Comprehensive Guide to Salary Benchmarking

Salary benchmarking is critical to any growing business, especially when aligning HR practices with any busienss goal. As an HR Director or Chief People Officer, you're likely focused on optimising talent acquisition, enhancing employee experience, and maintaining a strong company culture. Understanding and conducting salary benchmarking helps make sure you're not just competitive but also aligned with industry standards. This guide will delve into why salary benchmarking is vital and how it can benefit your organisation.

In today's fast-paced business landscape, getting compensation right isn't just about numbers, it's about people. 82% of people feel more engaged when they’re paid fairly and 81% are more productive and loyal to their employer. (Indeed, The Importance of Fair Pay and Salary Transparency)

For any organisation, salary benchmarking has become a crucial tool in the war for talent. But here's the thing: it's not just about matching market rates anymore. Modern salary benchmarking is about creating a compensation strategy that reflects your company's values, supports your growth ambitions, and ensures fairness across your organisation.

Gone are the days when salary benchmarking meant simply matching numbers in a spreadsheet. Today, it's about understanding the complete picture of compensation in your market.

Salary benchmarking involves comparing your employees' pay against the market rates for similar roles within your industry or geographical area. It's about making sure your compensation packages are competitive and attractive enough to retain top talent. By consistently analysing market data, you can identify whether your current salary offerings are on par, above, or below the market rate, helping you adjust accordingly.

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Think of salary benchmarking as your organisation's compass in the competitive talent landscape. It's not just about ensuring your pay packets are competitive—it's about understanding the total compensation ecosystem, from base salary to benefits, bonuses, and beyond. And how you do it matters to your employees.

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49% of UK employees say base pays one of the top reasons to stay with a company. Yet, the same study reveals that benefits are becoming increasingly important with 39% of people saying they would leave their job for better benefits at another company… with no change in base salary.

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Willis Towers Watson: Global Workforce Study

Platforms like Glassdoor and LinkedIn have made salary information incredibly accessible, so employees now have more tools to research market rates for pay than ever before. It's essential for organisations to have their own salary benchmarking data to rely on within their compensation strategy and to make that available to the managers.

But its not just about HR being able to arm the line manager with data for that one-off pay review discussion. Conducting salary benchmarking helps support your strategic HR initiatives by aligning compensation packages with market trends, ensuring they attract and retain the best talent. This alignment is crucial in industries where demand for skilled professionals is high, such as tech and legal. By staying competitive, you can reduce employee turnover and associated costs.

Salary benchmarking is also a powerful tool for identifying and closing pay gaps. As discussed in our blog article "6 Reasons To Use A Salary Benchmarking Tool", it enables you to address inequalities that may exist within your organisation. Ensuring fair pay reduces the risk of discrimination claims and boosts employee morale, contributing to a positive company culture and increased productivity.

Integrating salary benchmarking into your HR strategy offers direct benefits to your company. It improves talent acquisition by helping you create compelling compensation packages that attract high-calibre candidates. When candidates see that your company offers competitive salaries, they are more likely to consider your organisation for long-term employment.

Then there’s the obvious reason which is reducing employee turnover. Salary benchmarking assists in retention by ensuring your current employees feel valued and fairly compensated. This not only reduces attrition but also enhances overall job satisfaction. High job satisfaction often translates into better performance and productivity, giving your company a competitive edge. Additionally, understanding market rates means you're well-prepared during salary negotiations, preventing overpayments and ensuring cost-efficiency.

According to industry insights, many employers avoid discussions about pay. Why line managers avoid pay chats and how benchmarking helps highlights how salary benchmarks provide a factual basis for these conversations, making them less daunting and more productive.

Some of the impact of effective salary benchmarking include:

• Improving employee engagement and satisfaction
• Reducing unwanted attrition (regrettable attrition)
• Ensuring pay equity
• Supporting your employer brand
• Helping to control compensation costs
• Supporting transparent communication with employees
• Fostering trust

Here's a truth that may or may not surprise you: job titles alone can be misleading. What is a “Digital Guru”? Or a “Chief of Staff”? Is the Chief of Staff in a tech company the same as Leo McGarry from The West Wing?

Fictional characters aside, when job titles can be new, exciting and interesting (or indeed, weird), we need to look further when trying to match internal salaries to external market pay benchmarks. This is where the underlying skills in a role become important.

As Mercer's latest Global Talent Trends study shows 45% of HR leaders say that they are focusing on rewarding skills acquisition in their compensation strategies.

But everything gets bundled into a Job Title that has a perception of skills which are sometimes not documented and agreed on!

So to conduct effective salary benchmarking, start by identifying the job titles and descriptions that are critical for comparison. And then go one step further and list the core skills, the nice to have skills AND the skills to develop.

Key steps include:

• List essential roles: Identify and document key job roles in your company.
• Standardise job titles: Ensure titles are consistent to accurately match them with the market equivalents.
• Define job descriptions: Detail the duties, skills, and qualifications for each position.

Next, adjust the descriptions to align with market standards. Discrepancies between internal job titles and market titles can distort benchmarking results, but having job descriptions and skills to sense check against can help. Regularly updating and standardising these descriptions ensures alignment with current market conditions and takes into account any emerging trends in new skill developments.

