Salary Benchmarking | Carta
Excerpt
Salary benchmarking is the process of comparing internal roles and salaries against the market. Learn how to conduct salary benchmarking for your company.
Attracting and retaining the best talent for your company often comes down to offering competitive compensation. Compensation benchmarkingâor more specifically, salary benchmarkingâhelps you understand whatâs standard in your specific industryâs 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 companyâs 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 youâre an early or mid-stage startup, itâs 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, itâs 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 loyaltyâultimately 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.
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How to conduct salary benchmarking
Before beginning the process of salary benchmarking, itâs important to have a clear compensation philosophy, which gives you guidelines on how competitive you want to be âlike paying in the 50th percentile for salary and 75th percentile for equity.
Once you have your compensation philosophy in place, itâs 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 roleâs duties, skill set, education level, or experience requirements. Youâll need this as a starting point so you can compare your roles against competitorsâ.
This first step is important because job titles and responsibilities arenât standardized across the marketâa âContent Strategistâ at one company may have very different responsibilities than at another. To ensure youâre 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 youâre 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, itâs time-consuming to put this data together into benchmarks. Plus, you wonât 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 youâre 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 toolsâlike Carta Total Compensationâwhich collect, analyze, and compare data on the competitive salaries of similar roles within a certain industry and company sizeâand 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.
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3. Analyze and compare salary data
Once youâve gathered the appropriate salary data or benchmarks, itâs 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 canât 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 targetsâthe upper and lower amount your company is willing to pay for each job levelâto 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 youâre currently only paying in the 50th, itâs 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 isnât just to create salary bands for different job levels; itâs to foster a culture where employees feel valued and motivated.
5. Periodically review and adjust
Salary benchmarking isnât something you can just set and forgetâespecially 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.
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Smart compensation decisions start with the right benchmarking data
DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (âCartaâ) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. © 2024 eShares, Inc. dba Carta, Inc. All rights reserved. Reproduction prohibited.
Josh Steinfeld leads product strategy for Carta Total Compensation. Josh has been a compensation professional for the last 20 years, most recently leading compensation at Google for YouTube and Googleâs corporate functions.