What is salary benchmarking?

What is salary benchmarking?

Salary benchmarking is when an organization compares its employees’ salaries against a defined standard, such as the industry or competitor average. It typically takes into account similar job roles, experience levels, skills, and geographic locations.

Salary benchmarking can serve many useful purposes, such as:

Ensuring competitiveness. In a highly competitive job market, attracting and retaining top talent is crucial. By comparing your organization's salary levels with the market averages, you can ensure that your compensation packages are competitive.

Ensuring equity and fairness. Salary benchmarking helps maintain pay equity and fairness within the organization. If all roles are benchmarked regularly, it can help reduce pay gaps and biases, leading to increased employee satisfaction and lower turnover.

Enhancing budget management. By benchmarking salaries, companies can better manage their financial resources. The process provides a realistic view of the costs associated with each role, which can inform budgeting and forecasting processes.

Salary benchmarking is usually conducted as part of a broader salary review process. However, it can also be used when creating new roles, adjusting compensation structures, or preparing for significant organizational changes, like mergers or acquisitions.

To benchmark a salary, you will need to acquire the relevant data from a reputable source (or collection of sources). You can usually find this data in salary surveys, industry reports, and from recruitment agencies. Alternatively, you can use a dedicated compensation benchmarking tool, like the one offered by Remote.

In a global organization, salary benchmarking becomes even more important. To ensure fair compensation for your remote team members, it’s vital to consider local market rates, costs of living, and legal requirements in each of your team members’ locations. By benchmarking salaries carefully, your company can strike a balance between being competitive, fair, and fiscally responsible.