Attracting and retaining the best talent for your company often comes down to offering competitive compensation. Compensation benchmarking—or more specifically, salary benchmarking—helps you understand what’s standard in your specific industry’s job market so you can ensure your compensation packages and salary ranges are competitive and fair.
What is salary benchmarking?
Salary benchmarking is the process of comparing internal job roles and their salaries against the market. Salary benchmarking is just one aspect of overall compensation benchmarking, which also compares bonuses, equity, and other parts of your total rewards program to the market in addition to salaries. The goal of salary benchmarking is to specifically understand where your company’s pay ranges and average salaries stand in the market so you can make informed decisions about employee compensation.
When evaluating salary benchmarks for your company, consider the following factors:
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industry
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geographic location
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company size
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role experience or requirements
If you’re an early or mid-stage startup, it’s important to use benchmarks built using data from similar-stage private companies since public companies will compensate differently.
Why is compensation benchmarking important?
While a compelling product and company vision will always play a part in attracting and retaining high-performers, it’s not enough. Offering a competitive compensation package is key to attracting the best talent and reducing turnover by keeping employees satisfied and motivated.
Evaluating salary benchmarks along with other compensation benchmarks throughout the year will ensure that your compensation strategy stays competitive even if the market fluctuates. A job offer that was competitive six months ago might no longer align with what competitors are willing to pay now.
Staying up-to-date with relevant benchmarking data will also help you spot pay discrepancies and maintain internal equity across your organization. Offering fair and transparent compensation can increase employee engagement, satisfaction, and loyalty—ultimately reducing attrition.
Finally, benchmarking can help you manage burn since it can help you avoid overspending on salary and equity compensation, helping you extend your cash runway.
How to conduct salary benchmarking
Before beginning the process of salary benchmarking, it’s important to have a clear compensation philosophy, which gives you guidelines on how competitive you want to be —like paying in the 50th percentile for salary and 75th percentile for equity.
Once you have your compensation philosophy in place, it’s time to get started on the salary benchmarking process.
1. Define current job roles and responsibilities
Put together or review your existing internal job descriptions to get a clear idea of each role’s duties, skill set, education level, or experience requirements. You’ll need this as a starting point so you can compare your roles against competitors’.
This first step is important because job titles and responsibilities aren’t standardized across the market—a “Content Strategist” at one company may have very different responsibilities than at another. To ensure you’re using salary benchmarking data appropriately, you need to have clear job descriptions that outline expectations for each role.
2. Gather benchmarking data
Accurate and relevant compensation data is crucial to ensure you’re compensating fairly and competitively. While you can scour online job listings, review sites like Glassdoor, or use free data sources like the U.S Bureau of Labor Statistics to get an idea of what the market value is for certain job roles, it's time-consuming to put this data together into benchmarks. Plus, you won’t find equity compensation data readily available.
It can also be difficult to find metrics that are specific to the role, industry, location, and company size for which you’re trying to create a salary band. This makes compensation planning even more difficult.
A better way to get more accurate benchmarking data is to use salary benchmarking tools—like Carta Total Compensation—which collect, analyze, and compare data on the competitive salaries of similar roles within a certain industry and company size—and geo-adjust the information for different regions in the world. With the right data, you can make smarter compensation decisions that help you grow and scale while controlling costs.
3. Analyze and compare salary data
Once you’ve gathered the appropriate salary data or benchmarks, it’s time to compare your compensation packages against the market data, considering factors like experience, location, and industry. Are you currently paying above, below, or equal to market rates (and your compensation philosophy)? Are employees performing the same or similar jobs being paid equitably across the organization?
The goal here is to identify gaps, opportunities, and areas for adjustment. Maybe your startup can't compete on salary alone but can offer more enticing equity packages or growth opportunities. These insights will guide how you structure your compensation packages, ensuring they are not only fair and competitive but also aligned with your compensation philosophy and overall comp plan.
4. Implement and adjust based on findings
The final step is putting your benchmarking insights into action. That means either creating or adjusting your current salary bands or salary targets—the upper and lower amount your company is willing to pay for each job level—to match your compensation philosophy. If your compensation philosophy is to pay senior executives in the 75th percentile for salary and equity compensation, and you notice that you’re currently only paying in the 50th, it’s time to make some adjustments.
Transparency is key here. Clearly communicate any changes and the rationale behind them to your employees. This openness not only builds trust but also helps employees understand their value within the company. Remember, the goal of salary benchmarking isn’t just to create salary bands for different job levels; it's to foster a culture where employees feel valued and motivated.
5. Periodically review and adjust
Salary benchmarking isn’t something you can just set and forget—especially in the world of startups, where the market is constantly shifting. Set a regular schedule for reviewing your compensation packages. This could be quarterly, biannually, or annually depending on your industry and growth rate.
During these reviews, reassess your compensation philosophy and ensure it still aligns with your business objectives and market conditions. Are you meeting your goal of paying in the desired percentile? Have market trends shifted in a way that affects your competitiveness? These periodic reviews are also an opportunity to address internal changes, such as promotions, new roles, or changes in job scopes.
Reassessing and realigning ensures your compensation and benefits remain fair and competitive, which is essential for employee retention and for attracting top talent as your company grows and evolves.
Pay every employee accurately with startup-specific salary and equity benchmarks
Carta Total Compensation has the largest set of private company equity data and is the only tool with the machine learning technology to ensure compensation benchmarks reflect market changes. Easily sort salary and equity benchmarks by peer group, industry, role, location, and more so you can make fair and competitive compensation packages that help you win and retain top talent.
