A fair and competitive salary is one of the main selling points for job roles. So, if what you're offering falls below the average salary in that field you could face issues.
Miss the salary benchmark and you could find yourself struggling to hire and retain employees. This can lead to higher recruitment costs and levels of employee turnover.
In this guide, we'll look at what salary benchmarking is, why it's important and how to benchmark salaries in your business.
What is salary benchmarking?
Salary benchmarking is the process of gathering information about average salaries outside of your organisation. Essentially it's a way of determining how much you should pay staff in specific roles.
For example, employers may want to research how much external employees are being paid compared to their staff with the same job title. This data is then used to create competitive salaries and compensation packages. This can attract talent and help you stand out against your competitors.
Is salary benchmarking different to compensation benchmarking?
Although very similar, compensation benchmarking is when you compare your non-salary benefits to your competitors.
This can include how much paid time off staff get, pension plans or money off certain retail or hospitality businesses. Certain benefits are of high value to staff and are sometimes more important than pay packages.
Some organisations may struggle to pay the same as their competitors because of their company size. So non-financial benefits can be a great thing for businesses to offer to remain competitive in their industry and retain talent.
Why is salary benchmarking important?
Pay packages are often an essential factor for candidates. This can help you stand out against similar jobs that they may be applying for.
Salary benchmarking can also help you to create a clearly defined pay structure. This shows your employees that you care about their training and development. And that their progression within your company is vitally important.
Benefits of salary benchmarking
Companies that understand the importance of salary benchmarking are more likely to reap the benefits. Pay levels are important to a lot of employees, so having a benchmarking process in place can help businesses succeed.
Let's explore some of these benefits.
Improved retention rate
Every employee wants their employer to value them. And way for employers to do this is by offering better packages.
When employees are paid fairly for their work, they're happier and often more productive. This can help improve your company culture and lead to lower levels of staff turnover and recruitment costs. Fail to keep up with the industry standard and you risk losing top executives and other valuable employees.
Improved hiring
Every business wants to stand out against its competitors. Especially when they're recruiting for a new job role.
When searching for a new job, top talent will often compare salaries from different companies to see which is best. While a unique selling point or other key benefits might help sweeten the deal, a good compensation package ultimately sells the role.
Providing as much salary information as possible in your job descriptions can help increase the number of relevant applicants you receive. It can also help candidates make better informed decisions about whether the role is right for them.
Helps employee development
Every employer wants their staff to grow and develop their skills. Providing a clear path for development and improved salaries can help employee retention.
Salary benchmarking shows your staff where they can if they continue to grow their skills within your company. By doing this, your business can increase its productivity levels and create better results.
Employees love when their company works at retaining employees through actionable development. This can lead to an improved retention rate and employee engagement.
Problems with salary benchmarking
Now we've discussed the benefits of salary benchmarking, let's look at the issues.
The salary benchmarking process comes with some problems. It's best to be aware of these before you begin benchmarking salaries. This can help you avoid them and streamline your process to get the best out of your salary data.
Limited data sources
Not every company likes to shout about their pay and benefits packages. This can make it hard for employers to properly research and assess what is considered competitive compensation.
Companies also need to consider their industry and whether the data they receive is relevant to them as a company.
Without enough data sources, you run the risk of over or underestimating the average salary for a role. Do this and you could end up either over or underpaying staff. If this happens you may have to ask staff to take a pay cut or risk them leaving for higher salaries elsewhere.
To avoid this from happening you should make the most of salary benchmarking tools.
What are salary benchmarking tools?
Before you begin benchmarking, you need to compare other relevant salaries. Every organisation will have its own pay scale, but there are often similarities depending on the industry.
There are many free tools employers can use to get the data they need to provide competitive salaries. These include:
- Salary surveys: These are available on industry websites and offer insight into specific roles.
- Job sites: Here, employers can see the average benefits package for specific job descriptions.
- Compensation consultants: Although not free, they have access to large sets of data and can effectively analyse this for you.
The method you choose will depend on the specifics of your business. For example, if your company requires employees with specialist skills you may need more specific data.
How to carry out salary benchmarking
It can be easy to get lost when conducting the benchmarking process. You need to make sure that your pay and benefits package meet employee expectations and remain competitive. Otherwise, you could find yourself falling behind other companies.
Following the below steps can help you throughout the salary benchmarking process
Do your research
As previously mentioned, collecting data is the first and arguably most important step of the process. You need to look at what your competitors pay and whether you can match or beat those salaries.
Collecting a large pool of data can make benchmarking salaries easier. You need to look at what jobs are relevant to your organisation and discard any that aren't relevant.
Assign staff a role and level
Before you begin benchmarking salaries, you need to make sure that every employee at every level has a clear job role.
An employee's job title will often list their seniority level. For example, they may be junior, senior, a manager or an executive. This is a good way to indicate the level of experience needed to fill the role and the pay that comes with it.
Some jobs will require specific training, experience and qualifications. So companies will need to consider this when benchmarking salaries for specialist jobs as applicants may expect higher salaries.
Find salary benchmarks
Once staff have been assigned roles and levels of seniority, it's time to begin salary benchmarking. When benchmarking salary, you need to consider a few things. These include:
- The type of role it is.
- The level of experience needed.
- Whether the job is full or part-time.
This information can help you decide how much a role is worth and the salary that would be expected.
Benchmark existing employees
While benchmarking, you may find that your current employees are being paid less than the competitive rate. Employers may choose to ignore this, especially if staff haven't asked for a pay rise.
But offering to meet the competitive rate outlined in the salary benchmarking process can keep staff happy and loyal. In the long run, this can be beneficial for businesses as it avoids a toxic workplace culture or staff resentment.
Get advice on salary benchmarking from Peninsula
It can be hard to know where to start when it comes to salary benchmarking. While it's important to offer competitive salaries, you can only pay what your business can afford.
Salary benchmarking is a great way to gauge if you are meeting employee expectations. Fail to do so and you could find yourself struggling to hire or retain valued members of staff.
Peninsula offers expert advice on salary benchmarking. Our HR team offers 24/7 HR employment advice which is available 365 days a year.
Want to find out more about salary benchmarking? Seek advice from one of our HR consultants. For further support, call our telephone number 0800 028 2420
