Written by Connor Harrison
June 17, 2019
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.
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.
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:
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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