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What is Salary Benchmarking?

Salary benchmarking is the process of comparing your salaries with market data comparators. When a company undertakes salary benchmarking in the UK through companies such as Paydata, they receive a relevant and useful comparison for companies to inform their own pay-setting decisions.

Why is Salary Benchmarking Important for Organisations?

If company A is paying significantly less for a specific role than its main competitor, company B, then this could have negative consequences when it comes to recruitment and retention. For this reason, a salary benchmarking tool becomes an essential piece of kit when it comes to building teams and incentivising employees. Salary benchmarking is important as it is a key part of the jigsaw in making pay decisions. Pay decisions are essential for organisations to attract, motivate and retain the talent they need. It allows them to tell their people that they have been both robust and transparent in their pay-setting practices and are paying a fair salary. If a key member of staff is looking at moving across to a competitive company, you can reassure yourself and the employee that they are receiving a comparable salary level or even above average. Overall, an exercise in benchmarking salary levels across an organisation provides valuable information to its finance and HR teams to help them set budgets and model the impact of organisational change.

How is Salary Benchmarking Data Collected and Analysed?

Salary benchmarking data is collected most commonly through salary surveys. Organisations take part in an annual survey providing their data to us. They match employee roles according to standard survey roles, and we use this data to help compare salaries for people working in similar jobs.

Once we have collected and collated the benchmark salary data, this information is held securely according to GDPR regulations. The information that is collected is analysed and presented in a way that makes the reports most representative of market practice and useful to our customers.

What Are the Benefits of Conducting a Salary Benchmarking Exercise?

If you know what the average salary is across your industry for certain roles, you can make sure that your employees are fairly compensated on a like-for-like basis. However, if there is a degree of ‘transition’ within your industry, where you are in danger of losing some of your best people, then being able to benchmark salary expectations in terms of offering improved remuneration packages to demonstrate your commitment to them is a powerful tool in your armoury.

How Often Should Organisations Update Their Salary Benchmarking Data?

UK salary benchmarking should be carried out on an annual basis. This will allow you to understand how each role’s market data is moving. However, if there are roles where employee turnover is particularly high and there is a limited talent pool, then you need to be benchmarking a particular salary bracket more often.

It is essential that you are benchmarking salaries on an annual basis as part of your best practice. This enables your organisation to budget according to market fluctuations.

What Are the Different Types of Salary Benchmarking Approaches?

The two main approaches are job evaluation and job matching.

Job Evaluation is more accurate but takes more time and can be more costly. In job evaluation, we would collect job descriptions from the client and evaluate each job using PayGrade. We would then review these evaluations with the client to determine a final list of levels before moving on to the salary benchmarking process, where we would compare the jobs with market data.

This approach gives you the greatest level of confidence in the final result. It is the best practice approach that an employer can take if they are challenged (e.g., by an employee or a Trade Union).

Job Matching is quicker and less costly. In job matching, we would suggest levels and market data to use against each job and then collect input from the client on any changes before moving on to comparing the jobs with market data.

We use levelling criteria to size the roles, which our customers can then also use to confirm or change what we have suggested.

Can Salary Benchmarking Be Used for All Types of Roles and Industries?

Yes, from our perspective, as long as we hold sufficient data, it can be used to benchmark salaries. We work extensively (though limited to) with housing associations, utilities, professional associations, healthcare, engineering, and communications. You can read about some of our UK salary benchmarking successes on our case studies page.

How Do Organisations Ensure the Accuracy and Reliability of Salary Benchmarking Data?

In both the job evaluation and job matching processes, the results are reviewed with the client and report production is an iterative process. Most importantly, Paydata is completely transparent in its salary benchmarking methodology and provides details in the final reports.

What Are the Common Challenges in Conducting Salary Benchmarking?

In different market sectors, there are organisations that have some unique roles where it is difficult to source market data to provide a relevant salary benchmark.

Active participation in the HR role is essential. There needs to be good communication internally for the HR department to understand what some of the roles do fully. Only with collaboration can detailed job comparisons be made. Customers aren’t always clear on their requirements, and for bespoke benchmarking projects, we work with them to understand what they need.

How Does Salary Benchmarking Impact Employee Retention and Attraction?

Ultimately, salary benchmarking is one of the most important tools for an organisation to plan and structure its employee reward and retention plans. A benchmark salary report allows the organisation to understand average pay rates across a specific market sector, as well as bonus and benefits provision and use that information along with other information to create an attractive reward proposition for employees.

Get In Touch

Contact us if you have more questions about how a structured approach to salary benchmarking could benefit your organisation.

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