Salary benchmarking is not only key to attracting and recruiting good people, but holding onto your existing staff. It helps you to ensure that your pay scales are competitive and fair. Here’s our guide on how to conduct a salary benchmarking exercise.
What is salary benchmarking?
In a nutshell, a salary benchmarking exercise compares your job roles and compensation packages to similar organisations. The aim is to establish whether your company salaries are competitive within your industry and location. It will also determine whether you are underpaying or overpaying employees in specific roles.
Why is it important?
- It helps you to attract and retain good people: it goes without saying that competitive salaries attract good candidates. If staff are being paid the market-rates then they are less likely to want to leave. On the flip side, it can help you to understand why some roles may have a high staff turnover rate and whether it’s due to pay.
- Employee motivation: paying fairly contributes to higher job satisfaction and increases staff morale.
- Helps manage your budget: making payroll easier and planning and forecasting more effective.
How to conduct a salary benchmarking exercise
Be clear on your objectives
Understand why you’re conducting a salary benchmarking exercise. Is it to attract new talent, retain current staff or to make sure that you’re in line with employment law and paying the correct rates? By setting a clear objective at the start, this will guide you through the process and ensure clarity.
Highlight key job roles
What are the key roles in the business that you would like to benchmark? It’s advisable to focus on the key roles that are critical to the business. If you have roles with high turnover rates these would be good to analyse to identify whether there’s an issue with salary.
Gather the data
In order to gain a comprehensive understanding of salary ranges, you will need to collect data from a variety of sources. These can include:
- Salary surveys: depending on your industry you may find salary benchmarking surveys that have been conducted on a specific demographic. For example, in media and marketing The Major Players salary survey provides a comprehensive overview of the industry having surveyed hundreds of respondents. You can also look at trade associations, HR consultancies and industry groups for this data.
- Online salary databases: these can be found on sites like LinkedIn or Glassdoor, offering insights into employee-reported data.
- Job advertisements: a simple way to see what your competitors are offering is to scour job adverts. Check out online listing sites like Indeed and LinkedIn jobs searching under job titles and cross-checking industry and geographical location (as this will vary across the country).
- Engage a third party to conduct the benchmarking exercise for you. You can outsource this task if you’re time poor and an HR consultancy can do this on your behalf and will likely have access to current data and stats for your industry.
Analyse the data
Once you have collected the data for your roles, you now need to analyse and compare it.
- Compare your roles with the benchmark data – be sure to look at the roles have similar responsibilities, skills and experience so that they are as closely aligned as possible.
- Adjust the location – salaries vary depending on geographic location and your benchmarking will need to reflect this, taking into account the cost of living and market rates in your area.
- Look at the total compensation = go beyond just salaries and look at everything you offer including bonuses, benefits (including free lunches and parking and how much they save an employee on average), stock options and any other perks you offer. Look at your competitors to establish whether they are offering anything similar, or something you may not be.
Develop salary ranges
Using your analysis, develop the salary ranges for each role looking at the following:
- Minimum: the lowest rate you’re willing to offer for the role.
- Midpoint: the market rate or the average salary from your benchmarking for the role.
- Maximum: the highest that you’re willing to offer, usually reserved for the top performers with significant experience.
Implement your findings
Once you have established clear salary ranges you will need to roll these out in the business. This could involve adjusting existing salaries to reflect your findings (and ensure they are competitive), updating hiring practices or revising your policies. It’s essential to communicate any changes with your team clearly to continue a level of trust and transparency.
Monitor, review and refine
A salary benchmarking exercise isn’t a one off task. It needs to be reviewed and updated regularly to allow your business to stay competitive. This is particularly crucial in fast paced industries or where there are skills shortages. Ideally you should review your salary data annually or biannually.
Four tips to make sure your benchmarking is effective
- Be open and transparent with staff – share the salary benchmarking process and findings with your employees.
- Get employees involved in the process – ask for feedback as they will have valuable insights into job roles, market conditions and what they and their peers would be looking for.
- Make use of HR software – many offer salary benchmarking tools. If you don’t have access, ask your HR consultant. For example, we work with CIPD Inform.
- Ask the experts – if you’re unsure, consider working with HR professionals who often conduct salary benchmarking exercises. There are numerous ways you can work with an HR consultant, from one-off ad-hoc projects to signing up to fixed plans guaranteeing you a specific number of hours support per month.
For more support with salary benchmarking, please reach out to your dedicated consultant, or find out how to work with Bespoke HR here.