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What is salary benchmarking and why is it so important?

What is salary benchmarking?

Salary benchmarking is the process by which internal job descriptions are matched to external jobs with similar responsibilities to identify the going market compensation rate for each position. You may have identified that you need to create a new position within your company with specific job responsibilities and a corresponding salary, therefore it is important for those working in HR to assess the market and compare salaries accurately. Many factors can come into play here such as geographic location, company size, and education level factor and all must be considered in your salary benchmarking strategy before filling the position.

Your salary benchmarking strategy should answer key questions such as:

  • Who are your competitors?

  • Do you want to be a market median payer or lead the market?

  • How does base salary fit into your overall reward strategy in relation to and bonus’ or benefits?

  • Are you looking to drive high performance or is retention your top priority?


Why is salary benchmarking Important?

Salary benchmarking is a critical tool when it comes to hiring and retaining employees. By having accurate market intelligence and a solid understanding of where your organisation sits in the market, it allows you to set a fair yet effective compensation package and reward strategy. By setting an effective compensation and reward strategy, it will help you stand out against your competitors when it comes to attracting new talents. What is more, it will help you appropriately reward your existing employees in order to promote positive employee experience and retain your key talent.

Our step-by-step guide to an effective benchmarking process

Although we know that salary benchmarking is a vital part of the annual compensation cycle, it is only as good as the data and the process through which you benchmark. Luckily for you, we have written a step by step guide in this blog post AND come up with a report to teach you about the salary benchmarks of popular divisions in the Berlin start-up scene.

1. Define the internal position

Firstly, you want to define the role of the internal position. It is important that you document the key job requirements and attributes in the job description so that you know exactly what you are looking for and can begin making a fair assessment on the position’s salary.

2. Do your Market Research

When you have finalized your internal job requirements, you must do your research. Look out to the market and chose a relevant data source to compare the salary for your business. You can gain compensation data from a variety of sources including survey data, HR-reported aggregate market data or even employee-reported data. It is important to assess which type of data is the best fit for your business and the position you are looking to recruit for. Furthermore, if the position is highly specialised or a hot job in your local market, you may want to look at supplemental data sources to gain an accurately assessed price of the job.

3. Make a Match

Now, you can compare the jobs and job descriptions in your market data to your internal job description and try to pick out the similarities. This will help you define which benchmark jobs are a close match to help you pick an effective salary benchmark.

In this step, you will want to cover jobs, industries, geographic areas and company sizes. Make sure that your direct competitors for talent are among the participants and look for a benchmark job description whose content matches 80% or more of the content of your internal job description – it doesn’t need to be a 100% perfect match. Furthermore, be sure to rely on the job description not the job title to identify your closest benchmark job match as there can be many different job titles for a similar role (i.e. Marketing Executive/Communications Officer). Furthermore, by matching based off the job description such as the skills, duties, and competencies of the jobs at hand, your salary benchmarking process should establish a fair pay range for your internal position, which you can then use to inform the pay of specific employees based on their own skills, competencies, and level of performance.

4. Time to Reality Check

Last but not least, take a look at your market pricing and determine whether there is a big variance between your company’s jobs and what the market is paying for those positions. Glassdoor is a great website which can help you make salary comparisons in your area. If there is a big variance, it is important to take steps to reconcile those against your company’s unique business priorities if you want to reward your employees correctly.

Salary Benchmarking can help you ensure that your pay remains competitive and firmly rooted in the realities of your market when it comes to attracting new talent. As well as this, it can help you correctly reward your current employees to help them feel valued, improve employee experience and thus, motivate and retain your best talent. Many companies have found our Start up Benchmark salary report to be an invaluable tool to map market data to their internal positions for an accurate starting point.

What is more, you can always get in touch with us via email or book a free 15 minute consultation with us if you need any help in setting the salary of your new position or HR advice in general.

Drive Impact GmbH

Zionskirchstraße 38

10119 Berlin


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