Importance of salary benchmarking in hiring employees

Have you ever wondered how you can offer the right remuneration and benefits package for each of your job titles? How can you provide a competitive salary package that will attract the best candidates?

In this article, we will be explaining the importance of salary benchmarking in hiring the right candidates and promoting employees.

What is salary benchmarking?

Salary benchmarking, also known as compensation benchmarking, is the process used by organizations to determine, track, and compare various salary rates.

It allows companies to provide the right compensation package to offer their employees.

Salary benchmarking is very helpful, particularly in your human resources department. They can assess and compare the pay rates and benefits offered by other companies for a particular job role.

This process is applicable in all types of industries, professions, and job levels. Moreover, it is usually done through salary surveys with considerations of the following factors:

• Company size
• Type of industry
• Education level
• Work location

These factors serve as the basis for finalizing final salary packages to be offered for a specific job position.

Why is salary benchmarking important?

Salary benchmarking is critical to every company. If your salary benchmarking is not done correctly, you will have a hard time attracting applicants to join your company.

In terms of maintaining and promoting employees, if you have poor salary benchmarking, it may lead to various dilemmas.

This may include employee dissatisfaction, poor performance, and employee engagement. The worst case is a high employee turnover rate.

Salary benchmarking is also essential to employees as they can know whether they are paid appropriately according to their market rate.

6 main benefits of salary benchmarking 

To help you understand salary benchmarking further, we have outlined six main benefits of this process:

1. Track and compare employee salaries and benefits

Salary benchmarking lets you set up your company’s pay structure according to your prevailing salary brackets.

You can also compare your organization’s current salaries with those of your market competitors. This will help you determine whether you are offering competitive compensation.

Wages that are below the minimum will drive candidates to seek job opportunities elsewhere. At the same time, wages that are over the benchmark may cost you more than your expected budget.

2. Improves employee retention

Your employees will feel more valued when they are receiving competitive salaries. They are also more likely to stay if competitors wouldn’t be able to match the compensation they are earning from your company.

If you have outstanding employees, other firms may try to steal them away from your management. In most cases, they may offer additional and appealing perks.

For these reasons, you need to ensure that you are providing your staff with enough bonuses, a pension plan, and paid time off, apart from a competitive salary.

3. Saves you time and money

Yes, salary benchmarking helps you save time and money as you can collect essential information from existing sets of data.

This means that you will not be required to go through extensive research or invent figures to identify the right pay grade and perks to offer.

4. Sets new targets

This applies to both applicants and employers. For the company, salary benchmarking gives you salary figures you can match or outmatch, which will pique the interest of job seekers.

Meanwhile, job seekers usually already know the average salary of the role they are applying for. If what you are offering is much lower than the standard wage, then expect that they will not be willing to accept your job offer.

5. Helps you implement better job offers

The compensation package is, without a doubt, what attracts job seekers.

If you can offer competitive salaries that slightly exceed the standard pay grade, more applicants will be interested in joining your company. This will also be very helpful if you are hiring in-demand and sought-after job roles.

To help you provide better job offers, you may also consider offering other benefits like a work-from-home setup, food allowance, or travel perks.

6. Provides equal opportunities for job seekers

Some companies can be biased in terms of offering remuneration packages to hires.

Salary benchmarking will help you avoid this because what you will be offering is according to statistics. This also helps you cultivate a kind of work environment that is fair and just.

Salary benchmarking process

Here are five key steps in the salary benchmarking process:

Define benchmark positions

Identify a job title within your organization that you want to benchmark. These positions should be critical to your business and have clear, well-defined job descriptions.

Ensure that the benchmark positions align with your organizational structure, compensation strategy, and goals.

Select relevant comparison data

Gather relevant and up-to-date salary ranges for the benchmark positions. This data can be obtained from industry salary surveys, compensation databases, and market research reports.

Verify that the compensation benchmarking data is specific to your industry, location, and company size to get accurate data and benchmarks.

Match job roles and responsibilities

Compare the job description, roles, and responsibilities of your benchmark positions with those in the external market.

Guarantee that the comparison is based on factors such as skill requirements, experience levels, and any additional responsibilities unique to your organization.

Aim for a close match to obtain accurate salary benchmarks.

Adjust for variables

Consider various variables that may impact salary levels, such as geographic location, company size, and industry and market trends.

Adjust the collected salary data to account for these variables and create a more accurate comparison.

This step in the salary benchmarking process helps in ensure your benchmarks are tailored to your specific organizational context.

Implement changes and monitor

Based on the benchmarking results, make informed decisions about adjustments to your organization’s salary structure.

Implement changes gradually, taking into account budget constraints and overall compensation strategy.

After implementation, monitor the effectiveness of the changes and be prepared to make further adjustments as needed to stay competitive in the market.

Salary benchmarking the right way

Companies may not always have the right people and resources to conduct salary benchmarking. If you are such a company, know that you always have the option to outsource.

You may check out our BPO Directory page to look for the right outsourcing provider to help with your business requirements!