What is salary benchmarking?
Salary benchmarking is the process of evaluating a company’s internal job salaries based upon 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 should HR leaders care about salary benchmarking?
Salary benchmarking helps compensation managers create competitive salaries. Though compensation isn’t the only important aspect of a job, it’s obviously an essential 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 HR leaders 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 enables 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 necessary prerequisite to salary benchmarking. Often, organizations may use different job titles for the same or similar roles. Thus, the 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 determines 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 the compensation philosophy as a compass. Considering both the compensation philosophy and the external salary benchmarks enables compensation managers to build competitive, fair salaries that align with the budget and reflect the company’s approach toward compensation. Defining and integrating a compensation philosophy can contribute to a positive business reputation and employee experience.
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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.