Human Resources (HR) knows just how tough it can be to get compensation right. Between keeping your top performers happy, attracting new talent, staying compliant, and managing budgets, pay decisions can seem never-ending and overwhelming. That’s where salary benchmarking comes in.
When done well, salary benchmarking helps you replace guesswork with data-driven clarity. It’s not just a perk. It’s becoming a key part of any competitive compensation strategy. Whether you're building out salary bands, reviewing roles for equity, or adjusting offers in a competitive hiring market, benchmarking provides the “real world” data you need to make smarter, fairer, and more strategic decisions.
Let’s talk more about salary benchmarking and how trusted partners like OutSolve can help. Here are three key takeaways you’ll learn in this article:
- What is salary benchmarking and why it’s important
- Salary benchmarking versus compensation benchmarking
- Common challenges for HR when handling the salary benchmarking process
What Is Salary Benchmarking?
Simply put, salary benchmarking is the process of comparing your company’s pay rates for specific roles with the prevailing wages in the market. The goal? To make sure that your compensation aligns with what other companies are offering for similar roles.
This isn’t about making wild guesses or relying on hearsay. Salary benchmarking depends on industry specific salary surveys, compensation databases, and sometimes third-party consultants to gather accurate and current market data.
By comparing internal compensation and salary data with external benchmarks, HR can adjust salaries to reflect factors, such as:
- Job role and responsibilities
- Industry and company size
- Geographic location
- Experience and education levels
This helps ensure that your compensation isn’t just internally equitable, but that it’s externally competitive.
Salary Benchmarking vs. Compensation Benchmarking
You may hear these terms used interchangeably, but there's a subtle distinction:
- Salary benchmarking focuses specifically on base pay and sometimes bonuses.
- Compensation benchmarking is broader, including total rewards, such as benefits, equity, incentives, and other related perks.
Both are critical, but salary benchmarking often serves as the first step before expanding to build a compensation strategy that keeps employees happy.
Why Salary Benchmarking Matters
In today’s tight labor market, competitive pay isn’t optional. It’s essential. Here’s why salary benchmarking is crucial to get right and should be done on an annual basis to ensure market alignment.
- Supports a Competitive Compensation Strategy: Benchmarking gives you a clear picture of where your pay stands in the market. That knowledge allows you to stay competitive without overspending and keeping the company’s budget intact. It helps you confidently answer the question: “Are we paying fairly for this role?”
- Attracts and Retains Top Talent: Job seekers today are savvy. They often walk into interviews with a strong understanding of market pay rates. If your offer is off by too much, either too low or unrealistically high, it could raise red flags. Benchmarking helps you develop offers that appeal to top talent without breaking the bank.
- Reduces Turnover and Guesswork: Turnover is expensive. One of the leading causes? Compensation dissatisfaction. Salary benchmarking reduces turnover by helping you identify and fix pay disparities before it leads to disengagement or resignations.
- Aligns with Pay Transparency Initiatives: As more states and cities roll out pay transparency laws, salary benchmarking becomes your best ally in communicating ranges with confidence. It also makes sure that your public job postings and internal salary bands are backed by solid market data and not “guesstimates.”
- Strengthens Legal Defensibility and Compliance: An increased focus on pay equity laws means that HR must be able to justify compensation decisions. Benchmarking gives you a data-backed defense for how salaries are set, especially in audits or discrimination claims.
The Salary Benchmarking Process
So, how does salary benchmarking work in practice? Here’s a step-by-step look at how most HR teams tackle it and how you can take similar actions steps at your company:
- Identify the Roles to Benchmark: Start with your most common, critical, or high-turnover roles. Focus on positions where you’ve had hiring challenges or suspect pay discrepancies. Solicit input from management and other key players.
- Gather Accurate Market Data: Use trusted salary benchmarking tools, industry surveys, or specialized salary benchmarking companies. Accuracy is key, so outdated or generic data can lead you down the wrong path. Sources may include national and regional salary surveys, peer organizations (in aggregated form), and compensation software platforms with real-time data. OutSolve uses companies like ERI and salary.com when conducting benchmarking.
- Analyze the Data Against Your Current Structure: Compare market medians, percentiles, and ranges to your internal salary levels. Look for roles where your pay lags or pay that exceeds the market significantly.
- Adjust Pay Ranges or Strategy: Based on your analysis, you might take action such as adjusting starting salaries or midpoints, reclassifying roles, or redesigning pay bands.
This is where data turns into action. It’s also where many HR teams hit a wall, especially without guidance.
- Use Insights to Inform Future Decisions:
Benchmarking isn’t a one-time event. It's about building a long-term strategy and not just fixing gaps. Use your findings to inform and assist with:
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- Annual compensation reviews
Common Challenges with Do-it-Yourself Benchmarking
Salary benchmarking can be eye opening, but it’s also time consuming. When done poorly, it can even be misleading, leading to poor and inaccurate pay decisions that can cause issues down the road. Here are common pitfalls HR teams may face:
- Outdated or Unreliable Data: Free online salary info may lack accuracy or relevance to your industry or location.
- Misalignment with Job Titles: A “Marketing Manager” in one company could mean something very different elsewhere. If you benchmark based on titles alone, you risk significant inaccuracies.
- Ignoring Geographic or Skill Factors: Roles in San Francisco, CA don’t pay the same as those in Des Moines, IA. Likewise, years of experience and certifications can shift benchmarks significantly.
- Difficulty Translating Data into Strategy: Even with excellent data, applying it to your specific compensation philosophy and business context takes some expertise.
This is why many organizations turn to third-party partners for support.
How OutSolve Supports Salary Benchmarking
Here at OutSolve, we specialize in helping HR teams like yours make salary benchmarking not just easier, but more strategic. Here’s what we bring to the table:
High-Quality Market Data
We provide access to reliable salary surveys and compensation databases that you won’t find in public sources. Our data is updated regularly and segmented by industry, region, company size, and more.
Custom Benchmarking for Your Organization
One size fits all data doesn’t work for salary benchmarking. We offer tailored benchmarking by job title, industry vertical, and geographic location, making sure that the insights match your unique business and talent landscape.
Integrated Pay Equity and Strategy Support
Benchmarking is most powerful when it feeds into broader initiatives like pay equity analysis, compensation philosophy development, and diversity initiatives. Our experts connect the dots to help you build a pay strategy that’s fair, compliant, and aligned with your values.
Tools + Guidance
We don’t just hand over the data and leave you on your own. OutSolve provides professional, experienced consultants help you interpret the data and take strategic action.
What Salary Benchmarking Means for Your Organization
Salary benchmarking is not a “behind the scenes” exercise. It’s a critical business function that allows HR to:
- Make informed, strategic pay decisions
- Stay competitive and strengthen recruiting and retention
- Drive pay transparency and equity
- Stay ahead of compliance requirements
Whether you’re just starting to benchmark or looking to upgrade your process, OutSolve is here to help. Our data, tools, and expert support make it easy to turn benchmarking into a valuable asset for your HR strategy.
Take our quick Compensation Quiz to see where your compensation strategy could use a boost. Connect with our compensation experts today.