Compensation Benchmarking: The What, Why and How

Compensation benchmarking is certainly not a new concept, but in recent years, it’s grown in importance for organizations that are seeking to retain talent (who isn’t these days?) and remain competitive in an environment marked by swift changes and great uncertainty. It involves comparing your salaries and overall pay structure to what similar employers — in your industry, geographic area, workforce model, etc. — are paying for comparable roles.

Traditionally, such benchmarking was reserved for larger organizations, given the affiliated cost. But today, it’s more common, thanks to digital tools and data that are generally affordable and accessible. For employers in industries such as high tech, where new technologies breed new roles in very little time, it’s a near-necessity.

Workspan Daily (WD) recently connected with Coen de Waal, the chief executive officer of CareerToolbelt, a job-search solutions platform, to discuss how the total rewards (TR) community can consider and make best use of compensation benchmarking.

WD: For those in our audience who may be newer to the TR field or for those who haven’t fully delved into or maximized this area for various reasons — organizational size, age, etc. — what’s your take on compensation benchmarking and how those in the function might strategically use this tool?

de Waal: Most people think of salary benchmarking as a way to make sure they’re not paying too little or too much. And sure, that’s definitely a benefit that HR and total rewards pros will appreciate. But savvy companies also see benchmarking as a big-picture play to attract and keep talent, improve employee morale and even strengthen their overall brand.

Compensation benchmarking goes far beyond the basic objective of paying fair salaries; it’s a strategic lever that directly impacts talent acquisition, employee retention and overall organizational health.

For example, companies aiming to attract top-tier candidates or highly specialized talent often choose a market-leading approach, positioning salaries intentionally above industry averages to differentiate themselves. Conversely, businesses focused on salary containment may target the median range but supplement salaries with benefits, flexible work arrangements or performance-based incentives that remain attractive to quality talent.

Benchmarking also helps businesses identify market trends early to avoid talent gaps. In those situations, they can identify skill areas experiencing rapid salary growth and preemptively adjust budgets and recruiting strategies. As a result, they limit recruitment delays and attrition caused by salary misalignment.

Ultimately, compensation benchmarking isn’t merely about salaries. It’s a nuanced strategic tool that impacts your entire talent management approach, from recruitment and retention to employee engagement and organizational reputation.

WD: If you were to roll through the salary benchmarking process, step by step, what would that look like?

de Waal: The process is quite rigorous and structured, taking into account gathering, analyzing and interpreting salary data from a variety of trusted market sources. It typically begins with clearly identifying the roles within your organization that need benchmarking, focusing particularly on those roles that:

Are directly related to your company’s success;
Are roles that are experiencing high turnover; and,
That consistently have recruitment challenges.

The first step involves comprehensive data collection. This often includes industry-specific salary surveys, government labor statistics, compensation databases such as Payscale or Glassdoor, and reports from specialized consulting firms. Many organizations also collaborate directly with industry groups or peer companies to participate in anonymous salary exchanges.

Next, analyze data to determine how your organization’s pay aligns with the external market. This step includes carefully reviewing job descriptions and role responsibilities, ensuring accurate apples-to-apples comparisons rather than relying solely on job titles, which can be misleading. For instance, a marketing manager in one company might have responsibilities vastly different from another. So, detailed job matching is key to accurate benchmarking.

After role alignment, break down salary data by key variables, such as geographic location, industry specialization, years of experience, education level and company size. Adjustments are often required for differences in local costs of living, market competitiveness or unique skills that command a salary premium. It’s common for companies to use techniques like percentiles (25th, 50th and 75th) to establish clear and actionable pay ranges.

Finally, translate this analyzed data into practical recommendations. This is where the rubber meets the road. Typically, HR/TR teams produce benchmarking reports highlighting things like pay disparities, competitive positioning and recommended adjustments. These reports should be required reading for executive-level discussions, budget allocation meetings and strategic planning sessions.

WD: How might HR teams incorporate salary benchmarking into their hiring planning?

de Waal: Recruiters and HR teams should rely on benchmarking data to establish precise salary bands tailored to the company’s strategic objectives. For instance, if it’s critical to attract highly specialized or executive-level talent, you can intentionally set compensation packages near the upper quartile of industry benchmarks to more clearly communicate your company’s commitment to securing top talent.

In that same vein, benchmarking informs creative package design. Rather than focusing exclusively on base salary, your hiring strategy can include variable compensation elements like signing bonuses, equity grants or performance incentives tailored to candidate preferences and market demands. Even when the salary itself closely aligns with competitors, strategically designed packages can often tip the scales in your favor.

Benchmarking data also significantly shapes candidate evaluation, beginning as early as reviewing cover letters and resumes. When evaluating applicants’ stated salary expectations or their current compensation details listed in resumes, your team can cross-reference this information against benchmarked ranges. This can help your recruiters quickly identify viable candidates and streamline the interview process so the talent is tightly aligned with your compensation structure.

Finally, benchmarking should guide proactive workforce planning. For example, if your analysis reveals upward salary trends in high-demand roles — for some companies, that might be cybersecurity or software engineering — your hiring approach can shift toward accelerated recruitment, early career programs or even internal training initiatives. The main goal is to create a pipeline that can be “turned on and off” as positions are needed.

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