Pay reviews can be triggered by many changes, both external to the company and internal. We explore the variety of benchmarking resources that optimise any pay review process, especially the quality of the remuneration market data and its analysis.
GRG Remuneration Insight 175
15 April 2025
Leveraging Market Remuneration Data for Strategic Pay Decisions
Each year there will be times when Remuneration Committee members, HR executives or remuneration professionals will be required to access executive remuneration market data or advisors to make informed pay decisions. There can be a range of triggers for this such as material changes in the company’s circumstances, recruitment of new incumbents, if an executive has indicated that pay may be below market, or if the board wishes to make sure executive pay is aligned to policy. This Insight explores the need for remuneration professionals to employ a combination of different benchmarking resources (i.e. market data) to optimise any pay review process.
What is the Scope of the Pay Review?
The scope of the pay review – and consequently, the benchmarking resources required – will vary depending on the context and objectives of the review being undertaken. There are generally three types of pay reviews that are commonly undertaken:
- Major reviews, often undertaken with an external remuneration consulting firm that is appointed to undertake an independent review and provide benchmarking data, analysis and expert advice and recommendations for the board to consider. Usually this occurs every 2-3 years, or when organisational circumstances have materially changed e.g. a major shift in business value or organisation design, a recruitment drive of a key executive or a risk of a remuneration strike.
- Minor reviews, usually this form of review leverages internal expertise (i.e. not independent) and only requires quality remuneration market data to make an informed decision (i.e. market benchmarks are refreshed to inform any change to the fixed pay allocated to a band/ level.)
- Sense checking reviews, undertaken when there is uncertainty or debate about whether or not a major or minor review is needed. This will typically arise when one stakeholder believes remuneration is out-of-line with the market but needs to be able to convince other stakeholders of this, with some high-level evidence.
Making Informed Pay Decisions Backed by Market Insights
While the scope of the pay review may change, the main purpose of the review doesn’t i.e. the purpose of the pay review is to assess how pay aligns to the current relevant market and policies, and to ensure that practices are not:
- so low as to make the company uncompetitive in attracting or retaining key talent, or
- excessive and therefore involving a waste of company resources or risking shareholder backlash.
Therefore, it is important that market benchmarks can be relied upon to inform decision making. There are two main data sources that may be considered in this light, being:
- an internal resource, such as a Remuneration and Benefits Manager who can:
- extract and analyse data from Remuneration Reports of ASX listed companies (time consuming and subject to judgements and assumptions that would need to be made by the researcher), and/or
- run a survey of likely competitors for executive talent (highly unlikely that such competitors would agree to providing their remuneration practice data to a competitor).
- an external source, such as an independent consulting firm specialising in executive remuneration who may offer a variety of benchmarking services, from highly tailored advisory solutions through to custom market benchmarks for a specific role in addition to remuneration surveys.
While there are tertiary external resources such as job advertisement platforms, free employee self-reporting web surveys or recruiter surveys; these methods tend to be generalised and are not usually sensitive to differences in organisation scale, job size, job design or organisation design.
External Benchmarking Resource Considerations
External remuneration consultants typically provide a variety of solutions to cater to clients’ needs, from off-the-shelf through to bespoke, tailored solutions. The following summarises key biases Remuneration Committees should be aware of when utilising such services:
- Remuneration Survey Service: under a remuneration survey arrangement, the primary point of contact is typically the head of HR or the Remuneration & Benefits Manager. Nevertheless, the Remuneration Committee Chair should closely govern the accessing of data for KMP roles to prevent bias. (Where the primary contact reports to senior executives whose remuneration may be impacted by the data, this may lead to bias, intended or unintended, in the criterion used to access data). When using a remuneration survey for an executive pay review it is important that the survey considers the complexities associated with executive packages. Many standard salary surveys do not provide a breakdown of variable pay such as distinguishing between various forms of equity remuneration, short-term variable remuneration deferral, sign-on and retention bonuses, etc.
- Tailored consulting advice: using an independent remuneration consultant to create a tailored solution to support the board is one way that boards can manage any internal conflicts. The independence of an external consultant preparing market benchmarks or comparisons removes such bias providing the board with confidence that recommendations are focussed on true market indicators and intelligence.
Comparative Pay Data: Accuracy, Relevance, and Application
For both major and minor pay reviews, choosing a subset of companies such as a ‘comparator group’ or market “cut” can produce the most valid and reliable benchmarking result for your business. Key considerations of choosing a comparator group or market cuts are:
- The size of companies/ comparators to be included in the comparator group should be of relative scale to the benchmarking company. A range of 50% to 200% of the company’s size is commonly used.
- The number of companies in the comparator group should be sufficient to generate meaningful insights and statistics. At least 20 companies is generally regarded as a representative sample size. Comparator Groups are usually either:
- company scale/size driven; market capitalisation, business valuation and then revenue are the best correlators with executive remuneration, and this tends to be the primary basis of comparator group design when statistical benchmarking (e.g. against P50/median) is the purpose, or
- industry competitors; selected as a separate comparator group but used with caution as the range of company scales will probably be too large and the sample data skewed resulting in statistical outcomes that reflect a company scale that is inappropriate for benchmarking. However, where a data source provides supporting line-by-line data, it allows for examination of peer practices of interest.
- Competitors for executive talent or companies facing similar operating challenges in the range could be prioritised.
- Samples using the same selection criteria as those used by Proxy Advisors could also be considered to prevent potential criticism from Proxy Advisors e.g. the 25 or 50 companies in the same ASX 300 ranked grouping as the company being benchmarked.
