You may know how much each employee is earning within your organization, but do you understand how that compensation compares to the industry standard? Organizations strive to attract, retain, and motivate top talent; however, determining what constitutes competitive compensation can be challenging without the right tools and data. This is where compensation benchmarking emerges as an indispensable practice for HR professionals.

What Is Compensation Benchmarking?

Compensation benchmarking involves a data–driven process that compares an organization’s compensation practices against industry standards and competitor data to ensure fairness and competitiveness. Factors that influence compensation benchmarking include industry, organization size, geographic location, job responsibilities, and more. Overall, it enables organizations to gauge where they stand in the market regarding employee compensation while maintaining pay equity and adhering to applicable laws and regulations.

Why Is Compensation Benchmarking Important?

Compensation benchmarking is essential because it provides you with data–driven pay comparisons to identify gaps and inconsistencies in your current compensation practices. This will help you make informed decisions in your compensation plan and achieve these goals:

  • Attract Top Talent: Competitive compensation packages are crucial for attracting skilled professionals. Most candidates compare multiple job openings and apply to those that are best suited to them, considering better compensation, flexible work environments, or improved benefits. If you want to attract the ideal candidate, stay ahead of the curve by practicing compensation benchmarking. 
  • Retain Employees: Staying up to date with benchmarking data can help you spot pay discrepancies and maintain pay equity across your organization. Offering fair and transparent compensation can increase employee engagement, satisfaction, and loyalty, ultimately reducing turnover rates. 
  • Stay Compliant: Benchmarking compensation helps organizations maintain compliance with legal and regulatory requirements. Stay compliant with Fair Labor Standards Act (FLSA) overtime exemption requirements and view unique exempt and non-exempt provisions for 28,000 jobs using ERI’s Occupational Assessor.

What Are the Sources of Compensation Benchmarking Data? 

In the process of matching job descriptions and comparing compensation at your organization to market rates in your industry, there are several sources you can use to gather data:

  • Salary Surveys: Salary surveys report data collected from comparable organizations on the mean or median salary for a particular job title. Salary surveys can include additional compensation data, such as incentive or variable pay. Participating organizations often report their geographic region, size, and industry so that survey data are relevant. ERI publishes compensation and benefits surveys for the United States and Canada, including numerous industry-specific and job function surveys published annually with data from for-profit and nonprofit organizations. 
  • Compensation Planning Software: Salary survey databases, such as ERI’s Assessor Platform, allow users to properly set wages, determine the cost of labor, develop lasting pay structures, benchmark compensation, and more. Our Assessor Platform provides a higher-level analysis of the extensive salary survey database mentioned above. This source includes compensation and benefits data analyzed and vetted by our data scientists to benchmark salaries with maximum accuracy. 
  • Government Agencies: Some governmental agencies collect and publish salary data for specific industries and regions. The U.S. Bureau of Labor Statistics (BLS) has wage data by occupation for the nation, regions, states, and more. 
  • Professional Networks: HR professionals often share compensation data and insights through professional networks and associations. 

How to Benchmark Compensation

  1. Audit current job roles and responsibilities: The first step in compensation benchmarking is to clearly define all the existing jobs in your organization using accurate job titles and job descriptions. Job titles may have different responsibilities across the market, so it is important to carefully define the job description so that you can properly match each job to an industry equivalent.
  2. Identify Relevant Data Sources: Next, choose credible sources of compensation data that align with your budget and goals. Using free sources from government agencies, for example, can be beneficial when you are on a tight budget. However, these sources provide only general and often conservative estimates of market pay and can be more time-consuming to analyze. For accurate compensation data tailored to your organization, use salary benchmarking tools, such as ERI’s Assessor Platform, to find competitive market rates for jobs by location, industry, experience, and organization size. Use ERI’s cloud-based platform to customize compensation rates based on shift work, skills, education, and certifications (including security clearances).
  3. Select Benchmark Jobs: Once you choose your data source, match jobs in your organization to benchmark jobs in your industry. Since similar job titles can have distinct roles across industries, use job responsibilities, rather than job titles alone, to identify benchmark jobs. ERI’s Assessor Platform includes detailed job descriptions written by ERI researchers and job matching tools to help you benchmark jobs accurately.
  1. Analyze Data: Once you have gathered all the salary benchmarking data, compare your organization’s compensation practices with current market rates to identify gaps and areas for improvement. ERI’s Assessor Platform allows you to benchmark base salary, incentive, long-term incentive, and total cash at various percentiles.
  1. Implement Changes: Use benchmarking insights to adjust compensation structures and policies as needed. Whether that means refining your current salary bands, adjusting starting offers, or changing salary structures all together, compensation benchmarking will provide you with the data you need to manage compensation strategically. When implementing your decisions, be transparent and clearly communicate changes to your employees.
  2. Monitor and Review: Compensation benchmarking should be monitored and reviewed periodically to ensure that you are staying on top of market trends. Keep records of changes that were made and continue to reassess compensation practices to ensure competitiveness.

Best Practices in Compensation Benchmarking 

To effectively analyze compensation benchmarks, it is important to consider these best practices: 

  • Regular Updates: Keep compensation data up to date to reflect changing market conditions. 
  • Consistency: Ensure consistency in job matching and data analysis methodologies. 
  • Broad Data Pool: Utilize data from diverse sources to obtain a comprehensive view of the market. 
  • Customization: Tailor benchmarking analyses to your organization’s specific needs and requirements. 
  • Legal Compliance: Adhere to legal and regulatory requirements when gathering and utilizing compensation data. 
  • Communication: Communicate compensation decisions transparently to employees to foster trust and engagement. 

Compensation benchmarking is a vital practice for HR professionals seeking to design competitive and equitable compensation structures. Leverage ERI’s compensation tools to navigate the complexities of salary benchmarking and ensure all employees are fairly compensated. Try a free demo and see how our Assessor Platform can help you benchmark pay across specific industries and geographic locations. With the insights gained from compensation benchmarking, organizations can optimize their salary planning strategies to drive employee satisfaction and organizational success