Salary benchmarking compares pay rates for similar positions, taking into account factors such as location, experience, education, job responsibilities, organization size and benefits. Companies use this data to determine salary ranges and stay competitive in hiring top talent.
Salary benchmarking involves comparing pay rates for similar positions advertised by external organizations. HR and hiring managers may consider several factors when trying to get accurate market salary data. Some of the factors that can affect rates of pay include geographic location, experience, level of education, job responsibilities, size of organization, and financial resources. Other factors that might be included in determining salary for a position include the strength of the company’s benefits package and its total rewards system.
When a company determines how much it should pay employees in certain positions, the hiring manager usually presents a salary range. For example, a company seeking customer service representative positions might decide on a salary range of $25,000 to $35,000 United States Dollars (USD) annually. In order to work out this range, the HR department will perform a salary benchmarking analysis. One of the methods companies use to compare pay rates is to compare the amount offered by other companies for positions with the same title and job description.
Large organizations can use the services of an outside company or an online tool to perform salary benchmarking. With some of these tools, a hiring manager can locate aggregate market data for a specific geographic location, title, or job specialty. In conducting research, a firm may also obtain market-based pay rates that account for differences in education and experience. For example, some companies pay employees a higher salary in entry-level positions if they have a college degree or some experience.
Accurate salary benchmarking attempts to identify market pay structures for positions that are similar in terms of job responsibilities. Because comparing job titles alone can be misleading, the actual scope of work performed in a position will often be used to help determine the pay range. For example, the functions of positions with the title of “sales representative” can vary widely. Some sales reps focus on account maintenance and customer service for established clients, while others spend most of their days researching new business and pitching products.
In some cases, salary benchmarking also considers the organization’s ability to offer comprehensive benefits or a total rewards package. For example, some employers cover the entire cost of an employee’s insurance in exchange for a slightly lower salary. Other large organizations may include benefits such as stock options, matching contributions to a retirement plan, or annual performance bonuses. Most companies use salary market data to stay competitive, reduce revenue and hire the best possible talent.
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