Salary Benchmarking: Guide for Employers

salary benchmarking

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Unless you have worked in HR or recruitment, you may not have heard about salary benchmarking, yet this is an important tactic that can be used by employers to benefit their business, not least when it comes to boosting recruitment and retention rates.

The following guide for employers looks at what salary benchmarking is and the benefits that this can bring to your business. We also look at how to carry out the process of salary benchmarking, together with some best practice tips when implementing this process, as well as some of the other measures to help attract and retain top talent.

 

What is salary benchmarking?

The expression ‘salary benchmarking’ refers to a process in which employers evaluate and compare an organisation’s pay and reward packages for its staff. Information is gathered on the salary and benefits offered by a number of different organisations within the same industry sector to establish the average industry wage standard for that particular sector.

This data can be used by a business to identify job market trends and track set salary ranges. However, the primary aim is often to use this data to compare the existing packages on offer in the employer’s business against those currently being offered for the same or similar role by any competitors. This information is then used to calculate the average salary for specific roles within an organisation, typically in the form of a quartile pay range, and to determine a fair and competitive remuneration package for employees.

The net effect of establishing and evaluating this data could be for employers to offer a workforce wide pay increase for existing members of staff, or individual pay increases depending on the different trends identified. It could also be used to determine the appropriate pay and reward packages to offer in the context of any recruitment drive.

 

What are the benefits of salary benchmarking?

Being able to track changing trends in pay and reward packages within certain industry sectors can provide useful insight to help an employer better understand the competitive job market, where there are a number of benefits to salary benchmarking, including:

 

Improved retention rates

One of the major issues facing many UK businesses is employee retention, where high rates of employee turnover can seriously impact productivity and significantly lower workforce morale. This means that investing in the right salary and benefits package for employees has never been more important for employers to help retain their existing workforce.

Salary benchmarking can represent an important part of managing the people part of a business to ensure that employees fall within the correct salary range and are being paid fairly for the job role that they are being employed to do. By comparing similar salary rates and benchmarking pay for your company against direct competitors or the wider market, you can ensure that your pay packages are competitive and continue to remain so.

By offering competitive pay packages, this can help to increase retention rates within a company making it much harder for staff to poach. If employees are lost to competitors because those companies are offering better salaries and benefits, the loss to the employer can be significant, from disruption to daily operations and business continuity to the cost of recruitment, onboarding and training a suitable replacement. In some cases, this may be because of the loss of a senior executive or key member of staff, where the loss of valuable talent and organisational knowledge can have a huge impact, especially on smaller businesses. However, adverse costs consequences can also flow from the loss of even junior members of staff, especially if sufficient numbers are leaving to work elsewhere.

Although employee dissatisfaction and turnover are affected by many different variables, none are more consistently relevant than salary. This means that if your business is not offering an industry standard salary, or better, then this leaves your employees at risk of being tempted away to a competitor with the promise of increased pay.

 

Improved recruitment rates

In the same way that a competitive pay package can help to retain top talent and other employees in general, up-to-date salary benchmarking can help your organisation stand out from the competition when it comes to recruitment. This means that the process of conducting salary benchmarking will allow you to offer fair and competitive salaries to prospective employees which can act as the unique selling point (USP) for your company.

By appropriately setting salary ranges or grades, this will inevitably make it easier to attract skilled and experienced professionals who are comparing job offers. Indeed, the most sought after candidates will either be looking to better their existing salary and benefits, or will be well aware of what the going rate is for a particular job role and which pay packages represent the most attractive proposition. Very often these days, with high vacancy rates and upward pressure on wages, it is less about the employer having their pick from a wide selection pool, but rather the prospective employee being able to choose.

In HR terms, it is therefore essential to compare the pay and benefits on offer against those offered by competitors, using a like for like approach, where this process can go a long way to preventing the loss of ideal candidates to competitors offering better pay packages.

 

Improved employee engagement

In addition to the benefits around recruitment and retention, salary benchmarking, if used effectively, can also help to significantly improve employee engagement. For employers who keep a constant and careful eye on changing trends in pay and reward packages, and make appropriate increases in the salary and benefits of their employees to reflect these changes, this will often lead to increased performance and productivity across the board.

By providing employees with competitive pay increases is a clear way of showing the value of those that work for you. After all, it is the people that work for your business that often represent your most valuable asset, where it is important to caretake and nurture these individuals to get the best out of them. By ensuring that you are paying employees consistently and fairly in comparison to the industry they work in, or even more generously if your business can afford it, this will go a long way to motivating your workforce.

This system of reward through competitive pay packages, that can only truly work based on up-to-date industry data, can be one of the most effective ways of creating hard-working and loyal staff who are invested in the success of the business, because everyone benefits.

 

Additional benefits to salary benchmarking

The benefits that an employer may get from salary benchmarking are not limited to keeping employees happy, where this data can be used to have a wider positive impact on a business. This can include maintaining cost control without sacrificing operational efficiency and keeping stakeholders up-to-date with the latest industry salary trends.

