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A successful salary benchmarking exercise relies on three core components: clear goal-setting, the collection of high-quality data, and strategic analysis to define competitive pay ranges. According to industry standards, organizations that conduct regular, data-driven compensation reviews can improve talent retention by up to 15% and strengthen their employer brand. This guide details the essential steps to ensure your benchmarking is accurate and effective.
Every effective process begins with clear objectives. Before analyzing any data, define what your organization aims to achieve. Are you aiming to lead, meet, or lag the market? Goal-setting is critical for directing efforts and securing buy-in from key stakeholders, such as finance, legal, and senior leadership.
You must also determine the scope of the exercise. Will you benchmark all roles or focus on specific departments, job levels, or geographic locations? Consider the impact of remote work on your compensation strategy. Defining this breadth early ensures you gather relevant data and evaluate the correct job roles.
Data collection is the most challenging yet vital phase. The credibility of your entire exercise depends on the quality of your data sources. Utilize multiple robust sources, such as:
Based on our assessment experience, data must be recent, relevant to your industry and company size, and robust enough to provide statistically significant results. Using inaccurate data risks making pay adjustments that miss your target market position entirely.
Once you have quality data, the next step is analysis. This involves matching your internal roles to external benchmarks accurately. You must align job families, levels, and responsibilities. A significant factor is geographic location, though for remote roles, the "market" may be national or even global.
If you can't find an exact match for a niche role, broaden your filters. You may need to assess data from a larger geographic area or similar industries. A key question to ask is: "What are the characteristics of the organizations from which we recruit staff and to which we lose staff?" The answer defines your real competitive market, which may extend beyond your immediate industry.
The final phase is applying your findings to establish or adjust salary structures. This requires strategic decisions guided by your initial goals. Consider these questions:
Salary benchmarking often leads to changes, including potential increases to compensation budgets. HR must prepare a clear communication strategy to explain adjustments to employees transparently. Since compensation data is sensitive, always partner with legal counsel to ensure compliance with local regulations.
To implement a successful salary benchmarking exercise: define clear goals, source multiple credible data streams, analyze data to define your true competitive market, and prepare a robust communication plan for any resulting pay changes.
