Pay Pacesetters: Mastering the Art of Salary Benchmarking

Depending on the size of your organization, gathering information about each role could be time consuming. If you want to get a quick start, begin with roles that are critical to your organization's success, have high turnover rates, or are difficult to fill. The right salary range for these positions can help overcome hiring challenges and retain essential talent.

2. Gather Market Data

Once you have a grasp on your current roles, collect salary data from reliable sources to understand the current market compensation trends.

There are a few avenues for gathering salary data:

• Industry surveys: Independent agencies carry out comprehensive salary surveys and consolidate the findings into datasets for benchmarking purposes. These are generally regarded as some of the more reliable, but expensive means of acquiring unbiased salary data.
• Online data sources: Websites such as Glassdoor offer a free alternative, but these may be less trustworthy. They often rely on employee-reported data and may be outdated.
• Payroll companies: Your payroll provider may include market-level salary data. A sophisticated tool will allow you to sync your own employee data with third-party salary data for easy compensation comparisons.

Gathering data from multiple sources helps ensure breadth and accuracy of information, reflecting various sectors and geographical regions.

3. Synthesize and Analyze

Once you have collected the data, the analysis phase begins.

Layer in the market-level data with your job leveling matrix and compare your current compensation packages against market averages. Examine compensation on a national and local level. Look for trends, identify positions where pay is below or above the market rate, and note any significant discrepancies.

Adjust the data to account for variances in job level, years of experience, education level, and size of the company. This adjustment ensures that you are making accurate comparisons that are specific to your organizational context.

4. Create Salary Bands

Based on your insights, create structured salary bands that reflect the competitive market rates yet align with your pay philosophy and financial boundaries.

The salary bands should include a minimum, midpoint, and maximum wage for each role. The midpoint is usually the average or market rate for a particular role.

These bands should provide a clear framework for compensation across different roles and seniority levels within your organization. Salary ranges should be flexible enough to allow for individual differences but structured enough to maintain internal equity.

5. Monitor and Update Regularly

Market conditions and industry standards are continually evolving, making it essential to regularly review and update your benchmarking data. Conduct this process at least annually or biannually to ensure your compensation practices remain relevant and competitive.

Adjust your compensation plans as needed based on these reviews to respond to new market data, changes in the industry, or strategic shifts within your organization.

Compensation Benchmarking Best Practices

Let's dive into the best practices for compensation benchmarking so your strategy is as effective and efficient as possible.

• Look beyond the job title. Job titles and their responsibilities can vary widely between organizations. When comparing market data with your own workforce, look at the job description as well to get a more accurate comparison. This is especially important if you’ve combined two roles into one position.
• Be proactive. Don’t only analyze compensation structures when you catch wind that your workforce is unhappy with their pay — some employees might already have one foot out the door. Regularly assess wages so you can course-correct before it’s too late.
• Compare to analogous organizations. When looking for comparable data, proceed cautiously when choosing which companies you’ll compare your business to. If possible, they should be direct competitors in terms of size and industry.
• See more than the salary. Potential hires will look at the total compensation package offered. You should be doing the same and including any bonuses, overtime pay, and other benefits in any evaluation of a role and what the employee should be compensated for.
• Collaborate. Salary benchmarking isn’t something that should be conducted in a vacuum. While budget and external data may decide actual salary figures, collaboration with managers and department heads will help create accurate descriptions of each role and its responsibilities.
• Use reputable data sources. When choosing external data sources, it’s not just a case of identifying similar businesses for comparison. As much of your data will come from third-party sources, you need to be sure that those sources are reliable and reputable.
• Consider sharing salary information with employees. As pay transparency becomes less taboo (and a legal requirement in some states), consider lifting the veil and sharing salary ranges with your workforce. While it may shift employer-employee bargaining dynamics, it can also lead to increased trust, productivity, and improved recruiting efforts.

Ensure Fair, Competitive Pay With Paylocity’s Compensation Management Software

In the race for excellence, how you compensate your team can be just as crucial as the talents they bring to the table. Embrace salary benchmarking as a cornerstone of your HR strategy to remain adaptable, equitable, and successful.

With Paylocity, this process becomes even smoother. Our all-in-one HR and Payroll software, including Market Pay, offers real-time insights into compensation data across roles, industries, and regions. Simplify your salary benchmarking with features like:

• Access market pay data in employees’ records for quick visibility into position and employee outliers you may want to adjust.
• Browse market data like salaries and highest-demand locations to help define roles and compensation. 
• Sync market data automatically to positions to simplify pay decisions when recruiting for the role in the future.

Want to streamline your salary decisions? Request a demo today!