5 Common Pay Benchmarking Challenges (And How to Overcome Them)

June 18, 2024
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Salary benchmarking can help you attract and retain top talent, reduce internal inequity, and boost productivity, morale, and engagement. 

It’s also a lot of work — and there’s a lot that can go wrong. In this article, we’ll share five of the most common challenges businesses face when conducting salary benchmarking, plus our tips on how to overcome them.

The benefits of salary benchmarking

Before we dive into the pitfalls to avoid when benchmarking salaries, let’s talk a bit about why you should bother with it in the first place. After all, conducting an organisation-wide benchmarking exercise can be a lot of work, so you need to know it will be worth your while. 

A solid salary benchmarking process can help you to: 

  • Pay fair and competitive salaries: Benchmarking salaries helps you to ensure that your salaries are aligned with the market. That means it’s the only real way to know whether you’re paying your employees the fair, competitive salaries they deserve.
  • Helps attract top talent: Offering the right salary is key to attracting top talent. But many employers’ salaries simply aren’t as competitive as they think they are. Salary benchmarking allows you to adjust your positioning to attract the talent you need. 
  • Reduce attrition: Inadequate compensation is one of the top reasons that employees leave jobs. Regularly adjusting your salaries in line with changes to the market can help you keep your best people around for longer.
  • Boost morale and motivation: All employees want to feel valued and appreciated by their employers — and regularly benchmarking salaries shows that you care about paying them fairly.

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5 key challenges in salary benchmarking (and how to overcome them) 

Here are some of the key challenges you might encounter as you embark on your salary benchmarking adventure — and what you can do to overcome them. 

Challenge #1: Finding good quality data 

When it comes to salary benchmarking, one of the biggest challenges companies face is finding data to benchmark against. So, what are your options? 

Well, in the old days, companies basically had two choices: 

  • Purchase a salary survey from a big consulting firm like Mercer or Radford 
  • Rely on self-reported employee data collected on sites like Glassdoor 

Both of these methods have their issues — as we discussed at length in a recent article

Ultimately, when you’re looking at a potential data source to use for salary benchmarking, you need to ask yourself four questions: 

  1. Is the data reliable? 
  2. Is the data timely? 
  3. Is the data affordable? 
  4. Is the data easy to understand?

Salary surveys might check box #1, but they tend to be very expensive.  There are also big problems with timeliness, because surveys can’t offer more than a one-time snapshot of the market. 

Self-reported data from sites like Glassdoor and Indeed, on the other hand, is usually free to access. But, since it’s not verified or validated, it’s not a reliable source. It’s also usually nothing more than an average salary for each role — which doesn’t give you enough nuanced information for a proper benchmarking exercise. 

These days, tools like Figures provide real-time, accurate and reliable salary data, which you can access through an intuitive and user-friendly platform. Keep reading to the end of this article to learn more about our salary benchmarking tool

Challenge #2: Finding the right data 

For salary benchmarking to be a useful exercise, you need to be comparing like for like. That means it’s all about finding the right data for your organisation. 

For example, industry reports and salary surveys are usually skewed towards large enterprises. That means this data probably won’t be of much use to a startup or scaleup, because their salaries aren’t comparable. 

You might also want to compare salaries with other companies in your industry, or with your biggest competitors for talent. Of course, it’s also crucial to account for geographical differences in salary, since compensation can vary widely between different cities.

All of this means that you should look for a tool that allows you to easily filter data by location, industry, company size and more. This way, your comparisons will be as accurate as possible, and you’ll be able to determine the right salaries for your specific situation. 

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Challenge #3: Keeping up with changing market conditions

While the job market has cooled slightly since the ‘Great Resignation’ we saw in 2021 and ‘22, it’s still very competitive for certain roles. Salaries for these roles move quickly — and you need to keep up with the market if you want to land in-demand talent. 

But here’s the problem: traditional salary surveys are only carried out once a year, or biannually at most. And collating, cleaning and organising the data takes time too. That means that salary data from a survey or industry report may already be outdated by the time you get your hands on it. 

And using self-reported data from sites like Glassdoor and Indeed is even worse. The figures that you see on these sites are often an average of all salaries that have ever been submitted for that role. That means you might be looking at data that’s several years out of date. 

The solution here is pretty obvious: Look for data that’s as close to real-time as possible. Even better, opt for a tool (like Figures) that regularly updates its dataset based on real-time information.

Challenge #4: Matching job titles for fair comparisons

All businesses have their own set of job titles, seniority levels and job descriptions, which might not match the ones you use at your organisation. And even when roles are the same, you might find slight differences in the title each employee is given (think senior software developer vs. software developer II, for example). 

This is even more of a challenge in a startup or scaleup environment, because it’s common for employees to have a broad set of responsibilities that encompass elements of different roles. For example, a finance manager might also be responsible for managing payroll. 

So, what’s the solution? Simply put, you need to put some work into properly defining each role before moving on with the benchmarking process. That means conducting a thorough analysis of what every employee at your company actually does (and what they don’t do). By focusing on job descriptions rather than titles, you’ll be able to more accurately compare your salaries to the market. 

Challenge #5: Maintaining internal equity 

Salary benchmarking is key to paying fair and competitive wages. But you need to make sure you don’t introduce internal inequities while you’re doing it. 

This situation usually arises when companies benchmark salaries for new employees but don’t regularly adjust pay for their existing team. For fast-moving roles, you might find that much newer employees are paid the same (or even more) than an existing team member, despite their relative lack of experience. This is known as salary compression, and it can have a real negative impact on talent retention and engagement. 

The simple way to avoid this situation is to make market adjustments part of your regular compensation review process, which should be happening at least once a year. Some companies (including Figures) choose to do this twice a year to keep up with quickly changing salaries. 

Reliable, real-time compensation benchmarking 

So, what’s the solution for smooth, easy and accurate salary benchmarking? We’re glad you asked! 

Figures is an all-in-one compensation management platform that lets you benchmark salaries against a dataset of more than 1000 companies across Europe. Here are some of the biggest reasons to give Figures a try: 

  • Up-to-date, accurate data: Our salary data is automatically pulled from our clients’ HRIS systems. That means two things: first, it’s an accurate representation of what companies are actually paying. Second, because it’s updated every night, it’s about as close to ‘real-time’ data as you can get. 
  • Filterable by company size, industry, location and more: Using our tool, you can filter your results down until you’re only looking at companies that are directly comparable to yours — helping you to get the most accurate benchmark possible. 
  • Comprehensive coverage thanks to FiguresAI: As we’ve mentioned, finding the right data is the biggest challenge in salary benchmarking. But if you’re hiring for a niche role, in an emerging location or in a quickly evolving market, that data may simply not exist. To solve this problem, we created FiguresAI, a sophisticated algorithm that fills gaps in our dataset by intelligently interpreting the information we have. 
  • Intuitive, easy-to-use platform: With Figures, you can say goodbye to complex spreadsheets that require a PhD in Excel to understand. Our platform is designed to be intuitive and easy to use — so anyone can access the benefits of reliable salary benchmarking.

Want to learn more about how Figures could help you? Sign up for a free demo to get started. 

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