Salary Benchmarking

Salary benchmarking helps employers understand whether their pay levels are competitive with the market.
It supports decisions about hiring, salary reviews, retention, workforce costs and longer-term compensation planning. It is especially useful for senior, specialist and hard-to-hire roles where compensation expectations can differ significantly between markets.

Effective benchmarking requires more than checking average salaries online. Companies need to compare genuinely similar roles, use relevant market data and consider total compensation rather than base salary alone. For senior and specialised positions, this often also means understanding the actual talent market in which the organisation is competing, which may extend beyond one location or even one industry.

What is salary benchmarking?

Salary benchmarking is the process of comparing an organisation’s pay levels with market data for similar roles.

The aim is to understand whether current or planned salaries are positioned below, at or above the relevant market level.

Salary benchmarking can support:

• Salaries for new positions;
• Reviews of existing employee pay;
• Development of salary ranges;
• Annual compensation reviews;
• Recruitment and retention;
• Identification of roles where pay is no longer competitive.

The quality of the benchmark depends on two factors: accurate job matching and relevant market data. Employees with similar job titles may have very different responsibilities, experience and levels of authority.

This is particularly important for leadership and specialist positions, where the same title can represent very different levels of responsibility depending on business size, geography, reporting structure or technical scope.

Why salary benchmarking matters

Compensation influences a company’s ability to attract and retain the people it needs.

Paying significantly below the relevant market can make recruitment more difficult, increase offer rejection rates and create retention problems. Paying well above the market without a clear reason can increase workforce costs without delivering a comparable business benefit.

Salary benchmarking gives employers a clearer basis for compensation decisions.

It is particularly useful when:

• Hiring senior or specialist professionals;
• Entering a new market;
• Opening new roles or functions;
• Expanding teams;
• Reviewing salaries after rapid growth;
• Restructuring an organisation;
• Building a more consistent compensation framework;
• Experiencing recruitment or retention problems.

The objective is not simply to match competitors. The benchmark should help the organisation decide where it needs to be competitive and where different pay positioning may be appropriate.

Salary benchmarking vs compensation benchmarking

Salary benchmarking usually focuses on the salary or cash pay attached to a comparable role.

Compensation benchmarking takes a broader view of the complete reward package.

Depending on the position, this may include:

• Base salary;
• Fixed allowances;
• Bonuses;
• Commissions;
• Benefits;
• Long-term incentives;
• Equity where relevant.

For some roles, base salary provides a reasonable comparison. For others, variable pay, benefits or long-term incentives represent a significant part of the package.

Looking at total compensation can therefore provide a more accurate picture of how competitive an employer really is.

Salary benchmarking process: 8 stepse

A practical salary benchmarking process can be organised into eight steps.

1. Define the roles to benchmark

Start with the positions that need review most urgently, such as hard-to-fill, critical or newly created roles.

2. Match comparable jobs

Compare roles by responsibilities, seniority, team size, reporting level and scope, not by job title alone.

For senior and specialised roles, direct title-to-title comparisons are often misleading. Two Regional Operations Directors, for example, may differ substantially in P&L responsibility, asset complexity, geographic scope, team size and decision-making authority.

3. Define the relevant talent market

Identify the market from which the company actually hires. This may be local, national, regional, international or specific to an industry or specialist talent pool.

The relevant compensation market is not always the country where the position is located. For internationally mobile executives, technical specialists or scarce profiles, an employer may be competing for talent across several countries or with organisations in adjacent sectors. 

4. Collect reliable salary data

Use current and relevant sources such as salary surveys, compensation databases, recruitment data, recent hiring activity and industry research.

For niche or senior positions, there may be too few genuinely comparable observations for a conventional salary survey to provide a reliable answer. In these cases, benchmarking may need to combine published compensation data with direct market research, recent candidate expectations, hiring activity and competitor intelligence.

5. Compare total compensation

Review more than base salary where relevant. Bonuses, commissions, allowances, benefits and long-term incentives can significantly affect the value of the overall package.

6. Analyse market positioning

Compare current or planned pay with market medians and percentile ranges. The right position depends on talent availability, business priorities and compensation strategy.

