IDR | 06 Apr 2021

A guide to pay benchmarking

What is the purpose of pay benchmarking?

Pay benchmarking is used to obtain a view of the market salary for a job or group of jobs. Such exercises are used for recruitment to new roles, promotions or changes to roles, as part of planning ahead of a salary review, or as a guide in the development of salary ranges.

There are a number of factors to consider when matching a job to a salary survey or pay benchmarking tool:

-Sizing the job – if the job has already evaluated, think about how to match your roles against the survey’s role descriptors and/or levels. Things to think about include: who does the role report to; is it on the leadership team; does the role have any direct reports; is it responsible for managing budgets? As well as information in the job description, an organisational chart can be useful in determining the job level.

-Sector, function or occupation – sector-specific surveys can be useful for providing more granular data, but it can also be useful to broaden your search from just looking at the defined sector in which your organisation operates. For example, in terms of recruitment and retention, employees will not necessarily be moving to and from jobs in the same sector. Consider using a broader sector match such as private services or manufacturing to give a wider view of the market. Also, think about what function the role is accountable for: if the role is in a generic corporate function such as HR or finance, location may be more important as a factor than sector. However, it is also important to bear in mind sector variations that may impact survey data samples, such as finance (typically higher-paying) and the voluntary sector (typically lower-paying).

-National or regional data? National data gives a broader view of pay; however, if your organisation is based in a higher-paying region including London and the South East then it is important to compare data that includes additional allowances in the benchmarking calculations. Some survey providers may only provide pay data for national, inner and outer London.

-Size of company – some salary surveys allow you to match pay data to companies of a particular size using number of employees and/or turnover data as factors.

-Blended data – when a survey does not meet the role, two jobs may be merged and the data blended proportionally. For example, in the case of an administrative role with financial responsibilities (60% administration; 40% financial):

Merge the data for these two roles in proportion

-Administration role median = £20,250 (60% = £12,150)

-Finance role median = £24,400 (40% = £9,760)

Specific role median = £12,150 + £9,760 = £21,910

-Sources – you can perhaps never have enough sources of data, but it is recommended that you use more than one source or type of survey before making any recommendation on pay. Also, think about how up-to-date the survey is and whether you need to age or weight the data.

-Company strategy – median payers? When benchmarking a role it is important to consider what your company’s strategy is in relation to reward. Does it aim to be a median payer, or higher? A role being paid within the interquartile range may be satisfactory as there is room for the incumbent to progress with the range.

It is important to think about why you are benchmarking the role – this will impact the final recommendation. For example, if you are recruiting to a new role then you may want to recruit to the bottom of the benchmark range or lower quartile, particularly for employees with less experience in the job. This is so that the new recruit has somewhere to progress to as they gain experience and knowledge in the role. If you are benchmarking for an existing role, perhaps an employee that has been in role for some time, then you may wish to ensure they paid at least the market median or towards the upper quartile.

Other considerations

-         Internal benchmarking! – Benchmarking to the external market is important; however, maintaining internal equities and fairness is also an important consideration.

Look at similar jobs or groups of jobs (in similar functions and grades) to determine what an internal salary range looks like. Compare the internal salary range with the external benchmark information and try to take both into account when making a recommendation or decision on pay. Be careful not to recommend paying a new recruit above an existing employee in a similar position.

Have you tried IDR Pay Benchmarker? It is a great tool for benchmarking helping to identify other conditions alongside basic pay such as hours, holidays and location allowances. It also allows you to view information on a named-company basis, which is invaluable for ensuring you are comparing like with like.