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Compensation Benchmarking for Smarter Decisions

Compensation decisions have always been challenging for companies, but the landscape today is more complex than ever.

Compensation Benchmarking for Smarter Decisions

A talent gap is widening, salary expectations are becoming public, and cost pressures are mounting. This means HR professionals and finance leaders need insights about employee pay based on data, now more than ever. This is where compensation benchmarking comes in – providing vital market intelligence to guide smarter decisions around pay.

What is compensation benchmarking?

What is compensation benchmarking?

Checking your company’s pay against salaries elsewhere: salary surveys, reports, stats, and even your data.

By benchmarking against the broader talent market, you gain crucial insights, such as:

  • The average and median salaries for specific roles in your industry and location.
  • Regional differences in pay because of cost of living and labour supply/demand.
  • The total compensation landscape, including bonuses, equity, and benefits.
  • Salary ranges based on job title, experience level, skills, certifications, and performance.

Why benchmark salary packages?

Compensation benchmarking allows you to understand precisely how your pay stacks up against relevant competitors. Without benchmarks, you risk overpaying and overly inflating costs or underpaying and failing to attract and retain talent.

Here are some of the key reasons compensation benchmarking is important:

Attract top talent

Benchmarking ensures your offers are competitive to land your first-choice candidates in a tight talent market. Underpaying means missing out on the best hires.

Retain top talent

Everyone deserves to feel recognised and appreciated for their work. Benchmarks clue you into pay adjustments needed to motivate and retain your top existing talent.

Ensure internal and external equity

Benchmarks reveal base pay disparities and support efforts to ensure fair compensation across roles, departments, locations, and demographics.

Support financial planning

Accurate cost estimates of compensation expenditures rely on up-to-date benchmarking data. Forecast, budget, and model different scenarios effectively.

Align compensation and business strategy

Data tells you what others pay, helps you be fair, and builds a company culture that rewards good stuff.

The key elements of effective salary benchmarking

The key elements of effective salary benchmarking

Compensation strategy

Define the goals, priorities, and decision-making framework that will guide your benchmarking approach. This includes factors like attracting talent, retaining employees, controlling costs, rewarding performance, and maintaining internal/external equity.

Data collection

Gather robust salary data from multiple sources including industry surveys, government data, exclusive internal data, job postings, and compensation consultants. Ensure appropriate match based on locations, job levels, skills, experience, etc.

Job research

Break down and document roles and responsibilities for positions you want to benchmark. Identify competencies, requirements, working conditions and other attributes.

Market research

Analyse the competitive landscape, talent availability, business conditions, and cost drivers that impact compensation in your industry and regions.

Develop salary structures

Use benchmark data along with internal contexts to build salary grades, ranges and bands tailored to your jobs. Determine entry-level, mid-point and maximum amounts.

Implementation planning

Create action plans to roll out new structures, including cost projections, communicating with employees, handling exceptions, and training managers.

Compliance practices

Ensure salary-setting processes comply with legal and regulatory requirements around equal pay and non-discrimination policies.


Keep tabs on results, collect feedback, watch the market like a hawk, and update your data often for top-notch benchmarks.

How to conduct effective compensation benchmarking

How to conduct effective compensation benchmarking

Here are the key steps to conducting effective compensation benchmarking:


1. Job research and description validation

Ensure accurate salary comparisons by first updating your job descriptions to match positions at other companies. Make sure they accurately reflect what your employees are doing. This involves identifying key responsibilities, skills, experience, and expertise for each role. Group jobs into clear families or bands for effortless comparison.

2. Data collection

Choosing relevant data sources is critical in compensation benchmarking. These can include salary surveys, industry reports, government data, and online resources. Data collection is important to identify competitors and peer companies within your industry and geographic region. The data points to collect typically include base salary, bonus, benefits, and total compensation.

3. Internal data gathering

This involves compiling existing compensation data for comparable jobs within your organisation. To truly understand how your company pays its employees, it’s not just about salaries. Looking at things like demographics, performance reviews, and even promotion rates can give you a much clearer picture.

Research and interpretation

1. Matching jobs

Once you have collected the data, the next step is to match your job descriptions to relevant benchmark jobs in the data sources. Consider job title, duties, skills, and experience when making comparisons.

2. Data adjustment

Pay structure can vary by location, size, trends, and living costs. Factor these in when analysing data. Models and software make data comparisons accurate and fair.

3. Benchmark research

At this stage, we calculate salary ranges for each job based on the adjusted data. This typically includes the 25th percentile, median, and 75th percentile. Compare your salaries to the market, find any gaps, and suggest adjustments.

