What is salary benchmarking?
Salary benchmarking is the process of evaluating a company’s internal job salaries based on their external value. Salary benchmarking involves analyzing the main components of each position and comparing these positions to similar jobs in other companies. Organizations primarily rely on compensation surveys, government labor databases, and the assistance of compensation consultants for accurate job market data.
Why is salary benchmarking important?
Salary benchmarking helps compensation managers assign competitive salaries. Though compensation isn’t the only important aspect of a job, it’s obviously a key factor, as everyone wants to bring home a respectable paycheck. Moreover, competitive compensation demonstrates how much the company values its employees and their contributions. In a particularly competitive job market and an unstable economy, offering an appropriate salary is key to attracting candidates and retaining talent.
How can you implement an effective salary benchmarking system?
To build a comprehensive salary benchmarking system, HR leaders can incorporate these steps:
- Design a plan that will serve as a roadmap. Write up an in-depth salary benchmarking plan that includes the long- and short-term goals, a timeline, the budget, the necessary resources, and the purpose. Outlining these components will enable compensation managers to establish competitive salary benchmarks for each job. Keep in mind that the plan can be flexible—it’s not set in stone.
- Make sure every job in the company has a description. Job descriptions are a prerequisite for salary benchmarking. Often, organizations may use different job titles for the same or similar roles. As a result, descriptions enable the identification of synonymous positions. For example, an organization focusing on salary benchmarking for Customer Success Managers may come across the titles “Sales Managers” and “Customer Success Engineers.” While the titles differ, the descriptions may overlap. According to salary.com, HR professionals should compare descriptions that share 80 percent of the same responsibilities and requirements.
- Consider where to collect data from. The quality of the data will determine the accuracy of the salary benchmarking, so salary benchmarking should stem from reliable data and a solid benchmarking process. Options include domestic and global participant surveys and aggregated employer-reported data. In some cases, companies use employee-reported crowdsourcing as an additional source of information.
- Use your compensation philosophy as a compass. Considering both your compensation philosophy and external salary benchmarks enables compensation managers to build competitive, fair salaries that align with their budget and reflect the company’s approach to compensation. Defining and integrating a compensation philosophy can contribute to a positive business reputation and employee experience.
How do you conduct salary benchmarking?
Here are the steps you should follow to conduct salary benchmarking within your organization:
- Collect salary data. Decide on the roles you want to benchmark and then gather data from several sources such as data-sharing networks, salary software, employer salary surveys, HR publications, and professional networking websites.
- Decide on a compensation strategy. This should be aligned with your business strategy, based on the size of your organization, geographic location, and the range of current salaries.
- Set salary ranges. Each role should have a minimum and maximum salary that new hires will fit within. You can then determine where they should start within this pay scale depending on skills and experience and how they can progress toward the top end.
- Document everything. You need to be able to show how your compensation benchmarking data has been collected and how your strategy has been created, both to get management approval and to ensure complete transparency. This will demonstrate that you are offering fair and competitive compensation and understand how it will both attract and retain talent.
What are some best practices and tips for effective salary benchmarking?
Salary benchmarking is only effective if it is done in the correct way. Here are some best practices and tips to guide you:
- Check your sources. If the external data you gather is unreliable or out of date then your entire salary benchmarking process will be compromised. Ensure that it comes from reputable sources and is regularly updated to guarantee accuracy.
- Ensure job descriptions are well matched. When searching through job descriptions, carefully check the responsibilities as well as the title to ensure that is similar enough to the role being benchmarked. You should also consider the location and size of the organization; whether the role is remote, in-office, or hybrid; and for leadership roles the number of direct reports.
- Take all compensation methods into account. Total compensation is about much more than just salary. When deciding on salaries you need to be aware of all the costs of each employee such as bonuses, stock options, paid holidays, pension plans, and profit-sharing.
What are some salary benchmarking tools?
There are tools available that can assist you with salary benchmarking, making the process much smoother and easier.
HiBob has produced a compensation benchmarking tool through a strategic alliance with Mercer, creating a trusted source for workforce data collected from over 115 million people worldwide. This data is collected from over 130 countries and is updated every quarter so you can always be assured of its accuracy.
We also offer compensation management software that helps streamline your salary benchmarking process by keeping all your data in one place. The software empowers managers to make smart decisions and makes it easy to allocate rewards to employees.
Recommended For Further Reading
How do you produce salary benchmarking reports and data?
Once you have collected all the necessary salary benchmarking data, you need to produce easily digestible reports to help define your strategy.
It is possible to use spreadsheet software such as Excel for conducting basic comparisons. However, this is a time-consuming manual process that is prone to human error. To speed things up and create more advanced reports, consider using a specialist package such as HiBob’s compensation management software. This keeps all your data in one place rather than across multiple spreadsheets and makes it easy to compare across all variables.
Why should salary benchmarking be a part of modern HR strategy?
HR leaders should integrate salary benchmarking into their strategy to keep pace with the fluid, global job market. Salary benchmarking helps HR build attractive, competitive salaries that can directly improve the employee experience and fuel higher levels of employee engagement.