Recent policies prohibiting employers from asking about candidates’ salary histories have underscored the need for new methods to decide suitable compensation. Salary benchmarking, which uses market data to determine competitive pay rates, emerges as a pivotal solution. Research in collaboration with U.S. payroll processing giant ADP reveals that access to salary benchmarks significantly influences firms’ pay-setting, leading to more market-aligned compensation and enhanced employee retention.
Key Points:
- Salary benchmarking uses aggregated market data to determine competitive pay, helping firms strike a balance between overpaying and underpaying employees.
- A study with ADP, covering its salary benchmarking tool’s roll-out from 2015 to 2020, showed firms were twice as likely to set the “right” salary after accessing the tool, leading to convergence in position-level salaries across companies.
- Salary benchmarking positively impacts employee retention; a 6% increase in average salary led to a 16% increase in retention rate over the following year.
- While many tools and sources are available for salary benchmarking, including government data, consulting firms, and crowdsourced platforms like Glassdoor, employers value some sources more for their trustworthiness.
- Regularly reviewing and updating salary benchmarks and being proactive in pay-setting can reduce employee dissatisfaction and turnover, making businesses more competitive in the job market.
Source: https://hbr.org/2023/10/why-your-organization-should-use-salary-benchmarking?ab=HP-latest-text-6
