Did you know that, on average, there were more than 11 million job listings publicly available throughout the whole year of 2022?
And, with 80% of all job searches done online, it’s never been easier for applicants to quickly find good job opportunities.
Statistically, these numbers tell you that today’s employment market is highly competitive.
So, as an employer, in order to contend for candidates against so many job options, your job offers have to stand out.
But with job-seeking platforms like LinkedIn, Glassdoor, and Indeed giving applicants access to what might as well be infinite open positions, how can you make sure that yours aren’t overlooked?
Here at Combined, our team of HR experts has provided many employers, just like you, with tried-and-true, best employment practices. We are determined to help you defeat the high modern-day hiring odds when developing your dream team.
In this article, we will explore salary benchmarking as a best practice and discuss how using it can help your business stand out in today’s competitive job environment.
By reading it, you will understand 5 ways that salary benchmarking can benefit your business.
What is salary benchmarking?
Salary Benchmarking is a way to determine that your employees are paid fairly and equitably for the work they perform. It is the process of comparing your company's job descriptions and pay ranges to those from other similar organizations in your industry.
By analyzing your internal job positions against pay data from comparable external roles, you can better understand and select suitable current market salaries for them.
Think of it like price-matching a purchase – When you are shopping for a product, you want to purchase it at the right price. So, you go directly to google, research the product, and compare different competitors’ prices. By the time you enter a store and swipe your credit card, you already know that the receipt you’ll leave with will reflect a fair market price for the product.
Salary benchmarking works along these same lines.
Whether you’re trying to hire a new employee or evaluating a current employee’s salary, it is important that you offer a fair wage. By comparing your internal job description to similar external roles, you can be certain that you do just that.
Factors to consider when salary benchmarking
Unlike price-matching a purchase based solely on competing costs, salary benchmarking requires explanation – you have to be able to reason why a pay rate is fair for a particular position.
While comparing market data to determine compensation, you have to account for many work-related factors including:
- Industry standards
- Company size and location
- Market demand for the position
- Employee education, experience, and qualifications
- Role requirements and responsibilities
Using these benchmarking factors will enable you to assign fair and equitable work wages.
And offering fair and equitable work wages to employees can bolster the success of your business.
5 ways salary benchmarking can benefit your business
Here are the top 5 benefits of effective salary benchmarking.
1. You’ll be able to attract and retain a capable workforce
Let’s circle back to the fact that applicants and employees alike have immediate access to millions of job listings. With new job opportunities just a click of the mouse away, it’s crucial that you offer employees fair pay. Otherwise, that convenient click could quickly turn into employee turnover.
In fact, 63% of employees who leave their jobs cite unfair compensation as their top reason for pursuing a new work opportunity. This means that, as they scroll job advertisements, they are looking to apply for a job with a salary that matches the market standard for the work they do.
If you use salary benchmarking to determine and offer fair pay, then yours will more likely be the job listing they land on. In other words, salary benchmarking will allow you to competitively recruit capable employees.
And is there a staggering statistic for the number of employees that left their job because they were paid too fairly? Of course not! So, establishing a fair and equitable pay range won’t just help you hire capable employees, but it will also ensure that you retain them.
2. You’ll build trust with pay transparency
Remember the salary benchmarking factors to consider when determining fair pay?
- Industry standards
- Company size and location
- Market demand for the position
- Employee education, experience, and qualifications
- Role requirements and responsibilities
Accounting for and communicating these factors when posting salaries establishes pay transparency. Your employees will not only know what they are being paid, but they will understand why that number equates with the work they do.
They will also know that you put in the benchmarking work to guarantee that they are paid fairly for theirs.
With this in mind, salary benchmarking can help you build trust with your employees. And trust, especially concerning wage allocation, is critical to a healthy employer-to-employee relationship.
3. You’ll have increased internal wage equity
No employee wants to work day in and day out only to find that the less experienced coworker in the cubicle directly next to theirs is making more money for the same amount of work.
Salary benchmarking can help you use market data to create a compensation standard for comparable roles. In line with pay transparency, this standard will promote an internal understanding of why a specific role makes a specific amount.
By doing this, your employees won’t have to question whether they are being paid equitably for their work. (Plus, you’ll prevent the imminent breakroom fight between cubicle mates over a dollar disparity).
4. You’ll prevent pay gaps and avoid the compliance consequences of them
Salary benchmarking is a continuous process that requires compensation to be adjusted routinely to meet market standards.
This means that, if you effectively benchmark your pay rates, you will be privy to all salary information on a regular basis.
And, with this awareness, comes pay gap prevention. Because salary benchmarking requires consistent monitoring, you’ll be able to steer clear of any unintentional wage bias.
In doing so, you avoid facing noncompliance fees, fines, and damages for salary discrimination.
5. You’ll be able to manage labor costs effectively
The cost of labor is, likely your largest expense. But how large is it? If you can’t answer this question, it’s impossible to budget appropriately for workforce compensation. And, as your business grows, this becomes exceedingly important.
Just by knowing the market rate for roles within your company, you’ll have insight into exactly how much labor will cost.
With this insight, you’ll be able to budget resources for employee compensation accordingly.
Next steps to benefitting from salary benchmarking
If you are here, you know how competitive today’s employment environment is. And, naturally, you want to build your business with the best possible employees.
By reading this article, you learned that effectively utilizing salary benchmarking to offer competitive wages is a great way to do this.
And with added benefits including –
- Recruitment and retention
- Pay transparency and employee trust
- Internal wage equity and understanding
- Pay gap and penalty prevention
- Workforce cost management
– It may be time to consider implementing salary benchmarking into your business practices.
Here at Combined, our skilled HR team can help you establish a healthy compensation strategy with an effective salary benchmarking system in place.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
