Offering a competitive total compensation package is a key factor in attracting and retaining talented individuals for critical roles in companies. Firms need an overview of the compensation situation in their specific industry and how they are positioned within it. External market surveys of compensation systems and levels have become an essential element in compensation management. hkp.com speaks to hkp/// group experts Carsten Schlichting and David Voggeser about the requirements of function and industry-specific compensation benchmarks in Germany and internationally.
hkp/// group is one of the leading producers of compensation benchmarks and studies on European level. Why do companies still buy such studies given how transparent the world has become?
Carsten Schlichting: It's true that there's more data out there than ever. But there's also more movement on the markets. Not only that, employees' expectations have grown with regard to pay levels commensurate with their responsibilities and performance. Competition on the labor market has also increased: Working for one company all your life rarely happens today.
David Vogesser: Some areas and industries have also raised their transparency requirements with regard to appropriate compensation – the banking world, for instance. These factors have significantly increased the need for reliable compensation data, which has a positive impact on demand for our services.
Producing reliable compensation comparisons is hard work and requires great experience. Is all the effort worth it in terms of the benefits for customers?
Carsten Schlichting: Absolutely. Companies need relevant, up-to-date compensation data in order to achieve their desired positioning on the market and react to any changes in terms of compensation. Otherwise they only have anecdotal evidence to go on. The days when that was enough are long gone. The growing number of Internet platforms with freely available compensation data does not close the gap, either.
David Vogesser: Also, the effort involved for clients is limited. As the service providers, we do most of the work, such as collecting and processing data.
What makes a good compensation report – how can you judge its quality?
Carsten Schlichting: The most important thing is that it shouldn't be a black box. Many companies are dazzled by large quantities of data. But then when they ask for specific details, interpretations, year-on-year changes and so on they end up being put through to a clueless hotline or a consultant who is unfamiliar with the data. At hkp/// each compensation study is the responsibility of a specific Partner – we don't outsource them.
But surely the more data the better?
David Vogesser: Yes, but volume of data is not the only guarantee of success. You also need quality assurance and a methodology or system that ensures you don't end up comparing apples with pears.
How do you ensure comparability of data, then?
David Vogesser: That's where the skill and experience of the service providers comes in. They need to understand the various grading systems used by companies so they can match the functions with each other properly. They also need to understand the differences between specific industries and companies so they can categorize the various structures in companies appropriately.
Carsten Schlichting: From my many years' experience working in industry, I would say that the task is easier for consultants who have worked in such organizations themselves than for those who have only been crunching numbers. It is precisely the arduous process of matching up functions that creates added value for clients. In our studies the compensation data can be displayed according to the hkp/// grading system, the company's own grading system, or other popular evaluation systems.
Does it actually make any sense to compare income levels across different industries, company sizes and job families?
Carsten Schlichting: Yes. For example, you can compare the compensation of business unit managers across different industries and job families. This gives you a general, overall picture for orientation. If you want to compare compensation levels for technical development managers in the automotive or supply industry, say, you have to go into more detail. But that requires sufficient data for this particular population, which many service providers don't have.
So far we've only spoken about figures – salaries in the original sense of the word. What else should compensation surveys look at?
David Vogesser: Obviously they should provide reliable quantitative and qualitative information about key compensation elements, trends in compensation systems and other relevant topics. The scope and level of variable, single year and multiyear elements are just as important here as data on relevant benefits, such as company cars and pension schemes, or the latest developments in incentives for core functions.
Carsten Schlichting: Assessing the financial value of pensions is something that requires particular skill and experience. Our clients also expect clear insights into where the compensation market is headed.
Can more "generalist" HR people in medium-sized firms also understand your compensation benchmarks?
Carsten Schlichting: Yes, of course. What makes high-quality compensation surveys different is the fact that their authors don't just sell you data: They have actually spoken in depth to the companies in the survey and can interpret the results. To ensure this happens, we develop and regularly refine all our benchmarking activities working side-by-side with our clients. Our technology allows us to carry our highly client- and industry-specific benchmarking while maintaining comparability between different surveys, industries and countries.
David Vogesser: Networks of this sort are essential in order to ensure that the surveys' findings are aligned with the requirements of survey participants and the results are understood by everyone in the same way. At the same time it is important – not least due to antitrust legislation – that a neutral third party leads the exchange process, data is rendered anonymous and the exchange takes place within the legally permitted limits.
An important topic in recent months is how data can be stored legally – Safe Harbor, Privacy Shield and so on. What is hkp/// group's position on this?
Carsten Schlichting: At hkp/// group we are well set up in this respect. All our data is stored and processed exclusively in Germany and within the EU, in compliance with the strict German and European regulations on data protection. Where countries such as Switzerland have their own requirements, obviously we meet these too.
David Vogesser: The European Court of Justice (ECJ) decision to declare the Safe Harbor agreement invalid caught many service providers and companies off guard. Many legal experts still have strong doubts as to whether a European or German level of data protection can be guaranteed in the United States under private law, even after the new European data protection agreement with the US comes into force. The ECJ will probably have to rule on this again at some point.
Carsten Schlichting: In any case, hkp/// group clients can rest assured that we act on the safe side when it comes to data storage and architecture.
How will compensation surveys develop going forward? What trends do you observe?
David Vogesser: Being able to break down the figures by industry and function families thanks to a strong data base is a key factor. Building stronger networks with survey participants so they can share the responsibility for designing and evaluating the survey is also very important.
Carsten Schlichting: hkp/// does both – in our compensation surveys for listed and non-listed companies, major corporations and Mittelstand firms, in Germany and internationally. Our experience here is very positive and we plan to continue along the same road in the future.
Mr. Schlichting, Mr. Vogesser, thanks you very much!