How to Conduct Salary Benchmarking

Salary benchmarking can be an invaluable tool for recruiting top talent and improving employee retention. Here’s our guide on how to get started.

Employees with a passion for what they do and an interest in the industry are more likely to exceed expectations. But the truth is that passion and interest alone aren’t enough. Employees conduct their best work when they have the resources they need to take care of themselves outside of the office.

And that means ensuring you’re paying your workers a fair, reasonable, and attractive salary.

Unsure if your rates of pay align with the market value of the roles you’re filling across your organisation? Then you’ll need to learn how to conduct salary benchmarking. A salary benchmarking tool analyses information relating to pay, benefits, and packages for similar job roles within a particular market. It’s a way of taking a data-driven approach to employee acquisition and retention and making smart decisions that attract and satisfy top talent while preventing overspending.

If you don’t know how to benchmark salary, don’t worry. We’ll cover the process in detail below. Join us as we take a deep dive into how to perform compensation benchmarking and set salary ranges. We’ll also answer common questions, such as ‘are salary benchmarks against basic or total pay?’.


How to conduct Salary Benchmarking

Understanding benchmarking: are salary benchmarks against basic or total pay?


As most leaders already know, there’s a difference between how much money an employee is paid, and how much an employee costs an organisation. This is basic pay vs. total pay, or gross pay. To generate accurate results, benchmarking must be carried out against the correct type of salary.

Basic pay refers to the fixed, recurring salary that an employee earns. For example, if you hire a permanent, full-time employee on a £150,000 salary, their annual basic pay will be £150,000.

Total pay refers to everything an employee earns from the business. This can include their regular, fixed salary, alongside irregular or one-off ‘extras’ such as bonuses, overtime, and benefits.

So, are salary benchmarks against basic or total pay?

Although there’s no definitive rule, it’s considered best practice to benchmark against basic pay only. That’s because it’s much easier to analyse and compare the value of fixed monetary compensation than it is to analyse and compare the value of non-monetary benefits. For example, a company located in the centre of London and an organisation in rural Wales may both offer free on-site parking for employees. It’s the same benefit, yet the value of the two will vary considerably.

Initially, benchmark against basic pay. If a business offers a compensation package that includes rewards beyond basic pay, it’s always possible to adjust for these extras after benchmarking.

How to salary benchmark: getting started


Before diving straight in, there are a few important prerequisites to consider when learning how to salary benchmark. Here are three excellent questions to ask yourself before getting started.

What are my objectives?


Why do you want to use salary benchmarking? What do you hope to get out of the exercise? Understanding your own goals and setting out your objectives is key to laying out a plan for analysing and comparing salaries. You can also use this data to shape your employee compensation decisions.

Businesses use salary benchmarking for a wide variety of reasons. Some want to reduce costs associated with new employee acquisition, onboarding, and training by improving employee retention. Others want to be able to offer salaries that attract a specific level of talent, or a specific type of candidate. Some want to open up the talent pool to a much broader demographic.

Who are my competitors?


In salary benchmarking, it can be very easy – and very tempting – to benchmark against every other business in the industry. However, two organisations operating within the same industry can be very different, with differing market values assigned to the same job roles. In addition to the specific industry, identify competitors based on metrics such as geographical location, business size, and services offered.

The role that competitors play in benchmarking is somewhat complex. It’s not simply a case of uncovering what other companies are paying, and offering more. It’s about analysing the type of experience and opportunities that those organisations are able to offer, too. For example, candidates appreciate a lower salary at a company known for its culture and potential. Similarly, they may not be as attracted to a higher salary at a stagnant organisation with poorer levels of employee satisfaction.

Where do I want to fit into the market?


Salary benchmarking isn’t about offering the highest rewards to attract and retain talent. It’s about setting realistic expectations – and creating realistic compensation packages that help businesses position themselves correctly within the market. So, where do you want your business to be?

Are you looking to be a market leader in terms of salary in order to bring in the absolute best in the business? Or are you looking to position yourself as more of a growing organisation – one that wants to balance talent and budget in preparation for an exciting period of growth? Do you want audiences to view you as a company that provides early opportunities for inexperienced young people? These factors will all influence the insights you draw, and the actions you take from salary benchmarking.

Salary benchmarking tools & methods


Once you’ve answered the above questions, the next step in conducting salary benchmarking is to decide on the tools and/or techniques you’re going to use to generate your data and insights.

There’s no one single way to salary benchmark. Some businesses like to use automated benchmarking tools, while others prefer to use more manual methods. Here are a few examples…

Salary benchmarking tools


A salary benchmark tool is a piece of software that automates the benchmarking process. It uses historical data from previous job listings, as well as information employees have shared through platforms like Glassdoor, to evaluate salaries and compare compensation. There are typically two types of benchmarking tools available: those offered by recruitment agencies, and those that come as part of HR software. While fast, these tools can be limited in their depth and accuracy.

Salary benchmarking methods


Manual salary benchmarking methods can produce deeper, more accurate, and more insightful results. There are a number of ways to perform a manual analysis. For example, you may decide to provide surveys to your employees. You can ask for feedback on their salaries, and whether they believe the compensation to be appropriate for their role. A quicker method is to work with a professional services company that offers salary benchmarking services to provide impartial, external overviews.

How to perform compensation benchmarking & set salary ranges


Armed with the right data, you can compare your salaries to others. This will help to determine whether you could edge closer to your goals by making different decisions relating to the compensation you’re offering your workers, and the rewards you’re planning to offer future talent.

To really get the most from salary benchmarking, it’s important not just to see and understand your data, but to act on it. And the best way to act is by setting salary ranges for each role. Salary ranges can help you better align roles within your organisation with their accurate and expected market value.

Benchmarking doesn’t just help you in the here and now. It can also help you plan and prepare for the future. By conducting benchmarking for roles that perhaps don’t yet even exist within your business, you’re giving yourself the data you need to offer informed promotions in the future.

Professional salary benchmarking services


If you’re keen to benefit from the more in-depth insights that come with the use of strategic, manual processes as well as automated tools, we’re here to help. At Innovex Global, we specialise in professional salary benchmarking services, generating detailed comparative reports that can help you make the best decisions for your people, and for your business. Contact us to find out more.

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