What is salary benchmarking, and why is it important?

Salary benchmarking is the process of comparing your company’s pay against reliable market data to ensure compensation remains fair and competitive. It keeps your pay rates in line with market averages to help you attract and keep hold of your best talent. 

But without the right processes in place, benchmarking can be difficult, costly and labour-intensive. This blog shows you the best way to benchmark salaries reliably, quickly and without busting your budget.

What is Salary Benchmarking?

Salary benchmarking – also known as compensation benchmarking – is the process of comparing your organisation’s pay and benefits to salary data gathered from other companies. It makes sure your salaries remain fair, competitive, and aligned with industry standards.

Salary benchmarking involves gathering, evaluating and analysing market salary data to establish average pay levels for each role. This information is used to identify typical salary ranges, including medians and quartiles, which reflect how roles are valued across industries, levels of seniority and regions. It’s important to assess job descriptions by industry and geographic location, as salaries can vary by sector and differ widely in different parts of the UK. 

Once you’ve collated data, compare your pay with competitors and track trends to stay in sync with the market. Paying below the going rate risks disengagement and turnover, while overpaying can waste budget and create an unbalanced structure that’s difficult to maintain.

Beyond helping you attract and retain top talent, effective pay benchmarking helps HR teams get a grip on costs without sacrificing operational efficiency. Finally, it keeps you on the right side of compliance with pay transparency and the UK’s latest employment laws.

Why is Salary Benchmarking Important?

Salary benchmarking is important because it helps companies set fair and competitive compensation based on accurate data. It confirms that existing employee salaries are meeting job market trends and helps organisations attract talent in a competitive job market.  

Here are the main benefits of salary benchmarking:

1. Boost Your Employee Retention

Fair and competitive pay is one of the strongest drivers of job satisfaction – research shows 82% of employees consider it critical in their decision to stay with their current employer. 

Salary benchmarking helps you set comparative pay rates within your industry, so you retain staff and avoid the high costs of turnover, recruitment and lost productivity. Beyond cost savings, competitive pay also improves morale and boosts employee engagement, reducing dissatisfaction and making staff more motivated and loyal.

2. Drive Your Recruitment

Salary is one of the biggest factors in career decisions – 66% of employees say it drives their decision to look for a new role. Salary benchmarking makes sure your job adverts offer packages that match market expectations, catch the eye of well-qualified prospective candidates and persuade them to apply. 

By setting the right pay and mix of compensation, you strengthen your talent acquisition strategy, build stronger applicant pools, and avoid the time and cost of drawn-out recruitment campaigns.

3. Achieve Pay Equity

Salary benchmarking helps you achieve pay equity by making sure all your employees are rewarded fairly. It cuts the risk of unintentional pay disparities based on gender, disability, race and other factors, creating a level playing field where everyone feels equally respected and valued.

Beyond building an inclusive workplace culture, benchmarking also supports pay transparency and helps you meet obligations such as the UK’s gender pay gap reporting or ethnicity pay gap reporting.

Pay equity only works if salary benchmarking is run regularly and market changes are reflected in salary reviews. To bring your pay philosophy to life, educate management on the importance of pay equity, and clearly communicate your compensation philosophy to your employees.

4. Protect Your Brand Reputation

Reputation is one of your most valuable assets – it drives customer loyalty, supports sales, and builds investor confidence. But brand perception also depends on being seen as a good employer. If employees enjoy your work environment and feel valued and fairly rewarded, they become strong brand ambassadors; if not, word spreads quickly. 

Gender pay equity is a clear example where reputation matters. UK businesses with over 250 employees must publish annual gender pay gap reports, and poor pay gap stats can harm your image with job applicants, customers, and employees alike. 

Salary benchmarking helps you reduce pay gaps, reinforce transparency and protect your employer brand so that stakeholders trust in your integrity as well as your performance. 

5. Avoid Overpaying

Overpaying can prove just as problematic as underpaying. Without accurate pay benchmarking, salaries can creep higher than market averages – for example, when long-serving staff negotiate increases or when demands are made inconsistently across teams.

But overpayment can cause inequity, distort pay structures and inflate payroll costs. For organisations working to tight margins or undergoing rapid growth, this extra burden can damage profitability and make your business less resilient in the face of economic downturns.

Salary benchmarking provides the wider market perspective you need to keep payroll costs under control, support operational efficiency, and maintain a fair, sustainable compensation strategy.

How to Benchmark Salaries (Step-by-Step)

1. Define Your Goals and Roles

The first step to conduct salary benchmarking is to be clear on your objectives. 

Are you benchmarking to:

• Attract talent?
• Retain staff?
• Control costs?
• Meet compliance requirements? 

Next, define the roles and scope of your benchmarking. Map out job titles, responsibilities, and pay ranges across your organisation, from entry-level to senior roles. Create or update job descriptions to ensure they can be matched accurately against the market. 

