Salary Benchmarking

Published on: December 10, 2021

Ma Foi offers comprehensive compensation and salary benchmarking services to help businesses attract and retain top talent. Our expert advisors provide customized solutions to ensure your compensation packages are competitive and aligned with industry standards. Trust Ma Foi to help you optimize your compensation strategies and achieve your business goals. Contact us today to learn more about our benchmarking services.

    Companies are always keen on knowing whether their remuneration packages are in line with what is commonly called the 'market rate.’ It involves extracting information about the pay packages from their competitors, which isn't very openly available for obvious reasons.  Despite the complexity, the task needs to be completed. It defines the future for every company thriving in markets where varied salaries directly influence the retention and loss of highly valued employees.  The matter of concern here is, therefore, salary benchmarking.

    What Is Salary Benchmarking

    Salary Benchmarking
      Salary benchmarking is the process of evaluating and comparing an organization's compensation practices with external market data to ensure competitiveness and fairness in employee salaries. When organizations engage in salary benchmarking, they match and compare the existing records of their internal jobs with a salary survey or market pay data, allowing for a comprehensive assessment of their compensation practices. The primary objective of salary benchmarking is to determine whether the company's proposal or offering to an employee is competitive enough to attract and retain them for the long term, thus ensuring the organization remains an attractive employment option. This process becomes crucial when the average market pay for a particular position exceeds what the company is currently offering, as it puts the organization at risk of losing valuable employees to competitors who provide higher compensation packages.

    Why Is It Important

      From a neutral standpoint, salary benchmarking serves as a necessary practice to ensure that organizations offer their workers a fair amount of money and avoid undervaluing their contributions. By benchmarking internal job records against market data, organizations gain valuable insights into prevailing industry standards and trends. This allows them to assess the competitiveness of their compensation packages and make informed decisions regarding necessary adjustments. This promotes transparency and fairness within the organization, enhancing employee satisfaction and motivation. Additionally, salary benchmarking helps organizations maintain a competitive edge in the talent market by continuously adapting their compensation strategies to attract and retain top talent.

    Benefits of Salary Benchmarking For Employees

    Compensation Benchmarking

    1. Get What You Deserve

    The most significant benefit of salary benchmarking is that it helps in removing unequal pay disparities. Every employee gets a fair remuneration, which is equally competitive as well.

    In companies where compensation benchmarking has not been introduced yet, the process will even allow salary increases for several positions.

    2. More Bonuses and Incentives

    Since the entire process is about defeating the competition and retaining more employees for the organization, there will always be attempts to woo employees with bonuses and incentives.

    Therefore, periodic increments in salaries, alongside added benefits, can be expected in organizations in which regular compensation benchmarking is performed.

    3. Regulated Duty Hours

    Although compensation benchmarking is strictly related to salaries’ facts and figures, it also has influenced the work profile that cannot be ignored.

    When data about what other organizations offer to their employees who work for the same number of hours as you do becomes available, you get to negotiate your duty hours accordingly.

    Therefore, compensation benchmarking promotes not only a fair salary offering but also a peaceful work environment.

    4. Know the Salary Ranges

    When employees decide to change organizations, looking at the salary benchmarking reports helps them determine the salary range in the new company.

    This way, the applicant can identify the growth prospects and how far he could go when the monetary benefits are concerned.

    Hence, salary benchmarking helps employees in making an informed decision before changing jobs.

    5. Enhances transparency

    Salary benchmarking fosters transparency in compensation practices. Employees can have a better understanding of how their salaries compare to others in similar roles or industries. This transparency promotes trust and confidence in the organization, as employees have visibility into the criteria used to determine their compensation.

    6. Encourages retention and job satisfaction

    When employees feel that they are fairly compensated based on market standards, they are more likely to be satisfied with their jobs and remain committed to the organization. Salary benchmarking helps prevent situations where employees may feel undervalued or seek opportunities elsewhere for better compensation. By ensuring competitive salaries, organizations can enhance employee retention and create a positive work environment.

    Benefits of Salary Benchmarking to The Employer

    Compensation Benchmarking Software

    1. Higher Retention Rates

    No matter how big the organization is, hiring and retaining the right person for the right role is equally tricky everywhere.

    So, tackling pay disparities, which is the most common cause for employee migration, should be dealt with using reasonable promptness. 

    Therefore, comparing and then changing the salaries offered for every position concerning the average market rate is essential to keep the competitors at bay when talent retention is your priority.

    2. Cost Savings 

    Compensation benchmarking works equally well the other way round as well. When you get hold of figures related to market rates for a particular position, you can straightaway tell your applicants how the package that you propose is wholly justified.

    Moreover, your recruitment drives will also be planned similarly, actively hiring for roles where average market packages are well within your budget or even lesser than that.

    3. Build a Loyal Employee Base

    Making changes according to the data obtained with salary benchmarking will help in cultivating trust amongst the employees.

    Employees would realize how the organization is taking care of their remuneration and providing necessary increments to offer a fair salary for every position. Ultimately, these steps help strengthen human relations, and the loyalty of every employee towards the organization gets enhanced.

    4. Competitive compensation packages

    Salary benchmarking enables employers to stay updated on market trends and industry standards. Thus, employers can ensure that their offerings are competitive and aligned with their competitors. This helps attract high-quality candidates.

    5. Informed decision-making

    Salary benchmarking provides employers with valuable data and insights to make informed decisions regarding compensation strategies. Employers can use this information to align their compensation structures with industry standards.