Action and decision-making

1. Compensation strategy development

Once you have the benchmark data, you need to make sure it aligns with your company’s philosophy about how much you want to pay your employees and what you can afford. This is also the stage where you decide whether to adjust salaries, benefits, or bonus structures, and you need to develop a plan for how to implement those changes transparently and fairly.

2. Communication and implementation

Share what you learned from comparing salaries with other companies and how it affects everyone’s pay. Be clear about why these changes are happening and answer any questions employees might have.

Compensation benchmarking best practices and pitfalls to avoid

Best practices:

  • Define your compensation philosophy: Align benchmarking with your company’s values and goals (e.g., market leader, competitive, cost-conscious).
  • Choose relevant data sources: Make informed compensation decisions. Use trusted surveys, industry reports, and even what your competitors are offering. Make sure the data you use is relevant to your company’s unique situation, considering size, industry, and location.
  • Select a well-defined peer group: Focus on companies with similar business models, financial performance, and talent requirements.
  • Match jobs accurately: Carefully match your job descriptions to benchmark jobs based on responsibilities, skills, and experience level.
  • Adjust for differences: Account for cost of living, company size, regional variations, and other factors influencing compensation.
  • Utilise compensation models: Use software or statistical models to adjust raw data and create accurate estimates.
  • Analyse multiple data points: Don’t rely solely on median salaries; consider percentiles, bonus structures, and total compensation packages.
  • Communicate transparently: Share benchmarking findings with key stakeholders and explain the rationale behind any adjustments.
  • Implement changes in phases: Make gradual adjustments to avoid employee discouragement and maintain budget control.
  • Regularly re-evaluate: Conduct benchmarking exercises often to adapt to market changes and stay competitive.

Pitfalls to avoid:

  • Dependence on external data: Don’t blindly copy competitor practices; tailor benchmarking to your company’s specific needs.
  • Ignoring internal data: Consider factors like performance, tenure, and employee value proposition within your business.
  • Selecting an insufficient peer group: Comparing yourself to vastly different companies leads to inaccurate results.
  • Neglecting job matching errors: Mismatched jobs lead to misleading comparisons and unfair compensation decisions.
  • Overvaluing median salaries: Consider the full range of data and focus on aligning with your compensation philosophy.
  • Overlooking non-monetary total rewards: Benefits, perks, and work culture can influence employee satisfaction and retention.
  • Lack of communication: Failing to explain benchmarking findings can lead to mistrust and resentment among employees.
  • Rapid and drastic changes: Implementing significant adjustments suddenly can disrupt morale and impact employee retention.
  • Infrequent benchmarking: Relying on outdated data makes you vulnerable to falling behind market trends.

Remember: Compensation benchmarking is a valuable tool, but it’s important to use it strategically and avoid common pitfalls. Putting these strategies to work and addressing any snags will unlock smart pay decisions. That means happy employees, top talent, and staying ahead in your field.

What are some salary benchmarking tools in Australia?

What are some salary benchmarking tools
  • Australian Bureau of Statistics (ABS): Offers national and regional wage data for various occupations in Australia. Useful for general trends and basic comparisons. (Free)
  • Glassdoor: Features crowdsourced salary data submitted by employees in Australia. Useful for specific company and role insights, but accuracy can vary. (Free)
  • Offers a salary checker tool and salary information based on job postings on their platform. Can be helpful for general trends and comparisons within specific industries. (Free)

Remuneration software: Your compensation benchmarking ally

Remuneration software is a specialised tool that assists businesses in managing various aspects of employee compensation, such as:

  • Salary and benefits administration: Manage salaries, bonuses, deductions, and various benefits offerings.
  • Job evaluation and pay structures: Design and maintain equitable job evaluation systems and salary structures.
  • Compensation planning and budgeting: Set compensation budgets, forecast costs, and conduct compensation planning exercises.
  • Performance management and rewards: Integrate performance data with compensation decisions, managing bonus awards and other performance-based rewards.
  • Data and reporting: Generate reports and analyse data on compensation trends, pay equity, and cost-effectiveness.

Key takeaways

Navigating the pay landscape is more intricate than ever before. Fewer workers, more people working from home, everyone knows what everyone else makes, and the economy’s uncertain. Relying solely on guesswork and gut instinct exposes companies to substantial risk.

Compensation benchmarking provides the rigorous, data-driven foundation for more informed decisions around pay. Blending external market data with internal context equips leaders to set rational, competitive salaries. Benchmarks meet budget, motivate talent, and conquer competition.

It might take money to set fair salaries, but getting it wrong in today’s job market is even more expensive. Take steps to build your company’s compensation IQ through robust benchmarking practices.