Finally, factor in company size, sector, location, and growth plans so your benchmarking reflects both your current structure and your future needs.

2. Collect Salary Data

Once you’ve defined your roles, the next step is gathering market data to compare against. The key is quality: outdated or self-reported figures can distort results, so focus on reliable, up-to-date data that matches your industry, company size and location.

Traditional sources such as salary surveys and industry reports can provide useful benchmarks, but they may be costly and slow to update. Free options like job boards and networking sites are easy to access but often less reliable and consistent. A faster, more accurate alternative is a real-time benchmarking platform like HR DataHub, which aggregates daily data from thousands of job postings across the UK.

We explore the strengths and weaknesses of different tools in more detail in our salary benchmarking tools section, but whatever source you choose, make sure it meets basic quality criteria before using it to shape pay decisions.

3. Analyse and Compare Your Data

Once you’ve gathered reliable data, start by creating market salary bands for each role. Define the minimum and maximum pay levels and calculate benchmarks such as the median (p50) and upper quartile (p75), which are commonly used to set salary ranges.

Compare your internal pay ranges against the market. For example, if the market median for a Senior Product Manager in London is £80,000 and the p75 is £90,000, you might adjust your midpoint to £80,000 and set a pay band of £75,000–£90,000. This gives you a fair, competitive range while leaving headroom for bonuses and progression.

Finally, document your assumptions and criteria so that future reviews are consistent and transparent. This makes it easier to explain decisions to managers and employees and to demonstrate fairness.

4. Implement and Communicate Pay Changes

Salary benchmarking only adds value if the results are acted on and shared clearly. Use your findings as evidence in pay conversations with managers and employees, showing how salary ranges were set and why they are competitive for your industry, company size, and location.

Be transparent about when and how benchmarking was carried out so colleagues trust the process and understand its recency and methodology. Communicating openly builds confidence in your compensation strategy and demonstrates a commitment to fairness.

Finally, make benchmarking a recurring process, not a one-off exercise. Reviewing salary data regularly ensures your pay structure keeps pace with market shifts, supports compliance with pay transparency rules, and provides a consistent framework for promotions and salary increases.

5. Review regularly

Effective salary benchmarking is more than a one-off exercise. Pay trends shift quickly, especially in competitive or fast-moving sectors such as tech, professional services, and life sciences, so benchmarking needs to be built into your ongoing compensation cycle.

Most organisations review salary data at least annually, while those in high-growth industries or competitive markets may benchmark every six months. Regular reviews ensure your pay ranges stay aligned with market medians and quartiles, support compliance with equal pay and transparency regulations, and help you respond quickly to external pressures like inflation or skills shortages.

Linking salary benchmarking to pay strategy

Salary benchmarking doesn’t just confirm whether your pay is competitive; it also shapes your wider pay strategy. Once you know how your salaries compare to market medians and quartiles, you can decide whether to match the market (50th percentile), lead it (75th percentile), or lag behind, depending on your goals and budget.

This positioning affects not only base pay but also your approach to total rewards like bonuses and benefits. For a deeper dive, see our guide: How to Build a Pay Strategy.
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Salary Benchmarking Tools: What are Your Options?

Reliable salary benchmarking depends on access to accurate, up-to-date compensation data. There are several ways to source this information – from traditional surveys to job board insights and salary benchmarking platforms – each with its own strengths and limitations.

The right tools should give you both breadth and reliability, but gathering data can also be time-consuming and expensive, especially for smaller HR teams. Below, I break down the main options and their pros and cons.

Salary Surveys

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Pros: In-depth analysis, consistent job levelling, enterprise-level datasets
Cons: Costly, time-consuming, requires data submission, often lags behind real-time market shifts

For years, salary surveys have been the traditional go-to for HR and reward professionals. Published annually by consultants, they aggregate data from hundreds or even thousands of companies to define typical pay ranges across roles, industries and geographies. Their biggest strength lies in the depth and consistency of analysis, particularly for large organisations or senior roles where reliable benchmarks are harder to find.

But there are significant drawbacks. Because surveys take months to compile, by the time results are published, the data is often already stale, especially in today’s fast-moving market. They also come with a hefty price tag and ask for manual and time-intensive data submissions in return. And since the datasets are weighted toward larger enterprises, results can skew away from what’s realistic for SMEs.

Employee Submitted Salary Information

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Pros: Cost-free, easy to access online, offers a quick pulse check

Cons: Based on self-reported, unverifiable data, data often outdated or incomplete, skewed by outliers and inconsistent reporting

Many job sites collect crowdsourced salary data from current or former employees who anonymously submit their pay, role, location and industry details. Platforms like Glassdoor, Reed and Indeed aggregate these inputs to produce average salary insights that are freely available online. For job seekers, these tools can be a useful way to see whether their pay aligns with peers.