    6. Compliance with regulations and industry standards

    Salary benchmarking helps employers ensure compliance with legal and regulatory requirements related to compensation like assessing equal pay laws, and other relevant regulations. By conducting regular salary benchmarking exercises, employers can proactively address any compliance issues and mitigate potential risks.

    7. The attraction of top talent

    Offering competitive salaries based on salary benchmarking data can significantly enhance an employer's ability to attract top talent. Salary benchmarking helps employers position themselves as attractive employers and stand out in the talent market.

    How Is Salary Benchmarking Done


    1. Identify Job Attributes

    The first step of compensation benchmarking is to identify the attributes of every position. This refers to the duties that the organization wishes to give to a person hired for the job.

    Once these duties have been identified, you will have to individually search for the salary data concerning each of these work attributes. 

    For instance, if data analysis is one task that you want a research associate to perform, you will search for the market rate for a data analyst position first. For this, you can use HR-reported average survey data.

    2. Decide the Percentage Increment of Salary 

    In the above example, according to the time you want the employee to devote to data analysis, you will figure out the percentage of the salary that should be finalized according to market research.

    A similar approach is used for other job attributes, following which a balanced final pay package is decided.

    Performing salary benchmarking is not easy for internal departments. One requires resources and analysts to give meaningful reports. Therefore, several companies prefer hiring consultants who complete compensation benchmarking on their behalf.

    Ma Foi is a business consulting agency that supports the  HR, Legal and Compliance processes in companies from all industries. With over 20 years of experience and helping more than 400 clients, Ma Foi is a trusted alternative to get industry-specific salary benchmarking results.

    3. Collect internal data

    Gather relevant information about the job roles within your organization. This may include job descriptions, job titles, responsibilities, required qualifications, experience levels, and any existing salary data.

    4. Obtain external market data

    Access external sources of market data, such as salary surveys, industry reports, or compensation databases. These sources provide information on prevailing market rates and compensation practices for similar job roles.

    5. Analyze the data

    Analyze the collected data to identify any gaps or discrepancies between your internal salary structures and the market data. Look for differences in salary ranges, compensation packages, or benefits offered for similar positions in the market.

    6. Adjust compensation strategies

    Based on the analysis, consider making adjustments to your organization's compensation strategies. This could involve revising salary ranges, offering additional benefits, or making changes to incentive programs to align them with market standards and attract or retain top talent.

    7. Communicate findings

    Share the findings of the salary benchmarking process with relevant stakeholders, such as HR professionals, managers, and executives. Transparent communication helps build trust and understanding of the organization's compensation practices.

    8. Review and update regularly

    Salary benchmarking is an ongoing process, as market conditions and compensation trends change over time. It is essential to regularly review and update your salary benchmarking data to ensure that your organization remains competitive in the market.

    Salary Benchmarking Best Practices


    The objectives of the benchmarking process should be clear from the start. Every member of relevant committees should be aware of these objectives to take the expected pay decisions smoothly.

    Senior executives are valuable assets who drive crucial management decisions. Thus, conduct market benchmarking for these posts annually to ensure that your valued executives do not feel unsatisfied at any point with their pay.

    The summary of the data should be based on the middle 50% of the samples obtained. This is important because such reports give a better idea of how narrow or wide the salary ranges for a position can be.

    1. Define clear objectives

    Determine what specific job roles or positions you want to benchmark and the purpose of the benchmarking process, whether it's to attract and retain talent, ensure fair compensation, or comply with industry standards.

    2. Use reliable data sources

    Gather data from reputable and reliable sources to ensure accuracy and credibility. Utilize industry-specific salary surveys, and compensation databases, or consult with professional associations or specialized salary benchmarking firms. Verify the relevance of the data to your organization's industry, location, and job roles.

    3. Ensure data comparability

    Ensure that the data you collect for benchmarking is comparable to your internal job roles. Pay attention to factors such as job titles, job descriptions, responsibilities, qualifications, and experience levels.

    4. Consider market segmentation

    Consider segmenting the market data based on relevant factors such as geographic location, industry, company size, or other relevant demographics. This allows for more precise comparisons, as compensation levels can vary based on these factors.

    5. Analyze total compensation

    Don't focus solely on base salary. Consider the complete compensation package, including benefits, incentives, bonuses, and other perks. Analyzing the total compensation offered by your organization and comparing it to market standards provides a comprehensive view of your competitiveness.

    Final Words

    In 2023, salary benchmarking remains a critical practice for organizations aiming to attract and retain top talent. Comparing your company's practices with those of your competitors is an excellent way to stay on top of market trends. Salary benchmarking is one such process that provides you a window to tweak the pay packages for your employees and make them more competitive. From an employee's point of view, the process brings more transparency and justice to the financial aspects of work, which is undoubtedly a desirable situation. Compensation benchmarking is a necessity for every organization as it helps maintain a pool of talented workers. In this space, Ma Foi, a leading HR consultancy firm, plays a significant role in assisting organizations with salary benchmarking. Ma Foi provides valuable support by offering access to reliable market data, including salary surveys and compensation databases, enabling organizations to compare their pay packages with industry norms. Nowadays, organizations can leverage sophisticated tools and databases provided by firms like Ma Foi to streamline the salary benchmarking process. These tools allow for more accurate and comprehensive comparisons, taking into account factors such as job titles, responsibilities, qualifications, and geographic locations. The availability of vast data sets and advanced analytics enables organizations to make data-driven decisions and ensure that their compensation practices align with market standards.

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