How to Benchmark Compensation

A: Conducting compensation benchmarking is a critical step in ensuring your company’s pay practices remain competitive and fair. It also doesn’t need to be intimidating and overly technical! 

Here’s a step-by-step guide to get you started:  

1. Define what you’re trying to do: Are you trying to attract top talent, retain your current employees, or align your compensation strategy with industry standards? Having a clear goal will guide your efforts and help you interpret the data you use.  

2. Identify comparable roles: Identify the specific job roles within your organization that you want to benchmark. Don’t focus too much on titles; instead focus on skills and duties, certifications, and years of experience, etc.  

3. Gather all the data: Collect compensation data for these roles from reliable sources such as job postings, industry surveys, websites like salary.com and Payscale, old compensation surveys (the data is not current but can be updated by adding cost of living adjustments — for free!), and government labor statistics. Ensure the data is specific to your city and industry — there’s a big difference between salaries in New York City and Des Moines, and the nonprofit sector and financial services sector.  

4. Interpret the data: Once you’ve collected the data, pull it all together and analyze the ranges. Are you lagging, meeting, or beating the market? Do you need to adjust salaries to stay competitive or address internal pay disparities?  

5. Consider the total package: Remember that compensation isn’t just about salary. Consider other aspects of total rewards, such as benefits, work-life balance, career growth, and company culture. What is that worth at your organization? Are your benefits competitive? 

6. Make a change: Based on your analysis, you might want to adjust salary structures or revise your benefits package. Just make sure your compensation practices comply with all relevant labor laws and regulations in your jurisdiction!  

7. Tell your employees: When you make adjustments to your compensation strategy, make sure you communicate these changes transparently to your employees. They’ll want to know why and how compensation decisions are made, and often make negative assumptions if you don’t explain what went into the decision. 

8. Monitor and review at least annually: Compensation benchmarking is not a one-time task! It’s an ongoing process that should be regularly reviewed and updated to keep your organization competitive in the evolving job market.  

Remember, compensation benchmarking can be a complex process that requires attention to detail and an understanding of your organization’s needs and goals.