Discover how to use salary benchmarking to attract, retain, and motivate talent with the help of our analysis of over 17 million job ads across 23 industries. Amid rising living costs, salary concerns weigh heavily on UK workers. Our research shows that 3 in 5 are concerned about their financial situation, while 28% will look for a new job if they don’t receive their desired pay rise this year. For employers, this means that competitive pay structures are crucial in talent attraction and retention efforts. Salary benchmarking offers a data-driven approach that helps ensure salary ranges are aligned with market trends and candidate expectations. In this guide, we explore what salary benchmarking is, why it matters, and how your organisation can implement it effectively. Unlock industry-specific salary insights to fine-tune your compensation strategy

What is salary benchmarking

Salary benchmarking, also known as compensation benchmarking, is the process of gathering, analysing, and comparing market salary data. This process enables organisations to assess their current compensation packages against industry standards, ensuring they remain competitive in their efforts to attract and retain talent. While it can be tempting to focus solely on basic pay for simplicity, effective salary benchmarking typically evaluates the entire compensation package, including:

• Shares: Equity or stock options offered as part of long-term incentives.
• Benefits: Perks such as health insurance, pension contributions, and gym memberships.
• Bonuses:Performance-based incentives or annual rewards.

By taking these additional components into account, employers gain a comprehensive understanding of their market position that enables them to create packages that align with employee expectations while supporting retention and recruitment goals.

Who is responsible for salary benchmarking?

Salary benchmarking is generally managed by HR professionals and employee reward specialists, as it requires a deep understanding of compensation structures, market trends, and internal organisational needs. These professionals are tasked with gathering and analysing extensive data from both internal and external sources to ensure pay structures are competitive and fair. Employers can also turn to third-party compensation consultants or professional services to assist with the process. These external experts bring specialised knowledge, access to broader market data, and an objective perspective, which can be particularly valuable for ensuring impartial and accurate results. Whether handled in-house or with external support, salary benchmarking requires meticulous coordination to ensure the process aligns with the organisation’s goals, budget, and timeline.

Why is salary benchmarking important?

Employees expect compensation that reflects the value they bring to an organisation. However, our research reveals that over a third of UK workers are dissatisfied with their current salary. Salary benchmarking enables employers to compare their pay structures with industry standards, ensuring their offerings remain competitive. This not only helps attract top talent but also reassures current employees that their contributions are being fairly rewarded. Feeling valued is critical for maintaining employee engagement and satisfaction, which directly impacts performance and retention. For business leaders, salary benchmarking also provides a data-driven foundation for compensation decisions. By leveraging insights from market trends, organisations can justify their reward packages and make informed choices about budget allocation and long-term planning. This evidence-based approach helps align salaries with both organisational goals and employee expectations, fostering trust and transparency across the workforce.

The benefits of benchmarking salaries

Effective salary benchmarking offers more than just the ability to set salary ranges that are fair and competitive, providing organisations with a deeper understanding of their position within the market. Let’s explore some of the most impactful benefits of salary benchmarking in detail.

Appeal to top talent

Competitive salaries are key to attracting top talent. By leveraging salary benchmarking, organisations gain a clear understanding of market trends and can position themselves to offer compensation that stands out. This data-driven approach ensures pay ranges are not only aligned with industry standards but also tailored to attract the most skilled and sought-after candidates. In a competitive hiring landscape, where organisations vie for top performers, salary benchmarking provides a strategic edge. It enables you to present compelling offers that differentiate your roles, making them more appealing to high-calibre candidates and ultimately strengthening your workforce.

Boost job satisfaction

A fair and competitive salary plays a crucial role in ensuring employees feel confident that their compensation supports their lifestyle. However, research highlights significant challenges, with 4 in 10 UK adults struggling to pay energy bills and 12% unable to afford essential living expenses. Salary benchmarking provides reassurance to both current employees and prospective hires that compensation packages have been designed with market rates in mind. This consideration fosters trust and demonstrates a commitment to employee well-being. Organisations with robust and competitive pay strategies benefit from a more motivated and engaged workforce. Satisfied employees are not only more likely to perform at their best but also to contribute positively to organisational goals.

Improve employee retention

Salary plays a pivotal role in employee loyalty. This is underscored by our research, which shows that among jobseekers, 72% identify salary as the top factor influencing their decision to apply for a new role. As a result, by aligning compensation packages with market standards, or even above worker expectations, employers can enhance their efforts to retain employees. The benefits of this are significant, including:

• Reduced recruitment costs
• Stronger team cohesion
• A more positive workplace culture

Enhancing employer branding

Benchmarking is a powerful tool for strengthening your organisation’s employer brand in both the short term and long term. By offering packages that align with or exceed market standards, you position your organisation as an employer of choice, enhancing your reputation and differentiating you from competitors. A strong employer brand goes beyond simply paying well. It also involves transparent communication. Clearly defined salary bands and detailed job descriptions, informed by benchmarking data, demonstrate to candidates and employees alike that your organisation values fairness and equity. This transparency fosters trust and reinforces your commitment to providing competitive rewards for the skills and experience your workforce brings to the table.

