A Harvard Business School study found that companies with access to high-quality benchmarking data were twice as likely to set the right salary. Which means companies without it are guessing. And guessing with people’s livelihoods is expensive.
Replacing a professional employee costs between 80% and 200% of their annual salary, according to Gallup’s research. For a mid level professional earning $80,000, that is $64,000 to $160,000 in replacement costs. One bad salary decision and you have blown a year’s budget for that role.
Yet most companies still benchmark salaries the way they did ten years ago: a quick Glassdoor search, a chat with a recruiter friend, and a number that “feels about right.” This article breaks down what the evidence says about how to do salary benchmarking properly, and what happens when you do not.
What Salary Benchmarking Actually Means
Salary benchmarking is the process of comparing your internal pay rates against what the external market pays for similar roles. You match your jobs against comparable positions in other companies by looking at responsibilities, experience levels, geography, and industry. Then you figure out where your pay sits relative to the market.
The comparison usually looks at percentiles. The 25th percentile means 75% of the market pays more than you do. The 50th percentile is the median, the middle of the pack. The 75th percentile means you are paying more than three quarters of the market. Where you choose to sit depends on your compensation philosophy and what you can afford.
Think of it this way. If you are a technology company competing for senior engineers against well funded competitors and fully remote employers paying top dollar, you need to know what those competitors are offering. Without that data, your salary negotiations are a coin toss.
Why Most Companies Get Benchmarking Wrong
The biggest mistake is comparing job titles instead of job content. A “Senior Software Engineer” at a 500 person technology company and a “Senior Software Engineer” at a multinational bank could have wildly different responsibilities. Salary.com recommends that human resources professionals compare descriptions that share at least 80% of the same responsibilities and requirements. Titles alone tell you almost nothing.
The second mistake is relying on a single data source. Employee reported data on platforms like Glassdoor can be useful as one input, but it is self reported and often out of date. Compensation experts consistently recommend using multiple data sources: industry salary surveys, government labour statistics, recruitment agency data, and peer company intelligence. When multiple sources point to the same range, your confidence in the benchmark goes up.
The third mistake is benchmarking base salary alone. Total compensation includes bonuses, health insurance, retirement contributions, transport allowances, training budgets, and increasingly, remote work flexibility. A company offering $70,000 base with a strong benefits package might actually be more competitive than one offering $80,000 base with nothing else. Mercer’s research emphasises that total remuneration comparisons give a far more accurate picture than base salary alone.
Bureau of Labour Statistics data shows that benefits account for roughly 30% of total compensation for private industry employees. Ignoring this component means your comparison is off by nearly a third before you even start.
What the Research Says About Pay and Retention
Does paying more actually keep people? The answer is more nuanced than most human resources teams assume.
Ravio’s 2026 Compensation Trends report analysed the relationship between pay levels and turnover across European technology companies. They found that employees paid above the 55th percentile had the lowest share of departures. Pay above market does reduce turnover. But the effect is not uniform across all roles. For support roles and early career professionals, competitive pay had the biggest impact on retention. For senior professionals and managers, other factors like career progression, equity compensation, and strategic influence mattered more.
The same report found that attrition rates across European technology companies averaged 17.4% in 2025. Engineering roles had the lowest attrition at 12%, while operations roles had the highest at 21%. These numbers give you a baseline to measure your own retention performance against.
Gallup’s research on preventable turnover adds an important layer to this picture. They found that 42% of employee turnover is preventable. When they asked departing employees what could have kept them, compensation and benefits accounted for 30% of the actions that could have been taken. But 70% of preventable turnover related to how people were managed: personal interactions with their manager, frustrating organisational issues, and lack of career advancement opportunities.
Here is what this means in practice: pay is a necessary but not sufficient condition for retention. If your salaries are below market, you are giving your best people an easy reason to leave. But increasing salaries without fixing management, culture, and career paths will not solve the problem either. Pay removes a source of friction. Everything else gives people a reason to stay.
A 2023 study published on ResearchGate examined the impact of monetary compensation on retention among 385 employees. The findings were clear: performance based bonuses had the strongest influence on retention because they directly connected financial rewards to individual contributions. A compensation model that explained 51.3% of the variance in retention was driven most powerfully by fair compensation, benefits, and performance management working together.
How to Run a Salary Benchmarking Exercise
Here is a step by step process that works for organisations of any size, in any market.
Step 1: Define Your Compensation Philosophy First
Before you touch any data, answer this question: where do you want to position your pay? WorldatWork’s research makes clear that benchmarking without a compensation philosophy is like using a GPS without entering a destination. You will get data, but you will not know what to do with it.
Common positioning strategies include: paying at the 50th percentile to match the market, paying at the 75th to lead the market for hard to fill roles, or paying at the 25th percentile while compensating with equity or flexible benefits. Some companies, like Netflix, take this further by explicitly targeting top of market pay for every employee, removing compensation as a reason to leave. Others, like Buffer, use transparent salary formulas published publicly. The right choice depends on your talent strategy, budget, and competitive environment.
Step 2: Map Your Jobs Accurately
Write detailed job descriptions that go beyond titles. Include core responsibilities, reporting lines, team size for leadership roles, required technical skills, years of experience, and decision making authority. This is what you will match against external data.
A common problem across industries: companies use the same title for roles with very different scopes. A “Senior Software Engineer” building core payment infrastructure at a fintech company is not the same as a “Senior Software Engineer” maintaining a corporate website at an insurance company. If the job match is wrong, the benchmarking data is useless.
