at various growth stages. A mix of domains ranging from eCommerce, ed-tech, hyperlocal deliveries, computer software, and more; were incorporated to make the salaries sector agnostic. We also ensured that we selected geographically diverse companies. This helped us craft an inclusive salary structure for C-suite roles.
3. Candidate’s Profile:
The candidate’s profile exerts a significant influence on salary benchmarking decisions for companies. Executives with extensive industry-specific experience and a track record of accomplishments may command higher benchmarked salaries.
Moreover, candidates hailing from prestigious organizations or possessing a well-established reputation in the industry may warrant higher compensation as their reputation adds to their perceived value.
4. Company Size:
Salary benchmarking approaches vary significantly for startups and large enterprises due to their unique financial structures and priorities. Startups’ compensation packages often include a substantial equity component. Diluting company stocks to incentivize employees to share in the company’s success is a proven strategy to align employees’ interests with the company’s long-term growth.
On the other hand, many large enterprises typically offer higher cash components and performance-based bonuses in their compensation packages. But this may again vary depending on the domain the enterprise is in.
Job titles alone may not adequately capture the breadth of accountability and strategic influence exerted by tech executives. The scope of leadership duties and their impact on an organization significantly influence compensation considerations.
In our years of experience in tech executive search, we have garnered valuable insights that underscore the significance of the leaders’ responsibilities over their job titles when determining appropriate compensation expectations. In a recent consultation session with a distinguished client operating in the fintech sector, we emphasized a compelling finding: the remuneration for a Vice President of Engineering at a leading tech company closely aligns with that of a Chief Technology Officer (CTO) at a well-established fintech brand.
Further, in the modern business landscape, the roles and responsibilities of leaders are contingent upon the scale, vision, and intricacy of the organization and its products. The perpetual emergence of cutting-edge technologies and intensified competition across industries are significantly shaping the evolving nature of leadership. Consequently, these multifaceted factors play a pivotal role in determining compensation benchmarking for leaders.
Salary Benchmarking: Best Practices
Here are some of the results-driven compensation benchmarking best practices to explore:
1. Data Collection
Embracing a data-driven approach is imperative to making well-informed compensation decisions that resonate with market realities, adhere to industry standards, and align with regional norms.
Use different sources instead of relying on one, and categorize information according to industry, organization, and location. You may acquire salary data through:
- Salary softwares
- Data-sharing networks
- Employer salary survey
- Surveys conducted by consultants
- Professional networking websites
- HR publications
2. Define a Custom Strategy for Your Organization
There’s no one-size-fits-all approach when it comes to compensation benchmarking. Consider your growth plans, valuation, and market position while defining your strategy and budget for compensating C-level executives.
Also, decide the budget and structure for the equity to judiciously distribute among your C-suite team (e.g.: dilution, cliff, vesting period, etc.). A well-crafted equity component can act as a powerful incentive and contribute to aligning the executives’ interests with the company’s long-term success.
These days, financially aware executives are more interested in personal wealth creation and shares/stock offerings such as ESOPs, RSUs etc. play a major component in that. Last year, Indian startup employees made over $196 millions through ESOP buybacks. There are numerous examples of companies buying back ESOPs at a massive scale, i.e., Cred’s INR 100 Cr buyback in 2021, Flipkart’s INR 600 Cr. buyback in 2020, and so on.
3. Highlight Value Proposition
While compensation benchmarking is essential for competitive compensation, intangible factors can influence executive decisions. Emphasizing the company’s vision and mission, weightage of the role, work culture, and opportunities for personal and professional growth are paramount in establishing a compelling value proposition. C-level talents often seek roles where they can make a meaningful impact and be entrusted with significant responsibilities that drive business success.
4. Set a Range
In the realm of salary benchmarking for C-level executives, relying solely on available market data might not capture the full spectrum of compensation possibilities, such as the intricacies of customized compensation programs, specialized awards, or tailored benefits that suit unique circumstances and individual contributions.
Instead of fixating on a single benchmarked number, offering a salary range can accommodate variations based on a C-level executive’s specific experience, expertise, and value to the organization. For instance, providing a range of +/- 10% or 15% around the benchmarked figure allows room for personalized adjustments, acknowledging the diverse skill sets and contributions of executives.
Salary benchmarking is not a rigid exercise but a dynamic process that considers numerous factors, as outlined above. A holistic and thoughtful benchmarking strategy is the cornerstone of building sustainable leadership teams and propelling tech companies toward unparalleled achievements.
At Purple Quarter, in our legacy of enabling organizations to find their tech leadership fit, we have noticed that salary benchmarking is a unique process for every organization. It is not a one-way street. The ultimate objective of negotiation is to strike a balance between the organization’s expectations of the executive and the latter’s career aspirations. By considering the granular details of leadership roles, we empower our clients to attract and retain top-tier talent, ensuring their organizations thrive in today’s fast-paced and ever-evolving business landscape.
Authored by Soumi Bhattacharya
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