How to Do Salary Benchmarking the Right Way
Employees want to feel confident that they’re being paid fairly—but defining a “fair” salary range is rarely straightforward. HR leaders must weigh internal equity, budget realities, and labor market expectations. Set your salary ranges too low, and you risk losing top talent. Aim too high, and you may overspend on payroll—often your largest budget line item.
That’s why salary benchmarking is critical. This guide explains how to do salary benchmarking effectively, step-by-step, and how to use the results to strengthen your compensation strategy.
Key Takeaways
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Salary benchmarking aligns internal pay with external market standards.
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Accurate job descriptions are essential for effective benchmarking.
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Use multiple, aged data sources to smooth market volatility.
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Apply your compensation philosophy when setting salary ranges.
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Benchmarking helps maintain internal equity and external competitiveness.
What Is Salary Benchmarking?
Salary benchmarking is the process of comparing internal job roles to similar positions in the market to establish competitive salary ranges. It considers industry, company size, and geography to ensure your pay is aligned with what comparable organizations offer.
Handled by HR business partners or compensation analysts, salary benchmarking helps determine the “just right” pay—ensuring roles are neither underpaid nor overpaid.
Why Salary Benchmarking Matters
1. Attract and Retain Talent
Benchmarking allows your organization to offer market-competitive salaries, making it easier to attract top candidates and retain high performers.
2. Ensure Internal Equity
By aligning similar roles with consistent benchmarks, organizations identify pay gaps and fix disparities, preventing dissatisfaction and risk of legal claims.
3. Drive Engagement and Motivation
Employees who feel fairly compensated are more engaged and loyal. Salary benchmarking boosts morale by reinforcing fairness and transparency.
How To Do Salary Benchmarking In 2023
Salary benchmarking processes vary depending on who makes the request for the benchmark. In this example, I’ll share as if a manager has requested a new or updated salary range for a specific job.
Step 1: Analyze the Role
Start with a current job description. If unavailable, conduct a job analysis using a structured questionnaire. Document:
- Role summary and key duties
- Education and skill requirements
- Exemption status (conduct an FLSA analysis if needed)
- Location and supervisory status
HR and managers should collaborate to ensure role accuracy. Use your HRIS to store and track this data for future updates.
Step 2: Collect Market Data
Use reliable sources like:
Pull data from organizations similar in size, industry, and geography. Consider averaging two years of data and aging it using ERI’s Structure Growth Percent for accuracy.
Pro tip: Validate the data. Not all participants contribute every year, and outliers can skew results.
3. Define the correct salary range using your organization’s compensation philosophy.
With the data you’ve gathered, set the midpoint of your salary range. Will you pay at the 50th percentile for this job? 40th? 60th? Can you quantify why?
Your company’s compensation philosophy is an important guide in this step. At MorganHR, we work with clients to set their target percentile for their salary ranges. When the ranges are set, we review whether any employees fall outside of the range for their job, so HR and leadership can address how they’ll approach these disparities.
If you don’t have a compensation philosophy, we can help. Some of our clients come to us with outdated or nonexistent compensation philosophies; we partner with them to develop philosophies that will help them set salaries that are reasonable yet still attract and retain qualified talent.
4. Compare this job to its peers.
Using salary benchmarking tools and data from Radford, Mercer, and other data sources, match your jobs to the data source’s benchmark jobs using your jobs’ job descriptions. As part of your comparison, consider the role’s:
- Key Responsibilities
- Knowledge requirements
- Complexity
- Requirements for problem solving
- Level of collaboration and interaction
- Level of risk in the event of a job-related error
When settling on a salary, I wouldn’t recommend straying too far from the market unless you have reasons to do so, like retention or attraction issues. Some organizations may not need to pay at the market if the total rewards packages are sufficient or if they are well-known organizations. At MorganHR, we prefer to incorporate two years of data into resulting ranges aged to the same date. This helps mitigate the effects of significant fluctuations in the market, large participating companies participating every other year, and other data that might skew results.
5. Adjust and communicate.
After you have obtained the appropriate market midpoint for your job, now you must create the range. Some organizations that use the 50th percentile for the midpoint like to use the 25th percentile for the minimum and the 75th percentile for the maximum. However, oftentimes the 25th and 75th percentiles are not equally spaced from the 50th percentile. Other organizations prefer to have cleaner ranges and use range spread calculations to create ranges where the midpoint is truly the midpoint of the range. You can also create a pay level chart that groups similar midpoint values into a single range. This can help address pay equity concerns as well as can help reduce the total number of ranges with which your HR team has to contend. If you would like to learn more about how we do that at MorganHR, please reach out!
Once you have benchmarked the job to the market and have your final resultant pay range, deliver the range back to the hiring manager or supervisor. Additionally, make necessary adjustments to compensation packages, if needed, and communicate any changes clearly to your employees if your organization focuses on transparency. Be sure to communicate in a way that the receiver can easily understand to avoid confusion. Finally, track this info in your HRIS or other system you’re using for data storage.
6. Review regularly.
Salary benchmarking shouldn’t be a one-time process. Conduct benchmarking regularly (and note the date of each exercise) to stay aligned with market trends and changes in your organization. Schedule annual or bi-annual reviews to ensure your compensation practices remain competitive.
Attract (and keep!) talented employees with salary benchmarking from MorganHR.
Salary benchmarking plays a crucial role in designing competitive compensation packages and ensuring fairness within organizations. In my work with clients, I’ve seen firsthand the positive impact salary benchmarking has on how employees feel about the fairness of their pay.
But it takes effort to get there—and most HR teams don’t have the time, resources, or experience to do salary benchmarking on their own. That’s where we come in.
If you’re struggling to figure out how to salary benchmark your jobs, contact us at MorganHR. Our team of experts will take on the compensation benchmarking process for you, relieving your team of the burdens of benchmarking all jobs, updating philosophies, and communicating the changes with everyone from the C-suite to new hires. We have 30 years of experience in compensation consulting, and we’d love to serve you next. Schedule a call with us to get started today.
