Say Hello To The Future of Filing
Organise your employee data.Eliminate Data Chaos With Personio
How to Conduct Successful Salary Benchmarking
If you want to attract and retain top talent, you need to be sure your compensation packages are in line with the market rate. If the salaries you’re offering are too low, you could put off quality candidates and lose your existing talent to the competition. But without knowing what other organisations are paying their employees, it can be hard to get it right.
The answer? Salary benchmarking. In this article, we’ll explain what this process is and exactly why it’s so important for HR teams to understand. We’ll also provide a simple, step-by-step guide to help you conduct salary benchmarking for your organisation.
Salary benchmarking helps organisations to determine whether the salaries they pay are competitive.
Conducting salary benchmarking gives you a better chance of attracting and retaining the best talent.
Salary benchmarking allows you to set fair pay ranges for each position so that everyone is paid according to a fair, unbiased and transparent system.
The Salary Benchmarking Process (and Why It’s Important)
Salary benchmarking is the process of gathering and analysing data about the average salaries for various jobs. Organisations conduct salary benchmarking so that they can understand the market value of each employee on their payroll. They can then compare this data to the salaries they pay their employees.
If your salaries are not competitive, you might struggle to attract top-quality candidates. And there’s a good chance that your best employees will simply seek better-paid jobs elsewhere. Conducting salary benchmarking allows you to set competitive salaries for new and existing positions within your organisation. This shows candidates and current employees that you value them and understand their worth.
When you conduct salary benchmarking, you’ll need to take into account your industry, the job description for each role and your company’s geographic location. There are various sources you can use to gather data for salary benchmarking purposes, including publicly listed salary data, employee surveys and government labour databases. If you’re struggling to find accurate data, you might need to enlist the help of a compensation consultant or specialist.
4 Steps to a Foolproof Salary Benchmarking System
Salary benchmarking might sound like a complicated process if you’ve never done it before. But at its simplest, it’s just about comparing the salaries you pay to those offered by your competitors and other similar companies. Here are the steps to follow if you want to start conducting salary benchmarking today:
1. Start By Making a Plan
The first step in the salary benchmarking process is to develop a comprehensive plan that will serve as a roadmap as you complete your research. The plan should enable you to repeat the same process every time you need to conduct salary benchmarking for a new role.
Your plan should include your budget for the salary benchmarking process, the resources it will take, and the purpose of the exercise, including both your short-term and long-term goals. For example, a short-term goal might be to determine a fair pay range for a new position. A long-term goal might be to improve your employee retention rate.
2. Assess Job Titles and Descriptions
Different organisations often use different titles for roles that involve many similar responsibilities. For example, an employee in one organisation might be called a ‘marketing assistant’, while in a different company, they would be referred to as a ‘marketing coordinator’.
In reality, the two roles may be very similar in terms of the duties the employees perform and their level of seniority. This means that you would expect them to receive a similar salary, even though their titles are different.
The answer to this problem is to create thorough, clear job descriptions for every role in your organisation, and every new role you plan to create. Then, you can use these job descriptions to check salaries across comparable roles instead of relying on job titles alone.
3. Choose Your Sources and Gather Data
Salary benchmarking can only be as accurate as the data sources you use. That means that it’s a good idea to compare several sources to get a clear picture of what salaries look like in your industry and location.
One of the easiest ways to find salary data is through job sites like Reed, Glassdoor and Indeed. These sites allow employees to anonymously report their salaries, which means they are often more accurate than studies that rely on things like job advertisements.
You can also look for published data from pay surveys that have been conducted in your industry. Paid, aggregated data is often more accurate than information that’s available for free online — although this can still provide a useful starting point.
Lastly, you may need to contact a compensation consultation for additional help finding the right figures.
4. Build Fair, Competitive Salary Ranges
Salary benchmarking allows you to ensure that every employee in your company is paid fairly, by developing set salary ranges for each role. This also helps you to better plan your budget and get more control over your labour costs.
The easiest way to build a salary range for a role is to find the midpoint of its market value based on your research. Then, you need to determine the maximum spread that you would like between the highest and lowest-paid employees in that role. For example, a role might have a pay range of £27,000–£32,000 per year depending on the employee’s level of experience.
Some companies want to stand out as offering very competitive salaries, which helps them to attract top talent. Others may position themselves somewhere in the middle. Keep in mind that salaries are only one part of your compensation package. You may be able to make up for a lower salary with a better benefits programme.
Frequently Asked Questions About Salary Benchmarking
Here are the answers to some common questions about salary benchmarking, to help you understand how it works.
What Is Salary Benchmarking?
Salary benchmarking is the process of evaluating the salaries you pay to your employees compared to the market value of their roles. You can do this by researching salary data from other companies and comparing it with the salaries you pay.
Why Is Salary Benchmarking Important?
Salary benchmarking helps organisations to ensure that the salaries they offer are fair and competitive, giving them a better chance of attracting and retaining talent. It also shows employees that they are valued by their employers and that the salary they receive is fair.
How Does Salary Benchmarking Work?
Salary benchmarking involves comparing salary data from a variety of sources to get an idea of the market average for each role. Then, organisations use this data to set their own pay ranges, ensuring that these are fair and competitive.
Learn More About Salary Bands
The purpose of conducting salary benchmarking is to develop fair, competitive salaries for your employees. And one of the best ways to ensure your salaries are fair is to develop a transparent salary band system.
This is when organisations group related roles into ‘bands’, and establish criteria that determine how an employee can move from a lower salary to a higher one. This ensures that decisions about pay are made without bias. It can also help to motivate employees by showing them exactly what they need to do to move up the pay scale.
To learn more about salary bands and how they work, read our full guide.
Get exclusive insights, invites and more with our weekly HR newsletter
© 2023 Personio SE & Co. KG