Salary Benchmarking Guide: How to Set Competitive Compensation (2026)

Compensation is consistently the number one factor candidates evaluate when considering a new role. Get it wrong and your top picks take offers elsewhere. Get it right and you attract strong talent while keeping your budget in check.

This guide walks you through the entire salary benchmarking process, from gathering market data to building salary bands your team can actually use.

Quick Tool: Want to check if your salaries are competitive? Use our free Salary Benchmark Calculator to compare your compensation against market rates instantly.

#What Is Salary Benchmarking?

Salary benchmarking (also called compensation benchmarking) is the process of comparing your company's pay for a specific role against what other companies pay for similar positions. The goal is simple: figure out the market rate so you can make informed compensation decisions.

A proper benchmark considers:

• Job title and responsibilities (not just titles, which vary wildly across companies)
• Geographic location of the role
• Industry and company size
• Experience level required
• Total compensation including benefits, equity, and bonuses

Benchmarking is not about matching every competitor dollar for dollar. It is about understanding where you stand and making deliberate choices about your compensation strategy.

#Why Salary Benchmarking Matters

#Attract the Right Candidates

Candidates research salaries before they apply. If your posted range is 20% below market, qualified people scroll past your listing. According to LinkedIn research, job postings with salary ranges get significantly more applications than those without.

#Retain Your Existing Team

Underpaying current employees is one of the fastest paths to turnover. When your people discover they are below market (and they will), they start interviewing. Replacing an employee costs 50-200% of their annual salary depending on the role.

#Control Your Budget

Benchmarking is not just about paying more. It helps you avoid overpaying too. Without data, hiring managers often negotiate based on gut feeling, leading to inconsistent salaries and bloated payroll costs.

#Reduce Pay Equity Risks

Structured benchmarking helps prevent unintentional pay gaps based on gender, race, or other protected characteristics. When you have clear salary bands tied to market data, you make more objective decisions.

#Step-by-Step Salary Benchmarking Process

#Step 1: Define the Role Clearly

Start with a detailed job description, not just a title. A "Marketing Manager" at a 10-person startup does very different work than a "Marketing Manager" at a Fortune 500. Focus on:

• Core responsibilities and scope
• Number of direct reports (if any)
• Required skills and certifications
• Revenue or budget responsibility
• Years of relevant experience expected

#Step 2: Identify Comparison Criteria

Decide which companies you are benchmarking against. Consider:

• Industry: Same industry data is most relevant
• Company size: Compare against similar revenue or headcount ranges
• Location: Same metro area, region, or remote market
• Funding stage: For startups, compare against similar-stage companies

#Step 3: Gather Market Data

Pull salary data from multiple sources (see the section below for specific sources). Using a single source introduces bias. Aim for at least three data points per role.

#Step 4: Analyze the Data

Look at the distribution, not just the average. A role with a median salary of $95,000 might range from $75,000 at the 25th percentile to $125,000 at the 90th percentile. Where you target in that range depends on your compensation strategy.

#Step 5: Build Salary Ranges

Create structured bands with a minimum, midpoint, and maximum for each role. Most companies use a spread of 40-60% from minimum to maximum.

#Step 6: Compare Against Current Pay

Map your existing employees into the new ranges. Identify who falls below range, within range, or above range. This tells you where adjustments are needed.

#Step 7: Get Approval and Implement

Present your findings with data to back up each recommendation. Include the cost of adjustments and the risk of not making them (turnover cost, time to backfill, lost productivity).

#Where to Find Salary Data

Not all salary data is created equal. Here is a breakdown of the most useful sources:

Pro tip: Free sources like Glassdoor and LinkedIn are a good starting point, but they rely on self-reported data and can skew high or low. Paid surveys from Radford, Mercer, or Payscale use verified employer data and are more reliable for making actual compensation decisions.

Use our Salary Benchmark Calculator for a quick comparison before diving into detailed research.

#Factors That Affect Salary Levels

#Geographic Location

Location remains one of the biggest salary drivers, even with remote work. A software engineer in San Francisco earns 30-50% more than the same role in Austin or Raleigh. When benchmarking:

• Use location-specific data, not national averages
• For remote roles, decide whether you pay based on company location, employee location, or a national benchmark
• Consider cost-of-labor data (what companies pay) over cost-of-living data (what things cost)

#Experience Level

Experience dramatically shifts compensation. A typical progression might look like:

• Entry level (0-2 years): 25th-40th percentile of market range
• Mid-level (3-5 years): 40th-60th percentile
• Senior (6-10 years): 60th-80th percentile
• Principal/Staff (10+ years): 75th-90th percentile

#Industry

The same role pays differently across industries. A data analyst in financial services typically earns 15-25% more than the same role in nonprofit or education. Tech and finance consistently pay at the top of the market for most functions.

#Company Size and Stage

Larger companies generally pay higher base salaries but may have less equity upside. Startups often offer lower base with meaningful equity. Series A startups typically pay 10-20% below market on base while offering 2-5x the equity of a public company.