Step 3: Gather Data From Multiple Sources
Useful data sources include: professional salary surveys from consulting firms like Mercer, Willis Towers Watson, Radford, or regional consultancies; government labour statistics and published wage data; recruitment agency market intelligence; public job postings on platforms like LinkedIn and Indeed; compensation platforms like Figures, Ravio, Pave, or Carta; and confidential peer company data exchanges.
ADP’s benchmarking research stresses that data recency matters. Salary data more than 12 months old may already be outdated, especially in fast moving sectors like technology. Check when your data was collected and apply inflation adjustments if needed. Their own dataset, drawn from 42 million employees across the United States, illustrates the kind of scale that produces reliable benchmarks.
For specialised or hard to fill roles, cast a wider net. Technology roles in particular are increasingly global. Your candidates may be comparing your offer against remote positions with companies based in different countries. Understanding this broader competitive landscape gives you better data to work with.
Step 4: Compare Total Compensation, Not Just Base Salary
Build a total compensation model that includes: base salary, performance bonuses or incentives, health insurance or medical coverage, retirement or pension contributions from the employer, transport or vehicle allowances, training and professional development budgets, stock options or equity, connectivity or remote work allowances, and any other benefits your organisation or competitors offer.
Benefits typically add between 20% and 40% on top of base salary depending on the country and industry. Benepass research found that benefits account for 31% of total compensation for civilian employees in the United States, reaching 38% for government workers. Ignoring benefits means your comparison could be off by a third.
Step 5: Analyse the Gaps and Make Decisions
Once you have your data, calculate where each role sits by percentile. Identify the gaps between your current pay and your target positioning. Then prioritise. Not every gap needs to be closed immediately. Focus on roles where the gap is largest, and the business impact of losing the person is highest.
Build a business case with scenarios. What does it cost to move to the 50th percentile? The 65th? The 75th? Present these to leadership alongside the associated budget impact and the cost of inaction. When replacing a senior professional costs 80% to 200% of their salary, the maths almost always favours paying more and keeping your people.
Document your methodology carefully. AIHR’s research emphasises that a detailed report outlining your data sources, methodology, and findings is essential for supporting salary adjustments with solid evidence. This documentation also protects you in pay equity audits and transparency discussions.
The Remote Work Factor
One thing that traditional benchmarking guides do not adequately cover is the impact of remote work on compensation. Senior professionals in technology, finance, and professional services now regularly receive offers from international companies paying full market rates in their home currency. These employers do not care where the professional is located. They care about the quality of the work.
This creates a split market. Companies benchmarking only against local competitors may feel comfortable at the 50th percentile of their regional market. But their candidates are also seeing offers from remote employers benchmarked against higher cost markets.
You cannot always match remote employer salaries on a local budget. But you can compete by offering strong total packages that combine competitive local pay with benefits remote employers rarely provide: comprehensive family health coverage, employer funded retirement contributions, professional development budgets for conferences and certifications, and the social connection of working with a local team. These are real advantages that fully remote employers struggle to replicate.
How Often Should You Benchmark?
Compensation professionals recommend benchmarking at least annually, with more frequent reviews for roles with high turnover or where you are struggling to hire. In fast moving markets like technology, quarterly pulse checks on key roles are worth the effort.
You should also trigger a benchmarking review when: a competitor makes a notable hire from your company, you are getting consistently outbid on job offers, your offer acceptance rate drops below 70%, or your voluntary turnover in a specific role exceeds 20%.
Annual benchmarking is the minimum. Companies that treat it as a one-off project rather than an ongoing strategic process end up with salary structures that drift further from reality each year. And by the time you notice, your best people are already talking to recruiters.
Communicating Pay Decisions to Employees
Good benchmarking data means nothing if you cannot explain your pay decisions. Ravio’s compensation research found that even well designed compensation strategies fail when employees do not understand how decisions are made. When pay feels random or secretive, people assume the worst.
You do not need to publish everyone’s salary. But you should be able to explain: what percentile you target and why, how roles are evaluated and placed in pay bands, what factors influence where someone sits within their band, and how they can progress to the next level. Transparency does not mean full disclosure. It means giving people enough information to trust the system.
BambooHR’s benchmarking data shows that technology industry turnover has been trending below average recently, suggesting that companies investing in compensation strategy, culture, and growth opportunities are seeing results. The organisations winning on retention are not just paying well. They are communicating well about how and why they pay what they do.
What to Do Next
Start with your highest risk roles. Those are the positions where voluntary turnover is highest, where you are losing candidates to competitors, or where the business impact of a vacancy is most severe. For most companies right now, that means technology professionals, data specialists, and cybersecurity experts.
Pull together your data. If you do not have access to formal salary surveys, start with what you have: exit interview data, rejected offers, recruiter intelligence, and public job postings. Even imperfect data is better than guessing.
Build a business case with numbers. Show leadership the cost of the gap between what you pay now and what the market demands. Compare that against the cost of replacing the people you will lose if you do not adjust. The maths almost always favours paying more and keeping your people.
And remember: salary benchmarking is a tool, not a strategy. The research is clear that compensation, management quality, career development, and workplace culture all contribute to retention. Getting the pay right removes a major source of friction. But it is what you do beyond the pay cheque that turns a competitive offer into a reason to stay.