The right market position also depends on talent availability. For a scarce leadership or specialist role, a company may need to offer above-market compensation to attract suitable candidates, while this may not be necessary for roles with a larger available talent pool.

7. Review internal pay equity

Check how market adjustments may affect employees in similar roles and whether they remain consistent with existing salary bands and internal job levels.

8. Turn data into salary decisions

Use the benchmark to support practical actions, such as changing salary ranges, adjusting hiring budgets, reviewing bonuses or keeping current pay unchanged where it remains competitive.

The output of benchmarking should therefore be a decision framework rather than simply a market number or salary range.

How to choose reliable salary benchmarking data

Not all salary data is equally useful.

Before using a source, consider:

• When the data was collected;
• How large the sample is;
• Whether the roles are properly matched;
• Whether the geography is relevant;
• Whether the industry is represented;
• Whether the required seniority is covered;
• Whether figures represent base salary or total compensation;
• How the information was collected.

Recent and relevant data is particularly important in markets where demand for particular skills is changing quickly.

Public salary estimates can provide an initial indication, but they may not offer enough detail for decisions involving senior, technical or highly specialised positions.

For these roles, current recruitment activity and direct talent market insight can provide additional context.

A useful benchmark should reflect the market in which the organisation will actually compete for talent, rather than simply the largest or most accessible dataset available.

Salary benchmarking example

Consider an international engineering company preparing to hire a Project Director for a new market.

The company compares its compensation package with similar leadership positions in the relevant industry and location. The analysis shows that base salary is close to the market median. However, the strongest potential candidates are already working across several international markets, and competing employers typically provide stronger bonuses, mobility allowances and benefits.

The company’s total compensation is therefore less competitive than the base salary comparison initially suggests.

The benchmark also shows that the company is competing for a relatively limited talent pool rather than for candidates in the local market alone.

The employer can use this information to decide whether to:

• Increase base salary;
• Introduce or increase variable compensation;
• Improve benefits;
• Reposition the role;
• Change the hiring budget;
• Review the geographic scope of the talent search.

Common salary benchmarking mistakes

Several problems can reduce the value of benchmarking.

Common mistakes include:

• Comparing positions only by job title;
• Using outdated salary data;
• Relying on one data source;
• Using broad global data for a role hired in a specific local market;
• Assuming the local market is the relevant talent market for every role;
• Ignoring differences between industries;
• Failing to account for seniority or responsibilities;
• Comparing base salary while ignoring total compensation;
• Applying the same market position to every role;
• Reviewing external benchmarks without considering internal pay equity.

Another common mistake is treating market data as an automatic recommendation.

A benchmark shows what other organisations or the wider market may be paying. It does not determine what an individual company must pay.

The final decision should also reflect business priorities, budget, talent availability and the organisation’s compensation strategy.

For critical roles, it should also reflect how realistic it is to attract the required talent at the proposed compensation level.

Salary benchmarking best practices

For more reliable results, employers should define comparable roles carefully, use current market-specific data and consider geography, industry and seniority. Where possible, compare several data sources and review total compensation rather than base salary alone.

Benchmarking should also be considered alongside internal pay equity and updated regularly for critical or difficult-to-hire roles.

For senior and specialised positions, companies should also test whether the selected benchmark reflects the actual talent pool they recruit from. Published compensation data is most useful when interpreted alongside current talent availability, candidate expectations and hiring conditions in the relevant market.

How often should salary benchmarking be updated?

For many roles, an annual review provides a practical starting point.

Some positions should be reviewed more frequently, particularly when:

• Demand for specific skills is changing quickly;
• Recruitment becomes significantly more difficult;
• Employee turnover increases;
• The organisation enters a new market;
• A major restructuring takes place;
• Inflation or economic conditions change compensation expectations;
• New critical positions are created.

Senior and highly specialised roles may also require more current market information because the available talent pool can be small and compensation can change quickly.

Companies do not necessarily need to repeat a full organisation-wide exercise each time. Targeted benchmarking can be carried out for individual roles or job families when new information is required.

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