Salary benchmarking allows for a direct comparison between your pay and benefits packages alongside your competitors. This offers you the chance to adapt your salary ranges and offer, according to market demand and current trends. It also allows you to identify areas where competition might be outperforming your organisation and vice-versa. In many cases, this data can be used to inform decisions moving forward, whether this be in terms of growth or cut-backs, or to provide reassurance that you are where you need to be.

Additionally, even if your business is unable to facilitate an immediate pay rise at any given time, where one is needed, there may be other ways to help attract and retain employees. This data can therefore be used to inform more flexible HR strategies.

 

How should salary benchmarking be carried out?

The purpose of salary benchmarking is to allow an employer to identify, track and compare similar salary rates to determine the pay package for its workforce. However, there are a number of ways in which this can be done. For example, you will find information on salary benchmarking and simple tools to collect salary data on job search sites. Some recruitment companies can have access to salary information from hundreds of employers, where generic information on pay according to industry and location can be easily found.

There are also a range of salary benchmarking tools available online. However, for a more detailed and accurate analysis, you should consider commissioning a salary benchmarking report from a specialised provider. Using the latest software tools designed to simplify the salary benchmarking process, and accessing data from thousands of employers and job roles from all around the UK, an outsourced report should provide you with a detailed and customised illustration specific to your business and compared to your competitors.

The results from these types of reports will typically provide you with a breakdown of the data available, and can be listed in various different ways, such as according to job role, geographic location and experience levels. You can also opt for different types of salary benchmarking reports. For example, when covering lower level positions, a simple salary benchmarking survey can help to highlight the difference between employee pay grades. These surveys vary in approach, usually drawing data from a specific industry or role.

In contrast, it can be best to opt for a specialised executive salary benchmarking service for more senior and executive roles, one that will help to break down the additional benefits offered to these types of employees. This more in-depth report can provide invaluable insight into the different elements of the pay and benefits packages for more senior members of staff, giving organisations a much clearer understanding of what other executives and directors are being offered in addition to their standard pay.

 

What best practice advice should be followed for salary benchmarking?

There is no right or wrong approach when it comes to salary benchmarking, although obtaining accurate data that truly reflects the industry standard is key. If the data is incorrect, then the benchmarking process will be wholly ineffective and futile.

It is therefore important to only use reliable sources of data or to secure an outsourced professional benchmarking report. It is also important to opt for the right level of report to gain sufficient insight into what other companies are paying or providing for their staff. Finally, you should ensure that this exercise is not simply a box-ticking exercise, but rather that the data obtained is applied in practice in some effective and useful way.

 

Is salary benchmarking the best way to attract and retain staff?

Salary benchmarking represents one of the most effective ways to attract and retain staff, by using the data collected to determine a competitive pay package for both existing and prospective employees. However, given that the modern day employee is typically looking for more than just money, there are various other measures that can be implemented by employers to help boost retention and recruitment rates for their business, including:

  • Flexible working: opportunities for flexible working can provide a powerful incentive for employees to select or stay with an employer. This is because flexible working can offer an improved work-life balance, with the ability for employees to juggle professional and personal commitments. By being open to different kinds of flexible working arrangements, this can be an extremely effective way for an employer to attract and retain valuable members of staff. This could include different start and finish times, compressed hours for longer weekends, as well as remote or hybrid-working.
  • Career progression: maximising the opportunities for employees to develop their skills and progress their careers can also go a long way to keeping employees engaged and committed. This is because they will feel confident that their future aspirations are taken seriously by their employer, and that their contribution to the business is valued. If promotions are not readily available, you could consider sideway moves that allow employees to gain different job role and development experiences to help in the future.
  • Enhanced leave benefits: by providing employees with increased annual leave entitlement, paid parental leave and paid wellbeing days, these can often compensate for the lack of any pay rise. This is because time off work can represent a very valuable commodity to most employees, regardless of seniority. It is these types of benefits that prospective employees will be keen to identify when looking to work somewhere new and which existing employees will be reluctant to give up to work elsewhere.

This list is not exhaustive, where companies must adapt their HR strategies to find and retain the talent needed to help their business stay competitive. Pay is not always the most important factor when it comes to employee recruitment and retention, but it is important that employers pay their staff a competitive rate for the work done in the context of the industry sector in question. By regularly evaluating and adjusting salaries based on recent data, this will help employers to stay current based on the latest market standards for pay.

 

Need assistance?

For expert advice on taking a strategic approach to salary and remuneration, including exercises such as salary benchmarking, contact us.

 

Salary benchmarking FAQs

What is salary benchmarking?

Salary benchmarking is a process in which information is gathered on the salary and benefits offered by a number of different organisations within the same industry sector to establish the average industry wage standard for that particular sector.

Why do employers use salary benchmarking?

There are a number of benefits for employers when using salary benchmarking, including being able to identify job market trends and track salary ranges, using this data to offer competitive pay packages to help attract and retain top talent.

Last updated: 4 March 2024

Author

Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.

She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.

Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals

About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility.

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners, we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

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