Understanding the Salary Benchmarking Process

by Connor Harrison - June 17, 2019
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Salary benchmarking, also called compensation benchmarking, is a process by which compensation professionals match internal jobs and their descriptions to similar jobs and descriptions in a salary survey or other source of market pay data, in order to identify the market pay rate for each position.

Why Is Salary Benchmarking So Important?

Salary benchmarking helps your organization to ensure that your internal pay rates remain competitive within your local pay markets. In today's competitive talent landscape, benchmarking allows you to assess how you're positioned relative to market, enabling you to make smart pricing decisions that enable you to attract and retain top talent. While salary benchmarking is a critical part of the annual compensation cycle, it is ultimately only as good as the data - and the process - through which you benchmark.

Salary Benchmarking Best Practices

When pricing a new position, it's critical to understand not only the key attributes of the positions you're trying to price, but also how you'll be sourcing the data necessary to conduct an accurate market assessment and salary comparison. The first step in this process is to define your internal position, documenting the key job requirements and attributes in a job description.

Once you've finalized your internal requirements, you'll want to look out to market to select a relevant data source for your business. Compensation data comes in a variety of flavors, including survey data, HR-reported aggregate market data, and even employee-reported data, and you'll want to assess which type of data is a best fit for your business - and for this position. Additionally, if you're pricing a highly specialized position or a hot job in your local market, you may want to look at supplemental data sources to more accurately assess the true price of the job.

Finally, you'll want to compare the jobs and job descriptions in your market data to your internal job description. Where are the similarities? Which benchmark jobs are a close match? Finding the best match for your job is critical to an effective salary benchmarking exercise.

As you look to begin a salary benchmarking process, here are six salary benchmarking tips to consider:

  • Use data sources that cover your jobs, industry, and specific competitors for talent – data sources that cover the jobs, industries, geographic areas, and company sizes important to your organization are critical to the success of your compensation benchmarking process. If you’re purchasing traditional, participant-driven compensation surveys like Salary.com's Compdata surveys, make sure that your direct competitors for talent are among the participants.
  • Don’t worry about perfect job descriptions – the job descriptions in compensation surveys are not intended to be all-inclusive. Instead, they're more generic descriptions that best describe the essential functions of a job, rather than the application of that job in a specific company. To find the right job match in your compensation data sources, look for a benchmark job description whose content matches 80% or more of the content of your internal job description - not one that's a 100% perfect match.
  • Match jobs based on job description content, not just the job title – similar roles, like accountants and bookkeepers, will be more clearly differentiated in their job descriptions. Roles that may be near-identical, but with different names, will also be recognized as such within job descriptions, such as Clinical Trial Manager and Clinical Research Manager. It's important therefore to rely on the job description, not the job title, to identify your closest benchmark job match.
  • Match as many survey jobs as possible to your company’s jobs – benchmark jobs, such as those in the Finance, HR, or Marketing job families, should be readily available in the compensation data sets you subscribe to and can provide key pricing indicators for other, harder-to-price jobs. Through processes like slotting, you can use these benchmark job matches to inform the pricing for jobs which do not have a match - often minimizing the need to buy super-niche data sources for 1 or 2 remaining jobs in your job hierarchy.
  • Focus on matching and pricing jobs, not incumbents – a person is not their job, so don't try and match the capabilities of individual people who perform a job within your organization with the high-level job descriptions in salary benchmark data sets. Instead, match based off the job description - the skills, duties, and competencies of the jobs at hand. Your salary benchmarking process should help establish a pay range for your internal position, which you can then use to inform the pay of specific employees based on their own skills, competencies, and level of performance.
  • Hybridize jobs judiciously – two or more jobs can be blended to create hybrid jobs, but no more than three jobs per survey should be combined to represent your company’s job. Remember that you’re looking for an 80% or better match for the job, not a line-by-line description of everything that job is required to do.

Salary Benchmarking Determines Pay

How you choose to price your jobs will determine how you pay your employees. Many organizations target the market’s 50th percentile or lower when pricing. This may help save money and allow room for salary negotiation while still paying new hires equitably. However, you may determine that this approach doesn’t always fit your pay philosophy, recruiting and retention goals, or budget.

As you begin to price the jobs in your organization, consider grouping similar jobs together to drive additional analysis and improved decision-making around prices for all jobs in the group. Ultimately, the salary benchmarking process will feed directly into your organization’s pay structures, allowing you to maintain externally competitive and internally equitable pay over time.


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