Benchmarking is an inevitable truth of our lives. In the absence of it we live a life of no one and reach nowhere. Since childhood, we use benchmarking. When we start to go to school, our parents benchmark the schools we go to, they benchmark our grades to be achieved. As we grow up, we benchmark our likes in clothing, places where we eat, we enjoy, even the college that we complete our higher studies from. In the lifespan of an organization, benchmarking plays a very important role. We benchmark ourselves at many different aspects of the business life-cycle, out of which one of the most important benchmarking is ‘salary benchmarking’. Ironically, many organizations confuse themselves with, benchmarking and competitor analysis. We need to understand the basic difference between the two, as benchmarking is a journey of “what to how”, whereas; competitor’s analysis is nothing more than just a “wannabe approach”.
“When you do benchmarking, you actually look for the blind spots that are stopping you to be better than what you already are and work towards improving them.”
Salary benchmarking also called ‘compensation benchmarking’, is the process by which internal job descriptions are matched to external jobs with similar responsibilities to identify the market rate for each position. In this process, you want to ensure that while you hire a candidate from the market for a certain role, you don’t end up over or underpaying the resource for that certain role. There are many external and internal factors that must be considered while doing the benchmarking for a certain role i.e. geographic location, company size, and education level factor.
Types of Benchmarking While searching for the right point where an employee would be considered as the rightly paid candidate for the right kind of job, you may have to look in all directions, inside, outside and beyond.
Internal Benchmarking In internal benchmarking, you compare internal salary parities to a similar role inside the organization in maybe a different department to acquire the best internal benchmark. For example, at the managerial level, two departments might have two different set of requirements and the complexity of their roles, still what we need to check is that there is not a huge disparity in their salaries. However, it could be a possibility that a manager in an IT department might earn a little higher salary than of a manager in an admin team, considering various factors. Still, it should not be the case that a manager in department A earns ‘n’ salary, whereas in department B a manager is earning (n)x10. This would be a huge disparity and may become a cause of internal discomfort among employees.
The external benchmarking much similar to the internal benchmarking, with one major difference is that you compare your salaries, benefits and other best practices with the other companies in the similar or different industries (preferably in the similar industry). However, doing external benchmarking with a different industry is also a good approach, as it might show you the blind spots of your industry as a whole.