What is it?
Salary benchmarking is the process of determining the appropriate compensation level for a particular job based on the value it holds in the external labour market. This process involves comparing similar jobs in the same industry, region, or market to establish a competitive pay range that aligns with the company’s compensation philosophy and financial resources. Salary benchmarking typically takes into account factors like job responsibilities, required skills and experience, education, and industry standards to determine how much an organisation should pay employees in specific roles. The result of Salary benchmarking is the creation of salary ranges or pay scales that can be used to guide hiring decisions, promotions, and overall compensation strategy.
Why is it important?
- Ensures Competitive Compensation: By conducting Salary benchmarking, companies can offer salaries that are competitive in the market, helping to attract and retain top talent. Offering competitive pay is crucial to remaining a desirable employer in a competitive labour market.
- Supports Fair Pay Practices: Salary benchmarking helps organisations ensure that they are compensating employees fairly and equitably for the work they perform, reducing the risk of pay disparities based on gender, race, or other factors.
- Aligns Pay with Job Value: Salary benchmarking helps organisations align compensation with the complexity, responsibility, and required skills of a role, ensuring that more demanding or critical jobs are compensated appropriately.
- Budget Control: Establishing salary ranges through job pricing allows organisations to manage labour costs effectively. It provides clear guidelines for how much to pay for different roles and prevents over- or under-compensation.
- Transparency and Trust: Transparent salary ranges developed through Salary benchmarking promote trust between employees and employers. When employees understand how their pay is determined and that it is based on market standards, they are more likely to feel valued and fairly compensated.
- Assists with Internal Pay Equity: Salary benchmarking ensures that there is internal consistency in pay across the organisation. Employees performing similar work should receive similar compensation, which supports fairness and compliance with pay equity regulations.