Act as a commitment to Equal Opportunity

Salary benchmarking demonstrates an employer’s commitment to fostering diversity, equity, and inclusion (DEI) within the workplace. By using standardised and impartial data to establish pay bands, the process ensures that compensation decisions are free from bias, supporting fair treatment across all roles and demographics. Transparent communication about how salaries are benchmarked further reinforces this commitment. When employees and candidates understand that pay structures are based on objective market data rather than subjective factors, it builds trust and signals that the organisation values equality.

How to conduct salary benchmarking

Conducting effective salary benchmarking can be complex, requiring careful data collection followed by detailed analysis. Below we’ve created a step-by-step guide to help you navigate the process and make the most of your benchmarking efforts.

Step 1: Define aims and parameters

The first step in salary benchmarking is defining the project’s aims and scope. So, start by identifying why the process is necessary to help shape and focus the benchmarking exercise. Common reasons include:

• Addressing equal pay concerns
• Reducing talent loss to competitors
• Tackling high employee turnover rates

Once a purpose has been established, you can set a timeline, determine the scope, and allocate a budget for the entire project. If external parties are involved, costs may increase, but remember, their expertise often leads to more accurate analysis and access to broader datasets that can provide deeper insights. At this stage, it’s also essential to decide whether the benchmarking will cover the entire organisation or focus on specific departments, job levels, or roles. This decision will significantly impact the duration and complexity of the project and ensure the process aligns with organisational goals and resources.

Step 2: Identify and collect data

The next step of the benchmarking process involves identifying and collecting the required data. A straightforward comparison of job titles and salaries can often be misleading, as titles may vary significantly across organisations even when roles have similar responsibilities. To ensure consistency roles should instead be classified based on standardised criteria, a process known as job evaluation, which provides a reliable framework for assessing roles objectively within an organisation. Criteria can include:

• Job level
• Department
• Salary
• Geographic location

Equally important is gathering external data to compare salaries against internal benchmarks. This data should reflect salaries within the same industry, region, and job functions to provide an accurate picture of market trends. This can be sourced through salary surveys, salary benchmarking tools, or data-sharing networks, and may involve purchasing reports or contributing your organisation’s salary data in exchange for access to a database.

Step 3: Create salary ranges and reward packages

Next, establishing salary ranges requires a thorough analysis of internal and external factors to determine fair and competitive market rates. External influences, such as the current state of the labour market and economic trends like inflation, play a significant role in setting benchmarks. Internally, elements such as the structure of roles within the organisation, recruitment and retention rates, as well as individual factors like an employee’s experience and performance, can affect the placement of salaries within a range. Once the data is analysed, salary bands are typically created for each job grade. These bands should allow some flexibility, accommodating situations such as competing offers from other employers or rewarding exceptional performance. Salary banding also supports structured adjustments, such as annual pay increases aligned with inflation or performance evaluations. To maintain fairness, it is essential to implement clear reward policies to guide these decisions. For organisations unable to meet the market rate for salaries, enhancing benefits packages can make overall compensation more attractive. This can include leveraging desirable, non-monetary perks, like:

• Additional annual leave
• Flexible hours

Step 4: Make salary adjustments and document the results

Once the benchmarking itself has been undertaken, the next stage is to make any necessary salary adjustments based on the findings. If discrepancies are identified between pay and market benchmarks, these gaps should be addressed to ensure competitiveness and fairness. Adjustments may involve:

• Increasing salaries for specific roles or departments
• Revising pay bands
• Enhancing benefits packages to balance compensation

After implementing these changes, it’s critical to document the rationale behind the adjustments. This involves outlining evidence supporting decisions, including the sources of salary information and the methodology used. This level of detail not only provides accountability but also helps build a solid foundation for future evaluations. Finally, open and transparent communication with employees about the process is essential. Staff may have questions or concerns about how pay changes were determined. Providing clear explanations and inviting dialogue fosters trust and reassures employees that decisions are made with fairness and objectivity in mind. Transparent communication also strengthens their confidence in the organisation’s commitment to equitable and competitive pay practices.

Step 5: Re-evaluate salary rates when necessary

Salary benchmarking is not a one-off task. It’s an ongoing process that needs to be revisited regularly to ensure compensation packages remain competitive in a changing market. The frequency of these reviews should be guided by factors such as market dynamics, inflation rates, budgetary constraints, and the cost of conducting salary benchmarking. For most organisations, annual or bi-annual reviews strike an effective balance, enabling employers to respond to:

• Shifts in economic conditions
• Talent demands
• Organisational goals

Regular benchmarking also plays a crucial role in individual salary reviews, ensuring that adjustments for promotions, performance, or retention align with market data and organisational policies. This consistency fosters fairness and supports an equitable approach to pay. By committing to routine re-evaluations, organisations can build a resilient and data-driven strategy that ensures pay structures are competitive and support talent attraction and retention efforts. Explore the latest UK salary trends