Checklist for alignment:

1. Research industry norms: Compare your descriptions with those in industry reports
2. Adjust accordingly: Modify job descriptions to reflect common titles and skill requirements.
3. ‍Validate with peers: Cross-check with other businesses in your industry.

Working through this methodically means everyone in the organisation will understand what your Chief Happiness Officer actually is/does in relation to the job titles in the market. And when matching roles for benchmarking, consider:

• Core responsibilities rather than just titles
• Required skills and competencies
• New skills required or acquired
• Level of decision-making authority
• Budget responsibility
• Team management scope

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So you’ve developed your job descriptions, skills matrix and are now wanting to collect the salary benchmarking data. But pay benchmarking data isn't just about numbers—it's about context and accuracy. Accurate data collection forms the basis of meaningful salary benchmarking.

In order to excel at this, you’ll need to collate multiple data sources (we’d recommend at least 3) to benchmark your salaries. Salary surveys also known as participation surveys, industry reports, job boards and specialist salary benchmarking tools each have their own pros and cons. But combining multiple data sources can help for a number of reasons. It’ll show you what the market paid in the past for a role, what it is intending to pay and what it is paying and it’ll also help avoid any gaps in the salary data.

After gathering your salary benchmark data, it's crucial to ensure its accuracy and consistency. Skewed data can result in inaccurate benchmarks, affecting compensation strategies and competitiveness.

When Marissa Mayer was CEO of Yahoo, the company relied on benchmarking data from top-tier tech companies like Google and Facebook to set its executive pay. However, critics argued that Yahoo’s performance did not justify these comparisons. Mayer herself received an estimated $239 million in compensation during her time at Yahoo, even as the company struggled with declining market share and was eventually sold. Whilst looking in the same industry is always a starting point, benchmarking against high-performing, larger and more profitable organisations, when yours isn’t, can still lead to incorrectly inflated pay packets.

After industry, salary benchmarking has to take into account a number of other factors like location, size, age of business and then its important to look at how and when the data was gathered and with what methodology the benchmark is presented back to you.

Data Quality - what to consider:

• Make sure the data is current: Use data that is relatively fresh and has recency baked into the dataset.
• Source data that is relevant to your company: Salary data should have enough filters to match your context. So look for factors like location, industry, size, and anything else important to your org.
• Consider total rewards: Total compensation includes more than just the base salary. Bonus, commission, tips and equity will impact the benchmarks.
• Consider compliance: Local labour laws and certain refulated industries will have their own ruleset when lookgn at hwo salaries ar adjusted against benchmark.

Job market analysis requires both art and science. You're not just looking at what companies are paying now—you're trying to predict where compensation is heading.

To stay competitive, it's essential to continuously analyse market trends and incorporate this knowledge into your salary benchmarking process. By understanding job market fluctuations, you can make informed decisions about compensation adjustments.

Ways to analyse:

• Monitor industry reports: Regularly review salary reports and market analyses.
• Track economic indicators: Pay attention to economic variables that influence salary levels.
• Job postings: Employ tools that forecast trends based on new job postings data.

Another aspect is understanding specific factors affecting your industry. Different sectors face unique challenges and opportunities that can influence salary levels.

In today's fast-moving market, annual salary reviews aren't enough. You’ll need fresh, live data to help you stay ahead.

Real-time market insights are pivotal for keeping your compensation strategies competitive and there are a number of salary benchmarking tools like Compensation IQ, Ravio, Figures HR, and Pave that offer a live view and enable you to access the latest market trends and salary benchmarks with ease.

In order to be able to offer real-time salary data, these platforms integrate seamlessly with your existing HR data, which definitely makes things easier. This give-to-get model is how the live data is generated and can have its benefits. But be careful: you’ll need to take into account who their customer base is because sometimes these salary software provider will focus on one industry – like Tech growth/ scale-up businesses.

But integrations can offer so much more…

HR teams need tools that talk to each other and make their “jobs to be done” easier. It’s all very well to have the integrations, but removing the manual, time-consuming task of mapping salary benchmarks to each and every employee is big benefit of integrating systems.

So when you’re evaluating the software, really dive into how the integration helps. Do you have to look up the jobs 1-by-1? Does the benchmarking software automatically map data for you? Can you easily share the comparisons with your Exec team? Can you store your benchmarks for pay reviews later on? Are there reports that tell you more about cost of replacement, gender pay gap reporting, team or location-based salary bias?

Effective salary benchmarking is not just about having access to market data but also about integrating this data with your own HR metrics and reporting.

Compensation decisions aren’t solely about numbers—employee feedback is equally important. Being able to listen to themes about pay, progression and rewards can help inform your compensation strategy and communications.

Think of it as being able to have a pay review discussion with everyone, all at once. Scary right? It shouldn’t be, because knowing what people are thinking, and saying to each other, about your companies pay practices is a super power. It can help you throughout the salary benchmarking exercise. Long before you set the salary bands, you’ll have the info you need to inform your pay philosophy, your approach to benchmarking and ultimately how you communicate this to all your staff and employees.

