Setting salaries isn’t guesswork, though there is a mix of art and science behind it. If you pay too little, you risk losing great people to better offers elsewhere; if you pay too far above market, you may get the great candidates, but you are going to unnecessarily strain your budget.
Enter, market data and benchmarking.
Analyzing salary data from both the industry and your competitors (within legal boundaries, mind you!) helps you build a compensation strategy that is both fair and competitive. You get the benefit of paying a rate that aligns with how aggressive you want to be, without the risk of being more aggressive than is necessary. Done right, properly benchmarked salaries are a win for both the employees and the company.
Last week, I released 📺 Video #2 in my compensation analysis series. That video, and what follows here will walk you through the what, where, and how of using market data effectively and strategically for the success of your organization.
First thing’s first – What is “market data”?
In short, “market data” refers to external salary information gathered from a variety of sources to help organizations make decisions regarding how to pay people in specific jobs. It gives those in charge of compensation a reference point (i.e. benchmark) to use when comparing your salaries to industry norms.
When done right, market data will help your organization:
- Offer competitive pay to attract and retain top talent.
- Ensure salaries are aligned with industry standards.
- Make data-driven compensation decisions instead of relying on assumptions or anecdotes.
In the absence of reliable market data, you’ll find that your compensation decisions become inconsistent and confusing, leading to pay structures that are difficult to maintain. This, in turn, can lead to pay gaps, and employee dissatisfaction.
Where does this data come from, anyway?
Market data can be found in a multitude of places, but your best bet is to find data that has a significant data set, and encompasses as many of your positions as possible.
1. Industry Salary Surveys
Many consulting firms, industry groups, and HR organizations conduct salary surveys that provide aggregated compensation data. These surveys often break down pay by job title, location, company size, and industry. The best ones will give you the data in a way that you are able to sort and filter it by multiple indicators.
2. HR & Compensation Software
Platforms like PayScale, Mercer, Radford, and Willis Towers Watson offer access to comprehensive salary data. Some of these tools can even provide real-time data by aggregating the pay rates of their clients. These tools help HR professionals analyze pay trends and adjust compensation strategies accordingly.
3. Professional Associations & Networking
Industry-specific associations frequently publish annual compensation reports, which can be a great way to see salary trends in your field. This is a good resource if you’re in a niche field and most of your people work in jobs unique to that field. Personally, unless you find it absolutely necessary, or the data is provided to you at no cost as part of your membership, or through complementary access to the data by participating in their salary survey, I wouldn’t recommend going this route.
Networking with other HR professionals can also provide informal benchmarking insights. The key here, though, is informal. You can get a decent pulse on trends through networking, but I would never use these interactions as a data point for a salary decision.
4. Public Data & Job Postings
Sites like Glassdoor, LinkedIn Salary, and government labor reports can offer insights into salary expectations. Treat this like the networking example above. While it can certainly give you an idea of where salaries are heading, it is far more advisable to make your decisions based on actual, verifiable data.
How to Use Market Data to Set Salary Ranges
Ok, so you have your market data, and you have 10 spreadsheets open across your 4 computer monitors. What on earth do you do with it now? Buckle up. This is where the fun starts.
1. Identify your benchmark jobs
Determine your core jobs. These should be common positions in your organization. You may be tempted to try to find salary data for your single-incumbent jobs, but that’s not the best use of your time, or your data. Keep in mind that not all jobs are going to have perfect matches to your market data, even those core jobs. You’ll need to dig into the descriptions provided with the data, which isn’t always helpful, as the information provided is usually a few sentences compared to your fully-developed job description.
A good rule of thumb is that if you can find salary data for a job that is at least an 80% match to the job you’re wanting to benchmark, you’re in good shape. From there, you may need to incorporate some artistic interpretation to round out the science of the data to determine if you need to raise or lower the match a bit to better align with your position and how it fits in the overall structure of your organization.
2. Jobs aren’t all the same, and neither are companies
Salary data is going to vary based on geography, industry, and the size of the company. Take, for example, a software engineer in San Francisco and another in Bismarck, North Dakota. Not only is the cost of living considerably higher in San Francisco, the competition for talent is much stronger, as well, which will inevitably drive salaries higher. Bismarck, on the other hand, has a much lower cost of living, and companies are far less likely to be competing with one another for talent, so salaries will be lower, despite the type of work, and the title being exactly the same.
3. Percentiles? Nobody told me there would be math!
Most salary data provides compensation percentiles (e.g., 25th, 50th, 75th). Companies must decide where they want to position themselves. This isn’t exactly an easy task, and it may take some trial and error until you find an alignment that makes you competitive while still maintaining a good ROI.
- 25th percentile = Below market (typically for budget-conscious or early-career roles)
- 50th percentile = Market median (a balanced approach)
- 75th percentile = Above market (for competitive industries or high-demand roles)
While these make the point easier to understand, you should realize that targeting the 25th percentile could make it very difficult to attract talent. You’ll save money, for sure, but some of that savings will be because you’re paying $0 to 0 employees, particularly if competitors in your local market are paying closer to (or above) the market midpoint.
Or, your ROI on your employee salaries is going to be low because, as they say, you get what you pay for.
4. Adjust for Internal Equity
Market data is your guide, but it isn’t the whole story. Attracting talent is one thing, but retaining them is another. The market moves, and if you find that you have people who are making significantly less than the market rate, particularly if they are making less than newer hires with similar (or less!) experience, an adjustment may be needed in order to maintain fairness and satisfaction within your team.
Again, this is sometimes easier said than done. Budgets exist for a reason, and you should be sure you are not only hiring, but making equity adjustments in a budget-conscious manner. Know your revenues, know the value of the output your people will produce, and pay them accordingly.
5. Review & Update Regularly
Your data should be reviewed annually at minimum. Remember above when I spoke of the benefits of networking and job postings and publicly available data? This is when those data points become incredibly useful. Market trends shift, and salary data typically lags the market by anywhere from 6 months to a year. Keep your ear to the ground so you can be aware of shifting tides that may require you to make adjustments out of cycle in order to maintain competitiveness and reduce turnover. In general, however, you should review salary data annually to keep your compensation strategy aligned with industry changes and economic conditions.
Final Thoughts: Data is a Strategic Tool
Market data aren’t just spreadsheets full of numbers that you can refer to occasionally when you need to price a new job. It’s a tool that should be front and center of any compensation professional’s utility belt.
I’m having a flashback to Adam West era Batman now. “Robin! Quick! Hand me the Comp Shark Repellant!”
Market data and benchmarking are incredibly useful tools that you can and should be utilizing frequently as part of creating a fair, strategic, and competitive pay environment for your people. Properly paid people are engaged people.
Fair and competitive pay isn’t just about numbers—it’s about building a framework that values people, drives performance, and aligns with market realities.
