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min read

What is salary benchmarking and why is it important?

Written by
David Whitfield
What is salary benchmarking and why is it important?

If you want to recruit and retain the best people, it’s essential to offer fair and competitive salaries that are in line with the market rate. 

If your salary offer is too low, you’ll lose high-quality candidates. You could also lose your existing talent to your competitors.

 If it’s too high, you’re cutting into your profits and negatively affecting your bottom line. 

That’s where salary benchmarking comes in. 

HR professionals must understand what other organisations pay their people to create the right compensation strategy.

In this blog, we’ll explain the salary benchmarking process and why it’s so critical for HR teams to understand and utilise. 

What is Salary Benchmarking and why is it important? 

Salary benchmarking helps you determine whether the salaries you’re paying your people are competitive.

It involves gathering, evaluating, and analysing various organisations' pay and benefits data to determine your industry's average standards. This includes assessing job descriptions by industry and location, as salaries vary widely throughout the UK.

With access to this data, you can easily compare what you’re offering your people to what your competitors and peers are paying for the same or similar roles. 

You can also keep an eye on the job market and salary trends, track salary ranges and compare similar salary rates to help you set the right pay package for your people.

This will ensure that you’re paying your employees correctly for the role they’re doing.

Without fair pay, your existing employees may also look elsewhere for a role where they’ll be compensated in line with the market rate. 

An effective benchmarking process can help HR teams maintain cost control without sacrificing operational efficiency. Finally, it can help to ensure compliance with UK employment laws.

What are the benefits of Salary Benchmarking?

There are plenty of proven benefits of salary benchmarking.

Let’s look at the top three.

1. It makes sure that you remain competitive

When you use salary and compensation benchmarking, you can better understand the competitive job market to set competitive pay scales within your business. 

Retention right now is an issue no matter the industry. A recent report highlighted that nearly half of all UK employees were considering a career move in 2024.

We know that higher turnover rates can harm productivity, affecting your bottom line as well as adding costs to replace staff. While being paid fairly can help increase employee engagement and motivation, impacting retention. 

Offering the right pay and benefits packages is more essential now than ever, to ensure businesses remain competitive.

2. It helps you achieve pay equity

Salary benchmarking can help you achieve pay equity in your business by ensuring you’re paying equitably across the board. 

This can help mitigate the risk of disparities based on gender, disability, race and other key factors to build an inclusive workplace culture where all your people feel respected and valued. 

By defining a clear pay philosophy, HR teams can ensure alignment with company values. 

To do this, salary benchmarking needs to be a continuous process. Sharing and communicating your pay philosophy with your people (and potential employees) is important. As is educating your management team on the importance of pay equity. 

3. It protects your brand reputation

A brand’s reputation is shaped by many different factors, like products, customer service, integrity etc. A good reputation can help boost sales, customer loyalty and investor confidence. 

In HR, employer brand reputation is just as important. It’s how your company is perceived by your current employees and potential employees. This can include factors like your workplace culture, values, employee experience, and compensation.

An unfair pay compensation strategy can negatively impact your employee brand. 

With the ability to share information online in an instant, it’s no surprise that changing a current or prospective employee’s perception of your organisation can happen - and fast.

Let’s look at gender pay equity.

Businesses with 250 or more employees in the UK need to comply with gender pay gap reporting, which is shared publicly. If your stats aren’t good - it can negatively affect how your current and prospective employees perceive you. And whether they want to continue working with you, or apply for that recent job post. 

How to Conduct a Salary Benchmarking Exercise 

When it comes to how to salary benchmark, you firstly need to find the right data to inform your salary benchmarking process. There are a few different ways to do this - all with their own pros and cons. The most effective way to benchmark your salaries would be to use a healthy mix of each of these sources in order to gather a more robust dataset and ensure that your data is validated. Obviously, this might not be possible for companies that have budgetary pressures, or are a small HR Team. In this case we would recommend that you consider live market data as your primary source – as this gives you the most accurate view of the market at the minute you need the information – ensuring that you can stay on top of the dynamic job market.

