Boyd Davis, CEO Payfederate
Employees aren’t just working for pay—they’re investing in the relationship they have with the organization, trusting that they’ll be fairly compensated. When that trust is broken, it’s incredibly hard to restore. Salary benchmarking is a key tool in ensuring that compensation is aligned with market expectations, but if done poorly, it can be worse than not doing it at all. Organizations that lack benchmarking often pay very close attention to signals from the market and employees. On the flip side, organizations with flawed benchmarking can be lulled into a false sense of security and overlook risks to their talent. The best solution is to benchmark effectively.
Many organizations rely heavily on salary surveys to benchmark their compensation strategies. While this is a standard practice, I’ve noticed that not all salary benchmarking processes are created equal. Too often, I’ve seen companies fall into common pitfalls that not only skew compensation data but can also erode employee trust, leading to retention issues. In this blog, I’ll walk you through some of the most frequent mistakes organizations make in salary benchmarking and how to avoid them.
The Pitfalls of Salary Benchmarking
Pitfall 1: Job Matching with Inaccurate Descriptions
One of the earliest mistakes happens when companies fail to accurately match their jobs to the appropriate benchmark positions. This may sound simple, but it’s crucial that job descriptions reflect the actual work being done. If you’re using outdated or poorly written job descriptions, the benchmarks you choose will inevitably miss the mark, distorting your understanding of the market rate for specific roles. This mismatch creates salary ranges that are either too high or too low, eroding trust between employees and leadership.
Pitfall 2: Infrequent Benchmarking
The labor market is dynamic, shifting at different rates for different jobs. Some roles, especially those in tech or niche industries, may experience rapid wage increases while others remain relatively stable. If you’re not benchmarking salaries at least annually, you risk falling behind the market. In today’s competitive hiring landscape, this can make it hard to retain and attract top talent.
Pitfall 3: A “One-Size-Fits-All” Approach
Many companies make the mistake of applying the same merit increases across all job categories. The reality is that some roles see faster market movement than others. By treating every position the same, some employees may receive raises that far outpace the market while others fall behind. This not only affects your bottom line but also risks alienating high performers in roles that are seeing fast wage growth.
Pitfall 4: Relying on a Single Data Source
A single salary survey can only tell you so much. Relying on one source of benchmarking data is risky, as it can be affected by changes in survey sampling or outliers that skew results. Best practices dictate that multiple data sources should be used to get a clearer picture. At Payfederate, we provide real-time job posting data to supplement traditional salary surveys, ensuring our clients have a comprehensive view of market trends.
Pitfall 5: “Set It and Forget It” Job Architecture
Many organizations use a job architecture to group roles by career level, function, or area. While this structure provides much-needed clarity, it should not remain static. The labor market is always evolving, and it’s important to revisit your job architecture periodically to ensure it reflects current market conditions. A static structure can lead to misalignment between job families, leading to compensation inequities.
Avoiding the Pitfalls
1. Adopt a Compensation System of Record
Relying on spreadsheets may offer flexibility, but it introduces complexity and makes it difficult to properly visualize, analyze, and compare compensation data. By adopting a compensation management system like Payfederate, your organization can seamlessly assess new market data, track current and proposed pay ranges, and evaluate their impact on employees. This kind of technology ensures you stay aligned with market trends and make well-informed decisions.
2. Utilize Multiple Data Sources
Traditional salary surveys remain invaluable, but they shouldn’t be your only source of truth. Using a combination of industry-specific and regional data helps round out your view of the market. Tools like Payfederate offer real-time job posting data that can augment traditional surveys, ensuring your compensation benchmarking is robust and accurate.
3. Leverage External Expertise
Smaller organizations often lack the internal expertise to conduct effective salary benchmarking. Engaging a compensation consultant can fill that gap, offering best practices and access to specialized data. Hiring external help is often more cost-effective than purchasing additional data sources and brings fresh insights that could greatly improve your compensation strategy. For trusted consultants, you can explore resources like the Payfederate Consulting Directory.
4. Make Benchmarking a Continuous Process
Too many companies fall into the trap of conducting compensation benchmarking every two or three years. This cadence is too slow to keep up with a rapidly evolving labor market. Benchmarking should be an annual, if not continuous, process. Spot checks, especially when there are internal escalations or sudden market shifts, are crucial for keeping compensation aligned with both internal goals and external realities.
The Bottom Line: Benchmarking Is Hard, But Essential
Benchmarking salaries is a complex process, but it’s one of the most important things a company can do to maintain employee trust and stay competitive in the market. By avoiding common pitfalls—like inaccurate job matching, infrequent benchmarking, and reliance on a single data source—you can levy compensation benchmarking tools and create a compensation strategy that’s both fair and aligned with market trends.
At Payfederate, we’ve built a platform that simplifies the process of compensation benchmarking, providing real-time data, supporting multiple data sources, and continuous monitoring to ensure your company stays ahead of the curve. If you’re ready to elevate your compensation strategy, Payfederate is here to help.
Let’s talk about how we can make your compensation strategy more competitive.
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