Your Guide to Compensation Benchmarking

What is compensation benchmarking, and how can it help keep my employees happy?

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Compensation benchmarking FAQs

The gender pay gap is nothing new. In 2020, women earned 81 cents for every dollar earned by men. Of course, that number plummets for women of color. Spread out over a 40-year career, this means an average of an $11,900 loss for women.

While there are a number of things that will have to change to erase the gender pay gap, one thing businesses can do is explore and implement compensation benchmarking.

Never heard of it? Maybe you have heard of it, but aren’t quite sure what it means or how it works. Maybe you’ve always wanted to do it, but in a pandemic-filled world, investigating it has fallen to the wayside.

Whatever the reason, here’s a crash course in all things compensation benchmarking. Plus, the new year is here — a great time to start new things.

What is compensation benchmarking?

Sometimes called salary benchmarking, compensation benchmarking is a process that matches internal jobs with market pay data or a salary survey in order to identify the market rate for each position.

Not only does it make sure you’re offering fair (or even competitive!) market rates, it makes you a more competitive employer in the quest for top-notch talent. Compensation benchmarking can also help keep your employees happy and satisfied in their jobs. We’ve all been working somewhere when we’ve discovered that someone with your same job title makes significantly more or less than you — and it’s weird.

Compensation benchmarking can make it much easier to balance your budget while reducing (or even getting rid of!) unequal salary disparities — a win-win.

Compensation benchmarking can make it much easier to balance your budget while reducing (or even getting rid of!) unequal salary disparities — a win-win.

How does compensation benchmarking work?

Because many companies these days, especially small businesses, have roles filled with people who wear many hats, the first step to compensation benchmarking is identifying all of the key attributes of a position.

Perhaps running social media is involved in a given position. Then you’ll want to explore going rates for social media marketers from reputable sources like HR-reported aggregate market data or survey data. Once you know the rough percentage of time you expect your employee to dedicate toward social media, you know the percentage of the salary that should be driven by market rates for social media marketers.

When coming up with a benchmark for a position’s compensation, the content of the role’s duties matters much more than the title. And don’t be afraid to source compensation information from multiple sources to cover all your bases. Most companies target the middle of a salary range when benchmarking.

Once you’ve got the number (or, ideally the range), then you know what you’ll be paying. If this all feels too over your head, you can hire a compensation consultant to do the work for you.

How do employees respond to compensation benchmarking?

Because compensation benchmarking keeps pay transparent and more equal, employees tend to love it — especially if it applies to promotions, too.

Of course, compensation is about more than just money. In addition to base pay, there are benefits like 401(k) matching, paid time off, and vacation time that all factor in. As you establish the levels at which people will receive promotions and what those promotions will contain, remember that a promotion can come with a mix of these elements.

Because compensation benchmarking helps to ensure that you’re not underpaying your employees, both in general but in relation to other employees in the same job as well, it can go a long way in terms of retention.

Making the compensation and promotion benchmarks you’ve come up with and what to do to reach them transparently available (as well as how much discretion managers have in the process) can go a long way in boosting employee happiness and engagement since fair and competitive compensation is always a major factor.

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