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What is Salary Benchmarking?

Salary benchmarking is a process used by organisations to assess and compare their employees' compensation packages against market data within the relevant industry to ensure their salary structures and benefits packages are competitive and aligned with industry standards.

It involves analysing and comparing salary levels, benefits, and other components of total compensation to determine how an organisation's pay practices stack up against competitors or the broader market.

What is Salary Benchmarking?

The Steps of Salary Benchmarking

This can be a pretty big undertaking for a business to go through as it can lead to some changes to job descriptions and salary, but it can also be hugely rewarding and can help to address issues around retention and recruitment. Here’s a brief summary of the salary benchmarking process.

Data Collection: The first step in salary benchmarking is gathering relevant data from external sources. This data can be obtained from salary surveys conducted by professional organisations, compensation consulting firms, industry associations, government reports, or online salary databases. The data should ideally cover a specific job role or position, within industries and locations that are aligned to your business. The more specific the better.

Job Matching: Once the data is collected, it needs to be matched to the corresponding job roles within the organisation. Job matching involves identifying job positions that are similar in terms of responsibilities, qualifications, experience, and complexity. The goal is to find comparable roles in the market that closely align with your internal job positions.

Data Analysis: After job matching, the collected salary data is analysed to determine the market rates for each position. This analysis includes examining various factors such as median, average, and range of salaries for each position, as well as any compensation elements like bonuses, incentives, and benefits too. The data analysis will provide insights and trends into all of this.

Gap Analysis: The next step involves comparing your organisation’s internal salary structure and compensation practices with the market data. This involves identifying any gaps or discrepancies between what the organisation currently offers and the market rates.

Adjustments and Recommendations: Based on the gap analysis, you can determine whether your business’ current salary position is competitive, above market rates, or falling behind. Adjustments may be necessary to address any significant gaps identified. The recommendations that come from this will aim to ensure that your compensation practices remain competitive in attracting and retaining top talent.

Implementation: Once the adjustments and recommendations are formulated, you’ll need to implement the changes in the compensation structure. This may involve communicating the changes to employees, revising job descriptions, updating payroll systems, and aligning compensation practices with the new benchmarked data. By no means a straightforward process, but an important one nonetheless.

Ongoing Review: Salary benchmarking isn’t a one-time process. Instead, it requires regular review and updates to remain effective. Market conditions, industry trends, and the competitive landscape are subject to change over time. Therefore, your organisation should periodically revisit salary benchmarking processes to ensure you remain competitive and relevant.

What is Salary Benchmarking?

Why is salary benchmarking important?

Salary benchmarking is important for both retention and recruitment as it plays a significant role in attracting and retaining talented employees.

For example, these are the key benefits you could expect if you remain in touch with the market and how you compare through a salary benchmarking process.


a. Competitive Compensation: Salary benchmarking ensures that your compensation packages are competitive with the market rates. When employees feel that their salaries are fair and aligned with industry standards, they are more likely to remain satisfied and engaged in their roles. This reduces the risk of employee turnover and increases retention rates.

b. Retaining Top Talent: By benchmarking salaries, organisations can identify if their top performers are being appropriately rewarded for their contributions. If high-performing individuals perceive a significant pay gap compared to the market rates, they may be more inclined to seek opportunities elsewhere. Salary benchmarking allows you to make necessary adjustments to retain top talent and acknowledge their value fairly, which brings us on to our next point…

c. Fairness and Equity: Salary benchmarking helps ensure fairness and equity in compensation practices. When employees perceive that their salaries are based on objective market data, it fosters a sense of fairness within the organisation. This, in turn, improves employee morale, loyalty, and commitment to your business.

Recruitment and Attracting New Hires:

a. Competitive Advantage: In a competitive job market, offering salaries that are in line with or above market rates gives organisations a strong advantage in attracting talented candidates who are looking for a business who truly values their work. Salary benchmarking enables organisations to position themselves as attractive employers by offering compensation packages that are comparable or superior to what their competitors are offering.

b. Retaining New Hires: Salary benchmarking is not only important for attracting new hires but also for retaining them in the long run. If new employees join an organisation with salaries below the market rates, they may quickly become dissatisfied and seek better opportunities elsewhere. Benchmarking ensures that new hires are offered competitive salaries, increasing their satisfaction and commitment to your organisation.

What is Salary Benchmarking?

Should you use salary benchmarking companies?

As we’ve highlighted above, salary benchmarking can be incredibly important when it comes to attracting and retaining the most talented employees.

With that in mind, it’s pretty important to get it right.

As we said before, it can be a very big undertaking for a business. The sheer amount of data required, across specific job roles and industries can be a daunting task, and one that demands a lot of resource and expertise.

And, this is often something many businesses don’t have. Therefore, it’s becoming increasingly popular to seek out the help of a salary benchmarking company.

These organisations can offer up a huge amount of experience, insight and expertise into salary expectations and realities across a range of industries.

At SPS International, we utilise salary benchmarking to inform salaries for a number of positions we recruit to. If you’re interested in finding out more about how well the salaries you offer compare to the market, or you’d like to become a more competitive employer for executive level positions in your business, get in touch with our team of experts today.


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