Salary benchmarking: Importance and best practices

In a global job market, compensation expectations shift fast. Hiring across countries or building a distributed team requires a structured compensation strategy that keeps you competitive. Benchmarking uses real-world salary survey data to inform your compensation planning. This leads to better offers, stronger retention, and fewer compliance surprises across regions.

But salary benchmarking goes beyond base pay. It requires understanding the full value of a role, including benefits packages, bonuses, and other total rewards that shape how candidates and employees perceive compensation.

It also supports pay equity and improves pay transparency, helping companies offer more competitive salaries. Read on to learn more about salary benchmarking. This guide outlines the key components, benefits, and best practices for implementing a strategy that scales globally.

What is salary benchmarking?

Salary benchmarking—sometimes referred to as compensation benchmarking—involves comparing your pay practices, including salary ranges, benefits, and other incentives, against current market data for similar roles.

This benchmarking process helps you see how your current compensation packages compare to market expectations. It often begins with gathering data from trusted sources, including salary surveys, government reports, and compensation platforms. From there, companies look at average salary by region or job level and use a benchmarking tool to assess trends. This helps you refine pay ranges and ensure your salary offers are consistent and fair.

Why is salary benchmarking important?

When hiring globally, figuring out what to pay isn’t always obvious. Salary benchmarking gives you a practical reference point to help you set fair pay and stay competitive. Here’s why that matters:

• Attract qualified candidates: Benchmarking helps you offer competitive salaries, which increases interest in your job postings.
• Enhance employee retention: Regular benchmarking helps keep pay ranges and salary raises consistent and fair, boosting long-term engagement. When pay aligns with the market, employees are less likely to leave. 
• Maintain pay equity and fairness: It’s hard to address pay equity issues without knowing how your compensation compares to similar roles in the region. Benchmarking provides a reference point, reducing unintentional pay gaps.
• Comply with local regulations: Many countries and regions have rules about minimum pay or pay transparency. Benchmarking helps you align your compensation strategy to meet local labor laws.

Elements of salary benchmarking

Effective benchmarking requires more than just a job title and a salary figure. When reviewing data to determine what a competitive offer looks like, keep these key elements in mind:

• Geographic region: This focuses on labor market dynamics, such as supply and demand for talent, local salary norms, and what employers in a given region are paying for a role. 
• Cost of living: Consider cost of living data and how far a salary goes in a given location to determine whether to adjust pay when hiring remotely or setting location-based pay ranges.
• Industry sector: Two companies in different industries may pay differently for similar roles. For example, tech and finance firms often offer higher base salaries and bonuses than nonprofits or public sector employers.
• Company size: From startups to global enterprises, each business takes different approaches to compensation. Larger companies may offer broader total rewards packages, including equity or long-term incentives, while smaller firms may focus more on salary or flexibility.
• Level of experience: Someone early in their career won't command the same salary as a tenured expert. Good benchmarking breaks out pay ranges by experience level (entry-level, mid-level, senior) to avoid over or underpaying.
• Skills and credentials: Specialized skills, certifications, and in-demand tools can justify higher pay. Salary data consistently show that candidates with niche or technical expertise earn more—even in the same role.
• Benefits and incentives: Benchmarking isn't just about salary. Compensation packages may include incentives like bonuses, retirement plans, and healthcare. 

Together, data from these areas form the foundation of the benchmarking process. The more precisely you match roles and market data, the more accurate and helpful your benchmarks will be, whether you're refining pay ranges or shaping your overall compensation planning strategy.

How to do salary benchmarking

Salary benchmarking is an integral part of compensation planning, especially for global organizations. Follow these steps to get it right:

1. Identify and categorize positions for comparison: Outline the roles you want to benchmark and group them by department, level, and location. Don't rely solely on job titles. Instead, focus on day-to-day responsibilities to ensure you're making accurate comparisons. 
2. Select reliable data sources and gather market data: Pull market data from multiple sources, including salary surveys, HR publications, and third-party benchmarking platforms. Keep track of where the data came from and when it was collected. 
3. Analyze and compare internal and external compensation data: Match your salary and benefits against external benchmarks—filter by criteria such as location, experience level, and role type. Identify inconsistencies or areas needing adjustment.
4. Define or adjust salary ranges and compensation packages: Clarify minimum, midpoint, and maximum levels for each role based on the external data. Go beyond base pay and include bonuses, benefits, and equity where applicable. Ensure your salary ranges align with your compensation goals and budget.
5. Review and update benchmarks regularly: Benchmarking isn’t just a one-time exercise. You can make the process repeatable by capturing how you defined the roles, what sources you used, and how decisions were made. Review salary data annually or anytime you expand into new markets, add roles, or face new regulations.

Salary benchmarking best practices

Effective salary benchmarking ensures you apply the data properly. To do this, many teams rely on compensation benchmarking tools to organize and compare salary data across roles, regions, and industries. This ensures fair, competitive pay ranges. It’s especially instrumental when managing compensation across multiple locations or evaluating new or changing job markets.

To inform each step and get the most out of the benchmarking process, follow these best practices:

• Use reputable and current data sources: The effectiveness of your salary benchmarking depends on the quality of your inputs. Prioritize up-to-date salary surveys, government reports, reliable third-party platforms, and your own calculations that reflect your target markets and roles.
• Match job descriptions accurately, not just titles: Job titles often vary between companies. Focus on responsibilities, seniority, and skill level to ensure you're comparing similar roles.
• Consider the full compensation package, not only base salary: You can include bonuses, equity, and other total rewards to deliver a package that will resonate with candidates and employees.
• Align compensation strategy with business goals: Your approach to pay should support broader company objectives, whether hiring quickly in a new region, retaining key talent, or improving pay equity.
• Keep documentation transparent and up to date: Record how and why you selected roles, which data sources you used, and any adjustments you made. This promotes consistency, helps explain decisions internally, and makes future updates easier.

Simplify salary benchmarking with Oyster

Oyster simplifies salary benchmarking and compensation management for global companies through one streamlined platform. With compensation intelligence from our Salary Insights tool, you can compare salary data across countries, roles, and seniority levels, helping you build a fair and competitive compensation strategy no matter where you're hiring.

From crafting compliant compensation packages to promoting pay transparency, Oyster makes it easier to hire, pay, and manage talent across borders.

Ready to streamline your global pay protocols? Explore Oyster's employer of record, global payroll, and compensation intelligence solutions today.