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Comparing Compensation Levels: A Guide to Compensation Benchmarking

Written by Salary.com Staff

March 10, 2023

Comparing Compensation Levels: A Guide to Compensation Benchmarking

No matter which position you work in an organization, you will always want to know the truth about its compensation practices. This is especially relevant when it comes to the competitiveness of your organization’s compensation packages. If you are a manager, you need to know if you’re paying the right amount for specific jobs and if you’re keeping up with other organizations in your industry.

Compensation benchmarking is the practice of comparing your compensation levels against the levels of similar organizations in your industry. Doing this can help make sure that you are offering fair and competitive wages to your employees for the work they’re completing. In this article, we will show you how to effectively benchmark your current compensation levels, so that you can stay ahead of the competition while providing your employees with fair pay ranges.

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Types of Compensation to Benchmark

When deciding which types of compensation to benchmark, you need to have a clear picture of what different organizations offer their employees. Different levels of positions in organizations receive different benefits, so you need to research which components differ from compensation package to compensation package. In this article, we will look at the four main types of compensation to compare against:

  1. Base Salary

The base salary will tell you the basic amount of money that an employee can make for performing their job. This rate is usually the same for all employees performing the same job in an organization. Benchmarking base salaries can help you figure out if yours are competitive or not.

  1. Bonuses

Bonuses are often performance-based, but they can also be awarded due to reasons such as loyalty and commitment to an organization. Bonuses vary from organization to organization, and they can depend on the success of an organization and the state of their finances. Bonuses are a great way to incentivize performance and retain employees, which makes it an important aspect to benchmark.

  1. Long-Term Incentives

Long-term incentives include bonuses, but it also includes stock options or other equity-based incentives. The benefits of these may only be realized over a certain length of time of being with the organization. As this is the case, it encourages workers to stay with the same employer over longer periods of time.

  1. Benefits

You should also consider benefits when benchmarking compensation levels. These can vary from organization to organization, but typical benefits include healthcare insurance or flexible working opportunities. Benefits quite often reflect an organization’s morals and values so you may find some organizations offer unique options to their employees.

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Where Can You Look to Find the Right Comparisons

Once you know what you want to look for, you need to find who to look at. When searching, there are a few filters that you should consider. These are:

  • Industry

To begin narrowing your search, you can search by industry. Focus on organizations in industries that closely match yours. This allows you to find roles that are comparable to the jobs that employees are working in your organization.

  • Location

You also need to determine whether geography will be a factor in your search. Different cities and states pay different rates, so ensure that you recognize this. The cost of living also varies in different locations, which can affect whether the location is relevant for compensation benchmarking purposes.

  • Size and structure

You can also consider the size and structure of potential peers when looking for comparisons. The size and structure are dependent on factors such as total budget, operational revenue, or the number of employees. An organization with a similar size and structure would be most effective for comparing roles across organizations.

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Ensure That Comparisons Are Fair in Compensation Benchmarking

When you begin to benchmark your current compensation levels against those of your competitors, you must take the steps to ensure these comparisons are fair. Every organization has different values and objectives, yours included. Before starting any analysis, you need to take a closer look at the culture of your organization and how this dictates your compensation strategy.

As well as this, you need to look at what defines an organization as a ‘competitor’. Using our tips from earlier you can ask questions such as: what geographic markets and industries should be included in the comparison? How does your organization size up with other organizations? Answering these questions can help to guide you in selecting data for comparison which is relevant to compensation benchmarking and your desired scope.

Finally, you need to adjust for any different factors between your organization and other organizations that you will compare. For example, this could be different benefits offerings or cost of living indexes. Adjust so that the total compensation packages are alike as possible to avoid any discrepancies that could skew the accuracy of your analysis.

Calculate Your Organization’s Current Compensation Levels

In order to benchmark your organization’s current compensation levels, you’ll need to:

  • Gather relevant data from across your organization, which includes employees’ positions, salaries, and other forms of compensation they may receive.
  • Analyze the data you collect and calculate the average salaries for each role. Compare these averages with relevant salary data from organizations you wish to benchmark with.
  • Identify if there are any reasons for discrepancies and make the necessary adjustments.

Once you complete these steps, you should be able to see how your current compensations stack up against your competitors. From here, you can see if there are any changes that need to be made to your compensation practices. If you do make adjustments, however, make sure that they are fair and that your organization has the resources to do so.

Another Method of Compensation Benchmarking

There are other methods of benchmarking the compensation levels against those of similar organizations. One other method of benchmarking is to leverage salary surveys and third-party reports. Typically, these surveys will provide points of comparison including average salaries for specific job roles, bonus amounts, as well as other factors such as location and hours worked.

A good rule of thumb when looking for surveys is to look for those that are recent and include information about similar organizations in your industry. These surveys provide information that can inform future decisions about compensation in your organization. This includes finding out which locations would be best for a new office or how much a relocation package should be worth.

Conclusion

There is no one-size-fits-all solution to compensation benchmarking. Above we have given you an outline of what you need to be looking for and how you can begin to conduct benchmarking for the organization. Ensure your approach is comprehensive to give your organization the best chance of offering competitive and fair compensation packages which will go a long way to attracting and retaining the best talent.

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