- The types of companies available in the sample: ASX listed companies tend to pay around 20% more than unlisted companies and adjustments may need to be considered depending on which class of companies dominates the sample.
- Matching methodology: for each role to be considered will data be obtained based on a clear job title match, job family/functional grouping, job level (band or grade), or some blend of the foregoing. When advice is obtained often individual role assessments relative to market would apply because there will usually be some roles for which clear job match categories are not available.
Alternatively, for minor reviews a remuneration survey may be more appropriate, which provides users with a market benchmark from a broad sample or data cut/slice i.e. a benchmark based on all available comparators within a predefined range (revenue or market capitalisation), sector and job type as selected by the user. Note that while the sample is broader than a comparator group, many of the above requirements for an effective comparator group are just as relevant. GRG’s Remuneration Insight 173 on Executive Pay Data provides a more in-depth review of data platforms which is a relevant consideration for the foregoing.
Considering Flow-on Effects of Remuneration Changes
Regardless of whether the Remuneration Committee is utilising a tailored data solution or more of an off-the-shelf survey/product, the impact of the change on internal pay relativities needs to be considered. Given the high level of public disclosure of senior executive remuneration in listed companies, other senior executives will quickly become aware of remuneration changes for one individual. Accordingly, when considering a change to the remuneration of one executive, consideration should simultaneously be given to flow-on changes for other senior executives. Even in unlisted companies, it is permissible and common for employees to discuss remuneration with each other despite it not being made transparent by the business in most cases.
Further, when a change is made to Fixed Pay, there are usually flow-on consequences for variable remuneration (STI and LTI) as they tend to be set as a percentage of Fixed Pay. This is why it is essential not to consider any element of remuneration in isolation, and to assess the total remuneration package outcome against the market whenever a change is made to any element; not doing so risks a total package value that is unbalanced and inappropriate in total value.
How Specialist Remuneration Consultants and Analysts Can Add Value to Data Driven Exercises
When the Board or internal resources are undertaking a data-driven exercise that does not involve a KMP remuneration recommendation or tailored advice, consideration should be given to leveraging the analyst team and/or consulting team that should be available to users of a high-quality data source.
A high-quality data source will be backed by a specialist analyst team. The analyst team will have unique capabilities and insights into the strengths and weaknesses of the database, as well as being able to offer supplementary analysis methods (e.g. “data mining” or manual research to match roles) custom combinations of industries, roles or job functions that may not be available in the standard product or online database. They can also assist with simpler tasks like how to match jobs to be benchmarked, to jobs available in the database, or to clarify how to calculate payroll data so that elements being benchmarked are like-for-like. If any one of these aspects is poorly managed, then the conclusions arising from benchmarking will be invalid and may lead to incorrect decision-making.
Most data products will include a basic level of analyst team support that is part of the service, for example in relation to completing a data submission. However, data products can differ significantly in how analyst support is made available beyond basic participation, and this can materially change the value and cost proposition of a given solution. All companies have some roles that are unique to them and/or their specific business activity and will not have a clear match available in most databases. When this arises, often a generic reference point needs to be used like “roles at the same level or grade” or “jobs in the same job function grouping”, unless the supporting analyst team can offer more tailored solutions.
A high-quality data source will also be shaped by consultants and senior advisors who rely on it as the primary resource for the tailored advice they provide to their clients. This means that any challenges you may face when benchmarking have likely already been resolved by the consulting team. Such a data provider should offer conversations with their consultants to help clients understand how they can overcome benchmarking challenges and get the best result from the dataset even in the most challenging circumstances. This can save time and significantly improve outcomes; rather than internal resources struggling to find their own solutions to challenges they are managing for the first time, consultants will be able to quickly provide insights into the optimal pathway.
Consultants can also be leveraged to help make policy and process decisions up-front, such as:
- which statistics to focus on,
- how market data is best sliced or grouped to provide optimal sample sizes while also ensuring optimal specificity,
- how skewed data should be identified or managed,
- how many and what kinds of comparator groups should be used, and
- when and how comparator groups should be used vs when other methods should be relied upon.
Importantly consultants can assist with comparator group design as this will be a regular activity for them in serving their wide range of clients. Often consultants will have direct access to views of the database that are “behind the scenes” and not able to be made available online, giving them a unique ability to optimise solutions for your needs.
When considering a new data source, obtaining a sense of the analyst team and consulting resources available to support usage of the data is an often overlooked, but perhaps the most critical differentiating factor to consider; like any significant purchase, having confidence in the after-sales support will determine the likelihood of objectives being achieved.
Conclusions
For Remuneration Committee members, HR executives or remuneration professionals to fulfil their role they need to utilise independent survey data and receive remuneration recommendations from a suitably qualified and experienced executive remuneration consultant. It is through this combination that remuneration professionals can properly conduct scheduled annual executive remuneration reviews as well as deal with ad hoc issues that typically arise between such reviews. A high-quality independent specialist remuneration advisor will have designed its own surveys, database and data methodologies to ensure that executive and director remuneration is collected and reported in a way that solves for the specialised needs of these roles. Data resources should be comprehensive, offer multiple methodologies for solving different challenges, and be supported by a team that can provide additional value when needed. As a truly independent specialist in Australian executive remuneration, GRG provides a suite of products and services designed to meet our clients’ needs. For more information about how GRG can assist you with your executive data needs, please contact us.
