A well-developed compensation benchmarking strategy will help your organization attract and retain top talent. However, only 54% of organizations have completed a full market study in the last 12 months.

Developing a great strategy is part science, part art, and can often feel like an unattainable goal, given the dynamic nature of today’s job market. But the results are worth it – with compensation among the top reasons an employee leaves an organization, HR teams can help their organization improve their retention rates and better attract talent by taking the time and effort to benchmark their roles.

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Here are 4 tips to help you improve your compensation benchmarking strategy.

1. Know your roles

As a rule of thumb, a good benchmarking process will cover 70 percent of your roles. Having a good understanding of your roles and which ones you want to prioritize for benchmarking will help you better align your roles to survey data.

For your benchmarked roles, you should understand:

  • Skills set
  • Experience levels
  • Education and/or certification levels
  • Job scope and responsibilities

Tip: Employees who are qualified for one role may also be qualified for another role that pays at a higher rate. For example, a law professor at a college could be qualified to work as a lawyer for a law firm. Sometimes the benefits of the lower paying role (better work/life balance or less stress) outweigh the opportunity cost of not taking the higher paying role, but organizations should pay close attention to these roles and create a compensation strategy that takes into account alternative employment options.

2. Pick you source(s)

Just like having a good understanding of your roles and the market you operate in, you want to pick benchmarking sources that are specific to your industry, geography, and size. The survey data should also cover a variety of skill sets, experience levels, and education and/or certification levels.

Benchmarking sources often come in three forms:

  • Published, Traditional Surveys: Surveys from the Bureau of Labor Statistics, associations or consulting firms and offer an affordable (and sometimes free) survey data, though they may not be up-to-date or match your organization’s structure, location or size.
  • Online Data and Software: There are many resources that offer self-reported salary data from employees. These sources are typically up-to-date and more cost effective than custom surveys, but HR and compensation professionals should understand how the data is collected to make sure it is reliable.
  • Custom Surveys: Several vendors offer to design custom surveys tailored to your organization. These types of surveys are often very accurate and very expensive.

Tip: If cost is a concern and you cannot afford survey data that aligns with your company’s firmographics, focus on the most important firmographic of your organization. For example, if you’re in a geographic area with a high density of similar organizations or roles that have similar requirements, it may be best to prioritize survey data from your geographic location.

It’s recommended that you use at least two to three different salary data sources that you weigh accordingly when developing your pay ranges to ensure a high level of accuracy. But ultimately, your organization will need to decide the right balance of cost and accuracy when determining sources.

3. Match to your roles

This part of compensation benchmarking can often feel like the “art” of benchmarking. No matter how specifically the data matches your organization’s positions, you’re still going to need to review your internal roles’ skills, experience, education, and requirements, then apply the external data to develop your salary ranges.

Job titles can vary greatly between organizations, so it’s best to avoid matching survey titles to your internal titles. Instead, take a careful look at the survey data’s job requirements and scope and align to the requirements of your organization’s roles.

4. Don’t let hot jobs burn you

Given today’s competition for talent, certain roles are in particularly high demand and recruiting for or retaining those roles may mean making compensation offers that are above established pay grades.

Work with your recruiting teams to understand which roles are critical and hard to fill. Then develop a strategy that helps them fill those roles, while also ensuring you stay within your compensation budget will help you manage these roles. Assuming the hot job is in the correct pay grade, it may be necessary for you to develop a special market premium range for these employees. Integrating these budget decisions into your HCM system’s position management structure is a great way to help stay on track here.

For example, the average of the market data for the hot job is commonly 20 percent above the market rate for the rest of the position in the same pay grade. Or some organizations may decide to offer a sign-on bonus as an alternative to a higher base salary – a trend that is becoming increasingly popular.


For some organizations, benchmarking is a private process. However, employees are increasingly demanding more compensation transparency and a greater understanding of what fair pay is for their role. In addition to creating competitive pay ranges, benchmarking can also be an opportunity to communicate and engage with employees about how their compensation is determined. Learn more about creating a compensation communications plan in one of our other recent blog posts.

Published: Tuesday, July 16, 2019