By Osas Ohenhen - Business Development
In compensation benchmarking, the choice of peer firms can make or break the quality of insights gained. Selecting firms that align closely with your company in industry, size, and business model ensures the data collected is relevant and actionable.
The Foundations of Benchmarking
A successful benchmarking process typically involves four key steps that build upon each other to deliver accurate, meaningful results:
- Selecting the most appropriate competitors
- Choosing the most applicable “Line of Business” (e.g., consulting functions)
- Completing an accurate “Job/role matching”
- Comparing the relevant components of remuneration
Each step requires careful consideration and expertise to ensure that benchmarking efforts translate into informed compensation strategies. In this article, we will examine the first step—selecting the most appropriate competitors—and why it is important for a meaningful comparison.
Consulting Industry Segmentation
The consulting industry is highly segmented, with each area bringing unique compensation dynamics. Strategy consulting firms, for example, often pay higher base salaries and offer substantial performance bonuses to match their high-level project demands. IT consulting, on the other hand, spans a range of roles, with compensation varying widely based on technical skills and certifications needed for rapidly changing tech requirements. Operations management consulting emphasizes efficiency and stability, with compensation reflecting deep industry knowledge. Meanwhile, accounting and full-service consulting firms often balance base pay with moderate performance incentives to suit their compliance-focused work.
Firm size and revenue add further complexity: large, multi-service firms may standardize base pay with practice-area bonuses, while smaller firms may emphasize profit-sharing or equity. These variations make selecting relevant competitors essential for reliable benchmarking across consulting segments.
Why Selecting the Right Competitors is Essential
Choosing the right competitors allows firms to create benchmarks that align with their unique demands and operational scope. This process involves four key considerations:
- Ensuring Industry Relevance and Specificity: Given the segmentation within consulting, each firm may operate in a distinct practice area or sector, such as healthcare, technology, or sustainability consulting. Selecting competitors within the same niche ensures salary benchmarks reflect the unique demands and compensation patterns of that specific consulting area. For instance, a technology-focused firm should benchmark against other technology consultants rather than financial advisors.
- Matching Client Scope and Project Complexity: Selecting competitors of similar scale and complexity allows for compensation comparisons that reflect the firm’s workload, client sophistication, and employee expertise. For example, comparing a boutique consulting firm to a large, global consultancy may skew results. Instead, a boutique firm might benchmark against other regionally focused or similarly scaled consulting firms.
- Influences Employer Brand and Talent Attraction: Benchmarking against respected industry leaders or firms known for competitive pay can enhance a company’s reputation, making it more attractive to top talent. Peer selection directly impacts how prospective employees perceive a firm’s compensation practices.
- Promotes Retention by Offering Competitive Packages: Benchmarking with relevant peers also aids in employee retention, ensuring that pay and benefits align with industry standards. Employees who feel fairly compensated relative to the market are less likely to leave, helping reduce turnover and its associated costs.
Vencon Research’s Approach to Selecting the Right Competitors
At Vencon Research, we recognize that effective salary benchmarking starts with carefully selecting the right competitor group. This goes beyond simply selecting firms within the same industry, rather this needs to be aligned with the firm’s position in the talent market, its hiring needs, and retention goals. To this end, we ask three important questions to guide the peer selection process.
1. Which firms are you competing with in the market?
This first question identifies the direct market competitors—firms operating in the same or similar lines of business, often targeting the same client base or market segment. Benchmarking against these firms provides insight into how competitors compensate roles that are crucial to maintaining a competitive edge in the industry.
2. Which firms are you / might you be losing people to?
Understanding where an organization’s employees are going when they leave can be highly revealing. By selecting competitors who frequently attract departing employees, we gain insight into what might be drawing talent away. This allows Vencon Research’s clients to adjust their compensation packages, benefits, or career progression opportunities to improve retention.
3. From which firms do you / might you hire people?
This question focuses on the talent pipeline. Knowing where new hires are likely to come from helps Vencon Research tailor peer selection to ensure salaries are attractive to candidates coming from specific backgrounds. Benchmarking against firms that are common sources of talent enables organizations to position themselves as an appealing next step for potential hires.
Aligned Compensation Strategies
Vencon Research’s approach to competitor selection through these three questions provides a 360-degree view of the talent landscape. By understanding not only who the immediate competitors are but also who attracts or supplies talent to the organization, Vencon Research enables clients to build compensation strategies that are highly aligned with their market position and talent needs.
This comprehensive approach to peer selection is central to Vencon Research’s commitment to providing clients with compensation benchmarks that are not only accurate but also strategically aligned with business and talent goals.
Consultant Salary Survey: An Invaluable Tool for Compensation Management
Salary survey reports are invaluable tools for compensation management. By understanding key indicators and leveraging data-driven insights, businesses can develop competitive compensation strategies that attract, retain, and motivate top talent effectively.
Find out more about Vencon Research's Consultant Salary Survey here.
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