Proper salary benchmarking can serve as bait for attracting and retaining top talent.
In this time and age, talented individuals are not just looking for jobs, they are looking for the full package. Ie, a competitive salary, company perks, and business that cares about employee satisfaction.
Therefore, it’s critical that companies undertake salary benchmarking and set themselves up high in the market.
This blog will cover the following:
- What salary benchmarking is
- How it works
- Why it’s important
- Our top six tips for salary benchmarking.
Let’s get into it!
What is Salary Benchmarking?
Salary benchmarking is a process that allows companies to compare salaries in a specific industry.
In other words, salary benchmarking allows your company’s internal pay rates to remain competitive in the external market so that you can attract and retain employees.
Salary benchmarking is an important process for any company, and ensures fair compensation to employees.
How Does Salary Benchmarking Work?
Salary benchmarking works by gathering information on pay, benefits, stock options and job responsibilities, and comparing these with your competitors.
Gathering this information can help a company pinpoint where they are in the market in terms of average salary. For instance, how well they compensate compared to competitors.
The benchmarking process can also help companies understand how attractive they are to potential candidates, and also the pay they should be offering.
This process usually involves building a salary benchmarking template and database, analysing employee compensation, and setting pay ranges.
Why is Salary Benchmarking Important?
Attract and Retain Top Talent
Companies that conduct regular salary benchmarking have greater chances of attracting and retaining top talent.
The business world is hard, especially following the phenomenon of the Great Resignation. That’s why every company must have “retaining top talent” at the top of their list.
Stay Competitive in the Job Market
Salary benchmarking is necessary to stay competitive in the job market.
By creating competitive salaries, you can stay one step ahead of your closest competitors and ensure you hire the best staff.
Set Fair and Equitable Pay
On the other hand, job seekers care about a company’s reputation and want to work at a place where they are fairly compensated.
Salary benchmarking allows you to identify what is fair pay for each specific role so that you can set fair and equitable pay.
Increase Employee Satisfaction and Engagement
Conducting regular salary benchmarking is key to employee satisfaction and engagement.
When employees know they are compensated fairly, they will want to work harder and will be happy to come to work.
Identify Areas For Cost Savings and Efficiency
Salary benchmarking can help companies make better strategic decisions regarding pay expectations. This can help a company identify areas for cost savings and efficiency.
Smart decisions can potentially result in sustainable growth for your company!
The Ultimate Guide to Salary Benchmarking: 6 Simple Steps to Follow
Define Clear Job Roles and Responsibilities
The first simple step to creating salary benchmarking is to define clear job roles and the responsibilities that come with these.
You can do this by determining each position in your company, its responsibilities, and salaries.
You should also include any benefits, such as bonuses, insurance, and healthcare. For instance, a business executive is in charge of X. X earns Y.
Doing this will help you correctly match job titles to responsibilities, and make it easier for you to compare this information to your competitors later on.
Choose Relevant Industry and Geographic Markets
The next easy step is to choose the relevant industries and geographic markets to compare your data. Doing this will ensure that you are comparing your data with only relevant and useful data.
For example, it makes no sense to compare the salary of a retail sales assistant and a business analyst, as they’re not in the same industry or pay range.
Gather and Analyse Compensation Data
Next, gather and analyse compensation data.
You can gather data from salary surveys, databases, and job descriptions. This data will help you see where you and your competitors stand. Make sure that all the data you gather is relevant for benchmarking.
Once you have gathered precious informative data, you can begin analysing. Analyse it to determine the average pay and benefits of each position.
Adjust Data For Company Size and Industry
You want to make sure the data you use is relevant to your company’s size and industry.
The size of the company matters because often, larger companies usually have a higher financial capacity and offer better wages.
For instance, it makes no sense to compare the salary of a person working at Apple to that of someone working at a small startup tech company.
Adjusting data for the industry is also relevant as some industries pay better, due to the nature of the work and the level of skill required.
Determine Salary Ranges and Market Positioning
Once you know where you stand and have a clear view of the wider market, you can determine and adjust salary ranges.
Are you paying less than your competitors? You might want to increase your salary range.
Are you offering a lot more than your competitors? You may be overpaying your employees.
Consider your budget and any other compensation you are prepared to offer when determining salary ranges.
Implement and Communicate Results
The final step of a successful salary benchmarking process is to implement and communicate your results.
Implement any changes to your company’s salaries and benefits based on your results.
You also need to be 100% transparent with your employees and future applicants. If there are any changes to your current pay packages, explain these thoroughly to avoid backlash and confusion. When hiring new recruits, explain what you can offer and why.
The Bottom Line
Did you know that employee turnover rates are set to reach an average of 35.6%? Salary benchmarking gives you a good chance to retain employees and keep this number from increasing further.
When salary benchmarking is done well, it can give you a piece of mind that your roles and salaries are rational, fair, and competitive.
Salary benchmarking is beneficial to both employers and employees, so everybody wins!
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.