Salary / Compensation Benchmarking 101

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Salary / Compensation Benchmarking 101

As companies grow and undergo change, they are challenged to keep up with the constantly shifting marketplace around them. Those who adapt quickly typically see more success. Studying the market can reveal business trends and provide the insight an organization needs to remain competitive with industry peers.

What is Salary / Compensation Benchmarking?

In many industries, salary compensation benchmarking is one of the most comprehensive ways to stay on top of ongoing business trends. But what exactly is it and what all does it entail?

By itself, the term “benchmarking” refers to the process of evaluating or checking something against a predefined comparative standard or point of reference. In that vein, many companies, organizations and businesses use the strategic process of salary benchmarking to gauge the attractiveness of their internal job positions by comparing them to those same positions of their competitors and similar companies.

For HR professionals, understanding the competitive market is a crucial step toward creating alluring payment and compensation packages that attract and retain top talent. As such, salary compensation benchmarking has become a standard global practice for businesses of all types and sizes.

Why Benchmark Salaries?

The implications of salary miscalculation or mis-estimation are huge. By underpaying employees, companies can lose their ability to attract and retain qualified talent. On the other hand, overpaying employees can negatively affect payroll budgeting efforts. Furthermore, an unstructured approach to determining compensation can result in pay inequity, often seen between newly hired and existing employees. Salary compensation benchmarking allows companies to offer salaries and compensation structures that are attractive to employees while still promoting organizational profitability.

Elise Boivin, a consultant with Mercer PeoplePro says, “Many of our small business clients struggle to determine competitive pay levels for their organization. After years of relying on anecdotal information or new hire prior compensation to determine pay for new hires, often without adjusting compensation for existing employees over the years, they struggle with internal equity issues and a disconnect between what they pay and what the competitive market pays for their jobs. Reviewing salary compensation benchmark data from valid survey sources helps our clients educate themselves on how the market pays for the roles at their organization and prepare to gradually make adjustments to compensation, as necessary.”

Many organizations already have an annual or semiannual benchmarking process built into their hiring efforts. Others are gravitating toward a similar practice for any number of common HR or budgeting scenarios. Salary benchmarking can add tremendous value to an organization when it is:

  • Hiring new employees for a position.
  • Hiring in a new or unfamiliar market or industry.
  • Hiring for position(s) that is/are entirely new to the organization.
  • Ensuring that salary structures remain competitive for positions or knowledge bases that are gaining market value (IT professionals, healthcare practitioners, etc.).
  • Budgeting for annual employee salary increases as well as employee promotions.
  • Facing the threat of losing talent to new businesses in the area

“The challenge of setting compensation in a competitive talent environment is something we help our clients through on a regular basis. The first step in the process is to identify what the competitive market pays for the jobs at their company via a salary benchmarking exercise,” Ms. Boivin notes.
So how does one obtain the necessary salary data that makes benchmarking a beneficial and cost-effective exercise?

Obtaining the Right Benchmarking Data

For benchmarking efforts to be accurate and successful, it is essential to keep close tabs on salary and job trends within a specific industry, geographic market, job family, or department. However, this requires a lot of effort, and it is typically not feasible for a single HR department to go at it alone.

More and more, companies are turning to third party HR data experts to not only access but better understand the market data available for any given position. When you factor in a company’s total payroll expenses, purchasing salary data or consulting expertise from specialized data vendors is often a small expense in comparison to the monetary implications of overpaying or underpaying for dozens, hundreds, or thousands of positions.

Luckily for HR professionals, there are several solutions out there that compile reliable data around salary and compensation in specific industries, regions, and jobs, including cost-effective solutions geared toward small businesses and startups. But how reliable is the data and where does it come from?

Salary Surveys and Analysis

Specialized HR data organizations have taken the lead in collecting, compiling, and analyzing compensation data, developing proven processes that enhance the data quality at all stages. It all starts with salary surveys.

Salary surveys are the primary way for companies all over the world to report their compensation practices and compensation planning efforts for specific jobs. Administered by data industry experts, salary surveys are typically conducted on an annual or semiannual basis and have become the most reliable means for data collection.

Mercer, for example, ensures market data is accurate and up to date by collecting survey responses strictly from HR professionals reporting on their own organization. Employees do not self-report. The data is then analyzed for validity, thoroughness, and market representation based on the organization’s size, structure, geographic region, or a combination of these factors. Mercer and Mercer PeoplePro consultants can take things a step further with ultra-customized reports based on a client’s specific needs.

Whether you’re the type who wants to dig into the numbers yourself or would prefer to benefit from the expertise of working with a consultant, salary benchmarking is an important practice for your business’s continued success.

Be Pay Competitive

Need help getting started with salary compensation benchmarking? Read our FREE Mercer PeoplePro HR Insights Report “Be Pay Competitive: A Roadmap to Market Pricing Your Jobs.” This valuable resource gives you the 8 steps to evaluate competitive pay and confidently support your recommendations to leadership with data and facts to attract and retain top talent. Download your FREE roadmap now!

HR Expertise On Demand

If you’re interested in learning more about how to obtain or use the compensation benchmarking data to make strategic HR decisions to attract and retain talent, our PROs are standing by and ready to help. Visit MercerPeoplePro to schedule a call — we’re standing by and ready to help.

Written by Rewards and Compensation specialist Elise Boivin


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