So if you can find a salary benchmarking software that also has employee surveys built in, then it’s one less tech platform to worry about. And it’ll give you great insights.

Once you've gathered salary benchmarking data, the next challenge is turning those insights into action. Here's how to ensure a smooth and effective process that delivers value across your organisation.

Whether you call it buy in, alignment, getting everyone on the same page, at some point you’re going to have to present the outputs of your salary benchmarking exercise to the Leadership team. Getting their support is important and you can achieve this by presenting your case with compelling data. After all – whoever commands the data, controls the conversation.

You're going to want to show the data you chose is robust and then how you've applied tit to your organisation. Try to include things like:

• Competitor positioning: Show where your organization stands compared to the competition. Back this up with specific salary ranges and industry benchmarks that highlight gaps or advantages in your compensation strategy.
• Retention Risk Assessment: Present data on departments, roles or demographic cohorts where below-market pay is creating vulnerability, including specific examples of how salary disparities could impact key business functions.
• Recruitment Impact: Demonstrate how competitive pay rates could strengthen your talent pipeline, using concrete examples of recent recruitment challenges tied to compensation.

Take the time to really think through a structured approach to how you rollout the salary changes.

Budget Framework - Finance is your Friend!

‍Partner with the finance team to determine available resources and create a realistic allocation strategy. If budget constraints exist, develop clear criteria for prioritizing adjustments. Don’t forget to document the rationale

Prioritisation Principles

Create a clear outline that everyone can understand and then use for determining which positions need immediate attention based on:

• Historical information such as when the last pay rise or promotion occurred
• Current gap from market rate
• Impact on business operations
• Retention risk
• Recruitment or resourcing challenges

Implementation Timeline

Develop a phased approach if needed, with clear milestones and accountability measures for each stage. And really, really give time in this project plan for your team leads and line managers. They’ll have questions and ultimately they’re delivering the news to your employees.

Your line managers are your front-line champions. Whilst the exercise up till now has been in spreadsheets, salary benchmarking tools and/or various other documents, your manages are the ones who'll be having those crucial conversations with team members, translating corporate decisions into personal impact.

Line managers need practical tools and knowledge to handle compensation discussions effectively.

Provide conversation frameworks that help them explain the rationale behind adjustments while maintaining consistency across teams.And develop clear guidelines for handling common questions about:

• How adjustments were determined
• Timeline for salary changes being implemented
• Impact on future team growth opportunities
• Connection to performance evaluations
• If I have a problem, who can I talk to? Create a straightforward escalation process for complex questions that need HR input.

All the above can help them with their 1:1s, but you can also offer additional support like coaching, role-playing and training.

It isn’t just the line managers job to explain everything when it comes to compensation decisions. You’ll need a comms strategy that flows throughout the organisation and one that delivers messages that are clear, transparent and understood by all.

Start with the verbal comms from the Leadership team (preferable your CEO). It could be a town hall, company all hands or fireside chat but the key is that the first communication is verbal. At a high level they should be setting out what the process was, the consideration that went into the salary benchmarking exercise and what’s going to happen next.

At this point the baton is passed back to the People team to elaborate on all the above points … and make the information accessible.

Communications about Salary Review process for Employees

• Explain the process used to determine adjustments
• Outline implementation timeline
• Clarify how these changes align with company goals
• Provide channels for questions and feedback

Communications to help Managers manage the pay and performance review process

• Share detailed background on decision criteria
• Provide tools for handling team discussions
• Outline resources available for support

Mastering the art of communication can be challenging but always try to remember that simplicity helps. When crafting your messages, strip away the corporate jargon and speak from a place of authenticity. Share the journey that led to these decisions, acknowledge the careful thought that went into them, and most importantly, connect them back to your organisation's broader mission and values.

Delivering the final pay review conversations isn’t the finish line because you’ll need to monitor the changes the process has had.

Listen closely to the stories emerging from your organization. Are employees feeling more valued? Are managers noticing increased engagement? Are those hard-to-fill positions suddenly attracting more qualified candidates? These narrative threads can be just as valuable as hard metrics in understanding your impact.

Some of the Metrics / KPIs you could look to monitor over time‍

• Employee Feedback
  • Regular pulse surveys
  • Exit interview trends
  • Manager feedback on team responses
• Business Metrics
  • Retention rates in adjusted roles
  • Recruitment success rates
  • Time-to-fill for key positions
  • Offer acceptance rates
• Pay Equity Measures
  • Regular analysis of internal pay ratios
  • Assessment of adjustment impact on pay gaps
  • Ongoing monitoring of market alignment

Strengths to celebrate & opportunities to improve

Salary benchmarking isn't just about adjusting numbers on a spreadsheet - it's about creating an environment where people feel valued and supported in their career journeys. Take the time to share stories of positive impact, recognize the collaborative effort that made it all possible, and use this momentum to fuel your ongoing commitment to fair and competitive compensation.

And when it comes to opportunities to improve - take the time to reflect on what could have gone better. Make a note of those and share with your leadership team to hearwhat they think. You’ll be doing this exercise again before you know it.