For employers, however, the limitations are clear. There’s no way to verify accuracy, consistency or whether submissions reflect total compensation packages. Because the results are based on mean averages, they can be distorted by outliers and don’t offer the precision of medians or quartiles. And since much of the data is historical, reported salaries often lag behind the current market.

Manually Reviewing Job Board Data

Pros: Budget-friendly, uses in-market data

Cons: Time-intensive, hard to validate and compare, over-reliance on spreadsheets

Some organisations still rely on scraping job boards to collect pay data for benchmarking. At first glance, this “back to basics” method feels cost-effective, but in practice, it often consumes weeks or months of manual work from HR teams. The process typically involves combing through multiple sites, pulling data into spreadsheets, and trying to reconcile inconsistent job titles or formats.

The bigger problem is reliability. With so many different sources, results can be skewed by short-term spikes, regional variations or incomplete listings. And because the data is just a snapshot in time, it quickly becomes outdated, leaving you with benchmarks that may no longer reflect market reality.

Real-Time Salary Benchmarking Tools

Pros: Instant results, easy to use (no specialist expertise required), covers niche roles and local variations, real-time dynamic market data

Cons: Less suited for senior or executive roles

Advances in technology mean HR teams no longer have to rely solely on static surveys or manual job-board checks. Real-time salary benchmarking platforms pull in millions of live data points to deliver accurate, up-to-date market insights in minutes. They allow you to filter by role, level, location and company size, so you can quickly see how your pay bands compare to current market ranges.

For example, HR DataHub analyses over 30 million UK data points and is refreshed daily, giving you confidence that you’re working with the latest salary trends. It’s simple to use and provides insights even for highly specialised or niche roles, without the need for spreadsheets or lengthy manual research.
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Common Challenges in Salary Benchmarking: How to Overcome Them

Data gaps

Benchmarking relies on having a robust sample size. If you filter too narrowly (e.g. by role and level and location), you risk ending up with too little data to draw meaningful conclusions. The fix is to apply broader filters where needed or use real-time platforms like HR DataHub, which draw on live job postings – not employer-reported payroll figures – to provide up-to-date salary ranges without relying on self-reported inputs.

Niche roles

Specialist or emerging job titles often lack published benchmarks. Here, consistency in job matching is key: align the role with similar skillsets or adjacent families, and use real-time data sources to track how these roles are priced as they mature in the market.

Global vs local data

Salaries can differ widely between countries, regions, or even cities. A London salary band won’t map directly to Manchester or Birmingham. Always anchor your benchmarking to the relevant market and supplement with official datasets (e.g. ONS, Eurostat) for context if needed.

Outdated data

Traditional surveys and static reports may lag months behind fast-moving job markets. By the time they’re published, they risk being out of sync with current hiring conditions. Real-time benchmarking tools solve this by refreshing data daily, giving HR teams confidence that pay bands reflect today’s market reality.

FAQs

What is salary benchmarking data?

‍Salary benchmarking data is the pay and benefits information collected from external organisations to compare against your own. It typically includes role, industry, location, and company size, allowing HR teams to assess market averages. Using this data ensures salaries are fair and aligned with current job market trends.How often should you benchmark salaries?Most organisations benchmark salaries annually, with some choosing bi-annual reviews in fast-moving or highly competitive markets. Roles with high turnover or scarce talent may need more frequent checks to stay aligned with market rates. 

What is the compensation benchmarking process?‍

The salary benchmarking process compares your organisation’s salaries and benefits against external market data to check fairness and competitiveness. It typically involves defining roles, gathering reliable salary data, analysing results, and adjusting pay ranges.

Can you benchmark salaries using ChatGPT?‍

ChatGPT can generate salary estimates, but it isn’t reliable for benchmarking. Its data may be outdated or inconsistent, and results vary between prompts. Brittany Schmaling from ENB found ChatGPT’s estimates up to $60,000 off. Always verify with real-time benchmarking tools like HR DataHub.

Can you rely on recruiters to benchmark salaries accurately?‍

Recruiters can offer ballpark salary insights, but relying solely on them is risky. Their advice may be shaped by commission incentives, with even a £2,000 uplift per hire adding significant long-term costs. To avoid overpaying, always cross-check recruiter benchmarks with wide-ranging, real-time salary data.

Boost Your Pay Benchmarking with HR DataHub

HR DataHub is the only real-time salary benchmarking tool that collects pay data from all live and historical job postings across the UK. Our salary insights are backed by data from over 30 million job adverts and updated weekly for a truly comprehensive view of the pay marketplace in just a few clicks. Use HR DataHub to set competitive salaries with 100% confidence.

Discover more about HR DataHub >>