Just as a volleyball team has a certain place or ranking within a league, companies can benchmark themselves against other similar companies.

It’s called salary benchmarking. 

Salary benchmarking is comparing your company’s salaries against the compensation of other companies in your industry and geographical region.

How do companies salary benchmark?

Compensation data can be gathered from a variety of sources, such as Mercer, the Australian Bureau of Statistics, other business owners or your local chamber of commerce.

Once you have information from a broad range of sources, you can compare your own salaries and pay grades to the numbers found.

From there, you’re able to see where you fall in relation to others. Perhaps you are at the 50% percentile or the 75% percentile of the range, while others may pay near the 100% percentile of the market.

How to use salary benchmarking information

Companies often use the information to see if they’d like to make any changes to their pay structures.

They want to know if:

• Their salaries are competitive within the market
• They’ll be able to recruit and retain top talent
• They are overpaying or underpaying employees within a certain job role

Leveraging the data for more value

Rather than doing a mere comparison of salaries, utilise the benchmarking data to maximise the impact of your salary review process.

Examine your pay system

By salary benchmarking, you’re creating an opportunity to examine your pay system.

• Are you paying at the appropriate market rates?
• Do your salary structures and pay grades make sense?
• Do you need to make changes based on supply and demand within the labour pool?

Use this time to take a wide look at your compensation and benefit plans in general.

Communicate with employees

Undergoing a salary review is a perfect time to discuss your compensation practices with your employees.

You may include conversation about:

• Your job grades
• Your pay practices
• Perks and benefits offered by the company
• Your timeline for their salary review
• Your outlook on company salaries over the next 3 years

According to the Harvard Business School, a study co-authored by Peter LeBlanc, senior vice president of The Segal Company in New York City, shows that “more and better communication about compensation can boost employees’ satisfaction with their pay, leading to stronger commitment to the organisation, enhanced trust in management and other benefits.” 

Take time to explain to your employees your salary review process.

Keeping employees in the loop makes them feel valued and important — and decreases chances of false information or rumours about pay decisions.

Remember your objective

While salary benchmarking gives you an indication of what other companies are paying, don’t let it dictate your every move.

For example, if you find a sales recruit with exceptional experience and deep connections within your industry, feel free to step outside of salary markets.

Similarly, job boards like SEEK can give you ‘live’ indication of the market rates and numbers of positions that are available as well (and are generally what your employees may be using themselves to benchmark their own salaries against – particularly as a lot of the job boards will send them ‘jobs of interest’ that they may have registered for).

Above all, your compensation and benefit plan should tie directly to your business objectives.

While knowing how you fall within an industry is valuable, the most important comparison is how your current business compares to your business goals.

Any questions?

If you have questions on this topic or any others, feel free to reach me by email or set up a free one-on-one consultation session, or drop me a comment below.

Thanks for sharing!