#Understanding Salary Percentiles

Percentiles tell you where a salary falls relative to the market. Here is what each means and when to target it:

Most companies target the 50th percentile as their baseline and go higher for critical or hard-to-fill positions. Your compensation philosophy should state which percentile you target by default.

#Internal Equity vs. External Competitiveness

These two forces often pull in opposite directions, and balancing them is one of the hardest parts of compensation management.

External competitiveness means paying what the market demands to attract new hires. If the market for senior engineers jumped 15% this year, you need to adjust or lose candidates.

Internal equity means ensuring fair pay relationships between employees within your company. If you hire a new engineer at $140,000 while existing engineers in the same role make $120,000, you have an internal equity problem that will surface quickly.

#How to Balance Both

1. Conduct regular market reviews (at least annually) to keep external data current
2. Run internal pay analyses quarterly to catch compression issues early
3. Budget for equity adjustments alongside new hire offers. If you raise starting salaries, plan to adjust existing employees too
4. Be transparent about how pay decisions are made. Companies with clear compensation philosophies have fewer equity complaints
5. Document everything. When someone asks why they earn what they do, you should have a data-backed answer

#Building Salary Bands

A salary band (or pay range) gives you a structured framework for each role. Here is how to build one:

#Structure

 1Minimum -------- Midpoint -------- Maximum
 2   |                |                 |
 3 -20%          Market Rate          +20%

A common approach uses a 40% spread for individual contributors and a 50-60% spread for management roles. For example, if your market midpoint for a product manager is $120,000:

• Minimum: $96,000 (midpoint minus 20%)
• Midpoint: $120,000 (target market rate)
• Maximum: $144,000 (midpoint plus 20%)

#Assign Zones Within the Band

• Zone 1 (Min to lower third): New to the role, still developing
• Zone 2 (Middle third): Fully competent, meeting expectations
• Zone 3 (Upper third to max): Expert-level, consistently exceeds expectations

This structure helps managers make raise and promotion decisions based on clear criteria rather than negotiation skills.

#Total Compensation vs. Base Salary

Base salary is only part of the picture. A competitive total compensation package includes:

• Base salary: Fixed cash compensation
• Annual bonus: Variable pay tied to performance or company results (typically 5-20% of base for non-sales roles)
• Equity/Stock options: Especially relevant for startups and public tech companies
• Benefits: Health insurance, retirement matching, PTO (valued at 20-30% of base salary on average)
• Perks: Remote work stipend, learning budget, wellness allowances

When benchmarking, compare total compensation where possible. A company offering $100,000 base with a 15% bonus, strong equity, and full benefits may be more competitive than one offering $115,000 base with minimal extras.

#How Often to Update Benchmarks

Salary data gets stale fast, especially in competitive markets. Here is a reasonable schedule:

• Annually: Full market review across all roles. This should align with your annual compensation cycle.
• Quarterly: Spot-check data for roles you are actively hiring for. Markets can shift mid-year.
• As needed: When you lose multiple candidates to compensation, when turnover spikes in a specific team, or when a major market shift occurs (like the 2021-2022 tech salary surge).

At minimum, never go more than 12 months without refreshing your core benchmarking data. The Salary Benchmark Calculator can help you do quick spot-checks between full reviews.

#Common Salary Benchmarking Mistakes

#1. Matching on Job Title Alone

A "Director of Engineering" at a 20-person startup and a 5,000-person enterprise are completely different roles. Always match on responsibilities and scope, not titles.

#2. Using a Single Data Source

No single source captures the full market. Combine at least two to three sources and look for where they converge.

#3. Ignoring Total Compensation

Comparing base salary only is misleading. A company with lower base but strong equity, bonus, and benefits may actually offer more total value.

#4. Benchmarking Once and Forgetting

Markets move. Companies that benchmarked in 2024 and have not updated are already working with outdated numbers. Build regular reviews into your HR calendar.

#5. Not Accounting for Internal Equity

Bringing in new hires at higher rates than existing employees creates pay compression. Budget for market adjustments alongside new hire offers.

#6. Applying National Averages to Local Markets

National salary data masks huge regional differences. A $100,000 national average might mean $130,000 in New York and $85,000 in a mid-size market. Always use location-specific data when possible.

#7. Setting Ranges Too Narrow

Overly tight salary bands leave no room for growth or differentiation. If your range only spans 10%, you will constantly be at the minimum or maximum with nowhere to go.

#Set Smarter Compensation With the Right Data

Salary benchmarking does not have to be complicated, but it does have to be intentional. Start by gathering data from multiple sources, build structured salary bands, review them regularly, and balance external competitiveness with internal equity.

The companies that get compensation right do not just pay more. They pay smarter, using data to make every dollar count.

Start with a quick benchmark check. Use our free Salary Benchmark Calculator to see how your current salaries compare to market rates. It takes under a minute and gives you an instant snapshot of where you stand.

#Related Resources

• Salary Benchmark Calculator - Free tool to compare compensation against market rates
• The True Cost of Hiring an Employee - Understand the full expense of every hire
• How to Create a Hiring Budget - Build a realistic budget that accounts for total compensation
• Employee Retention Strategies - Keep your team after you have set competitive pay

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