How salary benchmarking helps you pay fairly & retain top talent
63% of employees who quit their jobs in the United States in 2021 cited inappropriate pay and compensation as their main reason for leaving.* Meaning: In an office of 300, 189 workers resigned because of low pay. And with turnover rates climbing in light of The Great Resignation, people-first organizations can’t afford to offer less-than-competitive salaries and benefits.
Salary benchmarking helps human resources and people ops professionals gain insights into external job descriptions and compensation packages, and use them to adjust their internal compensation processes.
In this article, we’ll define salary benchmarking, discuss its benefits, and give you a step-by-step guide to conducting fair and scalable salary benchmarking.
What is salary benchmarking?
Salary benchmarking is the process of gathering internal compensation data and comparing it to similar jobs in other companies. People ops and HR professionals use this compensation strategy to retain talent and determine whether they offer competitive compensation — including benefits.
Just like you run performance review calibrations to ensure your company rates every employee fairly, you conduct salary benchmarking to make sure you compensate your people equitably.
For example, a combination of salary surveys and labor databases could hypothetically tell you that the average salary of a marketing executive is US$70,000 per year. And perhaps the salary for marketing executives at your company is US$60,000. In this case, your marketing executives are being paid below their market rate; it might be time to adjust their salary range.
Why is salary benchmarking important?
Salary benchmarks give HR professionals insight into current market rates — along with existing and future salary trends. They also help businesses remain competitive, productive, and profitable.
Salary benchmarking helps you:
Contribute to a fair work environment
Gathering employee compensation data and comparing it to your internal salary and benefits structures lets you ensure your salaries fall within (or even exceed!) your industry ranges. This also enables you to identify if an employee is being properly compensated for their role, experience level, and contributions.
Retain great talent
44% of organizations lose employees because they don’t provide competitive salaries. Benchmarking helps you optimize your compensation planning and keep employees satisfied by offering a strategy that accounts for inflation and industry benchmarks.
Make non-discriminatory decisions
Researching salary data and comparing internal job descriptions with those of other companies enables people ops professionals to make impartial, data-led decisions.
Remember: Equitable compensation benchmarking fosters an environment where diversity can thrive, creates a psychologically safe and inclusive workplace, and solidifies your commitment to diversity, equity, and inclusion (DEI) initiatives.
Boost recruitment efforts
Compensation benchmarking helps recruitment teams determine competitive salaries and benefits for different positions and attract top talent. Including your salary range and benefits in your job descriptions also increases transparency within the hiring process.
💰Compensation benchmarking isn’t a standalone process
Leapsome delivers the tools and insights you need to create a fair and scalable compensation strategy.
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The salary benchmarking process
Without an established and equitable salary benchmarking process, you risk higher turnover costs, increased employee dissatisfaction, and poor employee engagement. So we’ve put together a step-by-step guide to building an equitable and effective benchmarking system.
1. Gather employee compensation data
Begin your compensation strategy by gathering data on your existing employees and compiling an internal salary database.
Additionally, put together a list of all the duties, skills, and qualities associated with each of your company’s job titles. This gives you a solid understanding of your internal roles and provides a basis for comparison when you begin weighing up your organization against competitors.
Following that, you should gather this compensation data by collaborating with other department heads so you can collect accurate information for a comprehensive report.
This data should reflect your entire compensation package, including salary, benefits, perks, and incentives. For example, do you offer healthcare or retirement plans? How about profit-sharing, bonuses, or workers’ compensation insurance? Or, if your company is hybrid or remote, do you offer a monthly remote work stipend that might cover lifestyle, work, and learning expenses? Keep all those benefits in mind when conducting compensation benchmarking.
⭐Top tip: You can also collect data (and gauge satisfaction levels) directly from your employees by analyzing your employee Net Promoter Score (eNPS) and running employee engagement surveys.
2. Carry out market research
Use online resources like job boards, credible workplace review websites like Glassdoor or Indeed, salary surveys, or the Bureau of Labor Statistics for your market research.
Which compensation packages do your competitors offer? What do their current employees say about the company’s compensation strategy? Do your competitors provide career path frameworks or other professional development opportunities? The answers to those questions will help you establish and improve your offering to stay competitive.
Remember to rely only on up-to-date data and narrow your search based on geographic location, company size, job title, and other relevant information to get more accurate results.
