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What is Salary Benchmarking? Why is it important for both employers and employees?


Posted by Iris Data Driven Agency

7 months ago

Salary benchmarking is a process of gathering data of the payment for similar jobs in other organizations to establish business own ‘market rate’ and track movements of these rates. The main reason for businesses to build their compensation benchmark is to match their wages to the ‘market rate’, which also means businesses ensure paying enough so that they can easily recruit and retain their staff, while not paying more than you have to. In this article, Navigos Search will help you understand more about the compensation benchmarking and how to make it run for your business.

Overview of salary benchmarking in businesses

What is Salary Benchmarking?

salary benchmarking

Salary benchmarking is the process that helps to ensure the internal job descriptions are matched to external jobs in similar responsibilities to identify the market rate for each position. This process allows businesses to compare internal salaries and benefits available within specific sectors in their market.

Before creating or recruiting for a new position, the HR department needs to perform market evaluations and salary comparisons efficiently and carefully. There are various factors which can affect the compensation benchmarking such as geographic location, company size, and education level,

Why is salary benchmarking important for both employers and employees?

Having a salary benchmarking was considered a strong foundation for every small to large businesses that need to do first. Based on this foundation, your businesses can grow up or fall to failure. Why did we say it? This thing can be understood as follows.

salary benchmarking

If businesses using bad market salary data or event do not have their research, then they could have a hard time attracting the best candidates, or risk hiring wrong candidates by advertising a position with not suitable salary range compared to the market. If your business hires someone, then the salary benchmark was mistaken and could be changed. Any adjustment after recruitment (especially downward) could bring employees dissatisfaction, poor employee engagement, and lead to higher turnover costs if that employee has to be replaced.

Despite this reason, salary benchmarking remains as the most important element in the hiring process of every business. Some of the benefits include:

  • paying only what is necessary

  • compensation fairly and equitably

  • improves employee retention

  • ensures competitiveness with the same positions in the market

How to make a salary benchmarking for businesses?

salary benchmarking

According to the guide to pay benchmarking of Local Government Workforce published in 2011, below is the summary of compensation benchmarking process:

1. Evaluating

Evaluate is the first stage of the benchmarking process. For the first step, businesses should gain the following outcomes: defined the purpose and objective, identified resources, understood the role of job evaluation in your process, and planned salary benchmarking for these evaluation steps.

2. Classifying

In the second stage, businesses need to identify the approach ways and process for your benchmarking and decide on the definitions of all relevant metrics.

3. Comparing

In the comparison step, businesses have to select relevant benchmark organizations, identify suitable data sources, collect data, and take analysis from this source.

4. Adjusting

These steps help businesses find how to adjust pay to eliminate significant differences from market rates, and also produce total reward statements.

5. Monitoring

At the end of the salary, the process is implemented monitoring processes, tested the success of the benchmarking, and apply it to the payment system in the internal team.


One of the primary goals when setting the level of compensation benchmarking for any position is to match it to the ‘market rate’. Paying enough not only helps businesses get easier in recruiting and retaining their staff but also ensures that they are not paying more than they have to (which effect directly in businesses budgets). This brings us to the end of the salary benchmarking guide. In case your businesses need more consulting in recruiting services or executive search for the important roles, please get in touch with Navigos Search by filling the form in the contact page or visit us on floor 20, Central Tower, 11 Doan Van Bo, Ward 12, District 4, Ho Chi Minh

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