Salary Benchmarking: The Data You Need and Where to Get It
Salary benchmarking (or compensation benchmarking) is the process of matching the jobs at your company with relevant market data to determine what you want to pay for each role.
But what kind of data should you use for benchmarking and where do you get it?
What data should you benchmark against?
Start by defining your market. In other words, what kind of companies do you want to include in your market analysis?
A common practice is to consider companies that are comparable to yours in:
- Number of employees
- Ownership structure (private or public)
- Funding raised (for venture-backed companies)
You can choose one or many of these criteria. Or you might choose to cast a broad net and benchmark against any company that has jobs for the same role and level.
If you have high employee turnover, you can also benchmark against the companies that your employees are leaving for.
These are all valid approaches. It all comes down to what type of companies you are competing with for talent. If you are a private company based in Seattle, but are continuously competing against public companies in the area (like Microsoft and Amazon), you may want to consider including public company data.
Now that you have defined the companies that you’re competing against in the labor market, you need to find salary benchmarking data that includes these types of companies.
6 Sources of Salary Data
1. HR-reported salary surveys
Salary surveys by big consulting firms are traditionally known as the most reputable, large-scale, and expensive type of compensation data set.
The data is submitted by HR professionals at a large number of companies and then vetted by a provider such as Mercer, Radford/Aon, or Willis Towers Watson.
These surveys are particularly well-known as good sources for highly-compensated industries, like finance, accounting, legal, and IT.
The statistical analysis is done by experts, who ensure that the data is aggregated in the right way. Jobs are clearly organized by job description, job family, and job level.
These comprehensive surveys take months to collect and analyze, and they are usually published once or twice a year, so they give you data for a static point in time. In a shifting talent market, you'll likely need to purchase a new survey at least annually and, as the data gets stale quickly, you may even need to "age" the data.
2. Regional or industry-specific surveys
Salary surveys are also conducted by regional HR groups and industry associations.
The method behind these smaller surveys can vary from very rigorous to very informal, so read up on how the data is collected before you buy.
They might be HR-reported and outsourced to a consulting firm for analysis, similar to the big surveys above. Or they might be crowd-sourced and organized by someone in-house.
These surveys can be extremely valuable, because they might cover a specific niche, location, or type of job that you’re interested in benchmarking against.
The price point for smaller surveys is more accessible. They may even be free with your association or industry membership.
3. Tech-focused surveys
The roles and types of talent that tech-focused organizations need to bring on can be quite unique (think DevOps Engineer or Data Scientist). It's also fair to say that the talent market in the tech industry moves particularly fast.
Comptryx, by Mercer, is an online benchmarking database that specializes in technology-focused companies. It is a global salary survey, but also tracks other workforce metrics like voluntary turnover rate.
Option Impact, by AdvancedHR, is another popular benchmarking survey for private venture-backed companies. It is a “give-to-get” survey, where employers can submit their own salary data in return for free access to the full data set. Option Impact is noteworthy because it is a rolling database that is updated weekly as new companies sign on, unlike a traditional annual survey.
4. SaaS benchmarking tools
If you’re googling around for salary data, your first stop will probably be a software like Salary.com or Payscale.
A subscription to one of these platforms gives you ongoing access to a benchmarking database.
Salary.com takes hundreds of traditional HR-reported salary surveys and blends them on an ongoing basis in order to come up with the market benchmarks for any given job.
Similarly, Payscale also aggregates and blends many HR-reported salary surveys. In addition, they conduct their own surveys of employers and collect crowd-sourced data directly from employees.
These tools have some freemium features that allow you to evaluate the software before you buy.
5. Crowd-sourced data
Over the past few years, there has been an explosion of crowd-sourced compensation data.
Sites like Glassdoor, LinkedIn, Blind, and Levels.fyi allow employees to submit their own salaries into an anonymized public database.
This kind of data is not verified or leveled into a consistent framework, so it can be difficult to know whether your jobs match up well with the jobs being reported.
Another crowd-sourced data set are the salary spreadsheets that circulate within private networking groups and industry associations. These spreadsheets ask group members to self-report their own salaries, and they’re often created as a response to dissatisfaction about pay transparency or pay equity issues.
There’s one important reason why you might want to consider crowd-sourced data in the mix: your employees and job-seekers can see it. That means it influences your compensation strategy, whether you like it or not.
One perspective on crowd-sourced data is that it can provide useful insights when it is used to supplement traditional salary surveys. The more data sources you use, the better your overall read on the market.
6. Your talent team
Your company’s talent acquisition team or recruiters are a source of benchmarking data that is often overlooked.
They talk to candidates every single day about their salary expectations and competing job offers, so they are keeping tabs on the compensation trends in the market right now.
Typically, this salary data is recorded informally in your ATS or interview notes. Some organizations take the additional step of creating a spreadsheet to keep track of what candidates expect.
This data gives you ongoing live insight into the compensation benchmarks for your specific business and market.
How many benchmarking data sources should you use?
There’s no hard and fast rule that determines how many data sources you need. It varies based on whether your labor market is very competitive, whether good data exists for your set of criteria, and how much time and money you have to invest in this process.
Most consulting firms suggest using multiple reputable sources, because that will give you a good variety of robust data to inform your pay.
A study by Lighthouse Research shows that the average small company (<250 employees) subscribes to between 1 to 5 salary surveys. While most medium-sized companies (500 to 2500 employees) report that they subscribe to whopping 6 to 20 different compensation data sets.
Which sources of salary data are best for you?
There’s no universal answer to how your company should do compensation benchmarking.
If your company is smaller, you might start out by using free data sources and buying smaller salary surveys from your local HR association.
If your company is larger, needs more specific data, and is benchmarking lots of roles, then you will probably rely on multiple sources, anchored by big salary surveys from established consulting firms.
You may also want to consider recording and reporting on the salary expectations of your candidates. This data can provide a real-time source of benchmarks to supplement more traditional salary surveys.
The bottom line is: when it comes to salary benchmarking, there's no universal solution that fits everyone. Time, budget, competitiveness, location, and ease of use are all factors that will impact your choice of salary data. The market you benchmark against is as unique as your company. Ultimately, using a combination of multiple salary benchmarking sources will give you the best possible insight into the market, so that you can make the right decision about what salaries you want to pay.