Finally, it’s important to speak with other managers, people ops and HR professionals, and recruiters in your network. Besides helping you connect with your community, your peers can offer different perspectives and more in-depth knowledge and experience. Reaching out to your connections on LinkedIn is a great way to get started.
⭐ Top tip: Every year, Glassdoor compiles a list of “Best Places to Work,” with companies evaluated on criteria like salary competitiveness, perks and benefits, employee reviews, and even an assessment of the CEO by current employees.
These companies can serve as excellent comparison points.
3. Undertake analysis
Analyze your data to determine how your employee salaries and benefits stack up against the market average, as well as how they fit into your existing internal compensation plan.
This is where your company’s compensation philosophy can help you decide where to position your pay level compared to your competitors — and how you can close the gap if needed.
Will you set salary ranges above or equal to the market rate? How will you compensate employees with different seniority levels? Are all the people in your organization compensated equally for performing the same duties (regardless of gender or belonging to an underrepresented group)?
4. Figure out fair pay ranges for your internal positions
Use your salary data and analysis to define your salary ranges. This will help you compensate all employees fairly and make it easier to budget for compensation packages and control labor costs.
Start by determining the average range for the industry, the average income by years of experience, and the average for a specific job title. In this example, let’s focus on roles in content marketing. According to the annual Superpath Content Marketing Salary Report, the average salary for a full-time content marketer is US$91,501 (and a content marketer with 8-12 years of experience makes an average of US$116,973). And if you narrow your scope down to a specific job title, you’ll find that a senior content marketing manager in the US can make around US$107,174.
Suppose your senior content marketing manager is paid below this range. In that case, you should compensate them with attractive benefits (like above-average paid leave, extensive healthcare coverage, additional company stocks, or a monthly stipend for dependable childcare) or raise their salary to somewhere within that range.
You should generally determine your pay ranges based on your current budget, growth stage, and compensation philosophy.
5. Establish processes for adjustments & future revisions
Forward-thinking organizations can’t afford for compensation benchmarking to be a one-off task: Companies must keep up with market trends and changes in the economy and labor market to remain competitive and keep employees satisfied.
To do that, HR professionals must build compensation benchmarking into their existing systems and create scalable processes to support future revisions. Building a career progression framework, establishing a culture of continuous feedback, and even appointing a dedicated compensation manager are all great ways to get started.
Additionally, signing up for reputable industry email newsletters can help you stay on top of relevant market reports and future projections. This way, you can develop a compensation strategy that’s proactive rather than reactive.
Finally, don’t forget to revisit your goals and objectives periodically to verify if you’re still on track.
Tips for effective compensation benchmarking
Excellent compensation benchmarking can be challenging and time-consuming to accomplish, but we’ve put together a list of actionable tips to help you get started:
- Don’t do it alone — Collaborate with your peers and other department managers to collect accurate information and determine which employees are due for raises or promotions. This will help you effectively manage budgets and pay employees fairly.
- Benchmark against the right competitors — Gather accurate data by comparing yourself with businesses of comparable sizes and in similar industries and regions.
“Ensure there aren’t too many variables that could skew the data (like location or industry). This way, there’s less chance of accidentally leading yourself astray while trying to get an overall picture of where things stand (…).”
— Kimberley Tyler-Smith, VP of Strategy and Growth at Resume Worded
- Take other compensation methods into account — Fixed salaries aren’t the only way to compensate employees. Benefits like profit-sharing, remote-work options, personalized development paths, and flexible working hours are also effective methods of compensation you should keep in mind.
- Align salary benchmarks with your existing compensation plan — Effective compensation management isn’t just about offering competitive pay and implementing the right salary benchmarks. It’s also about having an open conversation with employees and communicating the “what” and “why” behind your compensation plan.
- Document your results — Managers or other stakeholders may need to approve company benchmarking decisions. Documenting your results creates transparency around benchmarking and keeps stakeholders on the same page.
Prioritize fair, consistent compensation with Leapsome
Consistent salary benchmarking helps attract, retain, motivate, and engage talent. It can also help create a sustainable, transparent, and psychologically safe work environment. However, building compensation systems can be stressful and subject to unconscious bias.
With Leapsome’s all-in-one people enablement solution, you can streamline the entire compensation planning process, build a culture of continuous employee feedback and development, and commit to DEI initiatives. That way, your company can enjoy more long-term growth and success.
🚀 Make fair and equitable compensation a breeze with Leapsome
Leapsome delivers the data and insights you need to build scalable and transparent compensation management processes.
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