As organisations across Malaysia and ASEAN compete fiercely to attract and retain top talent, traditional compensation practices are under scrutiny. Salary history, a long-standing anchor in compensation decisions, is increasingly viewed as outdated and counterproductive. Progressive organisations now recognise that market-based benchmarking, coupled with transparent pay practices, is essential for fairness, competitiveness, and sustainable talent management. But are your current pay practices helping you win talent or driving it away?

The Shift in Compensation Practices

Historically, salary decisions heavily relied on candidates' past earnings. However, this approach perpetuates wage gaps, reinforces outdated salary structures, and neglects the dynamic nature of today's labour market. Globally, organisations and regulators are moving away from salary history practices to reduce inequalities and enhance fairness (SHRM, 2023). Anchoring compensation to salary history is akin to driving using only the rearview mirror—it's risky, outdated, and can lead to costly collisions with current market realities.

Malaysia is no exception. With intensified competition for skilled professionals, companies can no longer afford to rely on historical pay scales. The shift towards benchmarking—leveraging real-time market data—is essential for organisations aiming to attract diverse talent pools and foster employee trust (Mercer, 2024).

Problems with Salary History Anchoring

Have you considered how your current pay-setting practices might be unintentionally perpetuating inequities?

• Perpetuating Inequities: Historical salaries often reflect systemic biases or past discrimination. Anchoring on these perpetuates wage disparities, particularly affecting women, minorities, or individuals transitioning from undervalued sectors (ILO, 2022).
• Reduced Competitiveness: Salary history doesn’t account for market fluctuations. As talent demands evolve, this static approach risks companies losing top candidates to competitors offering market-aligned compensation.
• Damaged Employer Branding: Transparent communication about pay is becoming the norm. Organisations perceived as basing pay arbitrarily on salary history risk reputational damage, affecting both current and potential employees (Glassdoor, 2023).

Advantages of Market Benchmarking

Benchmarking provides a robust, data-driven approach to compensation, using up-to-date market insights to set salary bands:

• Enhanced Fairness: Objective market data ensures salaries are equitable, based solely on role requirements, skill levels, and current market rates rather than previous earnings (Payscale, 2023).
• Greater Transparency and Trust: Clearly defined, benchmark-driven salary bands boost employee confidence in organisational fairness, increasing satisfaction and retention.
• Improved Talent Attraction: Companies using benchmarking can make competitive, well-informed offers quickly, reducing negotiation friction and improving acceptance rates (LinkedIn Talent Solutions, 2023).
• Reduced Pay Disparities: Studies consistently demonstrate that organisations adopting benchmarking see a measurable reduction in internal pay gaps, enhancing workplace equity (World Economic Forum, 2023).

Strategic Integration of Benchmarking

Integrating benchmarking into compensation strategy requires a structured approach:

1. Audit Current Practices: Evaluate how salaries are currently determined, identifying dependencies on salary history.
2. Access Reliable Data: Invest in market surveys and external consultants providing updated salary benchmarks specific to your industry and geographic location.
3. Develop Transparent Salary Bands: Clearly articulate pay ranges for roles based on market benchmarks, delineating criteria for progression within bands.
4. Pilot Transparency Initiatives: Begin posting salary ranges in selected job advertisements or sharing internal salary structures to build transparency gradually.
5. Educate and Train Stakeholders: Equip HR, managers, and recruiters with knowledge and communication tools to handle conversations about pay transparently and confidently.

Ensuring Fairness and Inclusion

Benchmarking significantly supports diversity, equity, and inclusion (DEI). By removing biases inherent in historical pay practices, organisations can:

• Foster a fairer workplace where pay is aligned strictly to role value and market standards.
• Enhance internal mobility and career-path clarity, as transparent salary bands clearly illustrate progression opportunities.
• Strengthen succession planning by ensuring equitable compensation for internal talent movements and promotions.

Navigating Local Context and Cultural Considerations

Adopting benchmarking in Malaysia requires sensitivity to cultural nuances:

• Respect Cultural Comfort Levels: Gradually introduce transparency to accommodate cultural hesitancies around openly discussing compensation.
• Adapt to Market Variability: Continuously update benchmarks, particularly in dynamic sectors like technology, fintech, and engineering, to reflect market realities accurately.
• Stay Ahead of Regulatory Trends: Proactively adapting to global transparency trends positions Malaysian companies favourably, preemptively aligning them with potential future regulations.

Steps Toward Successful Implementation

Organisations can successfully implement market benchmarking with these clear, actionable steps:

• Immediate Action: Conduct an audit to identify current reliance on salary history.
• Short-term Goals: Secure robust market salary data and formulate transparent pay bands.
• Mid-term Goals: Pilot transparency in job postings and internal communications.
• Long-term Strategy: Continuously update benchmarks, train stakeholders, and evaluate effectiveness through retention, satisfaction, and hiring metrics.

Conclusion and Call to Action

Every salary decision based on past earnings risks embedding yesterday’s inequities into tomorrow’s culture. Transitioning from salary-history reliance to market-based benchmarking isn’t merely a trend—it's a strategic imperative for any forward-looking organisation. Malaysian and ASEAN companies that adopt these transparent, fair, and data-driven practices position themselves to attract top talent, enhance employee engagement, and maintain competitive advantage in an ever-evolving market.

Is your organisation ready to embrace benchmarking for fairer, more competitive pay practices? Share your experiences or challenges below—let’s continue the conversation.