Salary surveys

Pros: In-depth analysis, salary levelling, Enterprise level data

Cons: Cost, time to conduct, data submission, out-of-date information 

Consultants carry out annual surveys to collect data about pay ranges.

They approach companies from different industries and aggregate these results to determine typical salaries for different job positions. Businesses can purchase these to assess what they’re paying their employees and compare them with competitors. 

This used to be the primary way HR professionals accessed salary data. And while it’s still credible, it doesn’t offer the data in real time. 

Salaries constantly change, reflecting adjustments in working culture, the job market and the broader economic environment. If you’re using salary surveys, you’re relying on out-of-date data to set your pay strategy. 

They’re also expensive, so they’re out of reach for many small to medium-sized businesses. Plus they’re typically skewed towards large organisations because most of the businesses consultants work with to collect their data are large enterprises.

Employee submitted salary information 

Pros: Free, easy to use and accessible online

Cons: Unreliable data based on self-reporting, no way to verify accuracy, out of date

Many online job sites source pay data from their site visitors. These are existing or previous employees who post anonymously and provide information about their salary, role, location, and industry. 

Sites like Glassdoor, Reed or Indeed use this to create average salaries for roles. This data typically then feeds into a salary checker tool that’s available on their website. 

It’s helpful for job hunters and employees to see how their pay compares to people in similar roles. And it’s also used by organisations as a data source to understand salaries by job role.

But because it’s self-reported data, there isn’t any incentive for accurate reporting. There’s also no consistency in how people report their total compensation package. 

It also shows an average salary per job role, calculated by averaging the salaries submitted to their site. Averages aren’t the best practice for salary benchmarking because they’re skewed by outliers. We always recommend using the median salary.

Finally, the data isn’t current. It’s an average of historical salaries submitted to the job site.

Manually reviewing job board data

Pros: Budget-friendly, in-market data

Cons: Time intensive, difficult to extract and compare data, spreadsheet-heavy 

Some businesses in the UK still rely on manually reviewing job board data for salary benchmarking. 

While it can seem cost-effective, it doesn’t take into account the time it takes HR professionals to spend researching salaries online. 

Verifying the information can also be challenging, depending on where you’re looking for data. 

It can be challenging and time-consuming to extract and compare the data. Because it’s typically saved in spreadsheets, it’s quickly out of date and needs constant updating to ensure pay parity within your business.

Real-time salary benchmarking tools 

Pros: Results in minutes, no expertise required, analyse niche roles and specific locations, real-time market data , cost-friendly

Cons: Hard to benchmark for senior roles,

With advances in technology, we no longer have to rely on annual salary reviews or manual checks.

Instead, digital salary benchmarking tools help HR teams to make data much easier to understand. There are no spreadsheets to format, and you’ll get access to accurate, reliable, relevant and up-to-date data at the click of a button. You can use and export this data to create the right salary bands for your people.

At HR DataHub, our salary benchmarking tool lets you make fair and competitive new hire salary offers and eliminate pay gaps across your business. The data is available in real-time, which means it reflects current market trends and gives you valuable insights. 

You can also filter the data to look for salaries relating to specific roles, levels, locations, industries, company size and more. 

And best of all? It’s easy to use and the data is easy to understand. 

Boost your pay benchmarking with HR DataHub 

Unlike other real-time benchmarking tools, we collect our data from all the live and historical job ad data from across the UK.

To give us the most comprehensive view of the market. 

When you use the HR DataHub platform, you’ll get a view of real-time market trends. You can also drill down into specific skills, locations and even organisations. Which helps you to keep track of the competition and create a competitive salary strategy. 

With the right data at the right time - you can make the right decisions to keep and attract the talent you need for your business’s success.

If you’re ready to find out more, get in touch with our team today.