In an era of heightened talent mobility, it’s no wonder organisations are seeking smarter strategies to retain their top performers. Research from Totaljobs at the start of the year highlighted that almost a third (31%) of UK workers expressed a desire to change jobs in 2025. In response to this climate, companies are shifting their focus from recruitment drives to employee retention, striving to create a more stable workforce that will fuel productivity and sustain future growth.
With the ongoing sluggish economy forming a challenging backdrop to talent acquisition initiatives, it’s crucial for organisations to carefully consider their strategies regarding retention. This means looking carefully not only at salaries being offered, but also at the entire employee value proposition, taking into account the overall compensation package. Remuneration benchmarking is an invaluable tool when it comes to the development of reward policies and can play a significant role in retaining the talent needed for companies to thrive.
So, what is it, and why is it something every company should consider as a smart approach to talent retention?
What is benchmarking?
Benchmarking uses market research to ascertain data-led industry standards for levels of remuneration, which are then used to make comparisons against what a company is offering for specific roles. The process can include base salaries, employee benefits, and other aspects of a total reward package. Salary benchmarking on a regular basis, and implementing these standards, ensures that companies are paying their staff at a level that is competitive against their direct peers and comparable with the wider market – as well as remaining in line with inflation, skills demand and the changing economic climate. This ensures that staff are motivated and feel fairly compensated for their efforts, which in turn maximises company loyalty and employee retention.
Without up-to-date reward data from the market, companies can put themselves at risk of losing staff to higher paying competitors, leading to costly recruitment processes and high staff turnover. This may also result in companies gaining a reputation for being ‘low payers’ relative to industry standards. After all, seeking better pay and benefits is the number one reason that Brits change jobs, according to research by InvestorsInPeople.com. Benchmarking can help firms to minimise these staff turnover risks, by analysing how their market position compares to that of similar companies for the same job roles. It supports informed decision making around competitive compensation levels, which helps to attract and retain top talent.
Why is there a growing focus on talent retention? How does benchmarking fit into this?
In the wake of the pandemic, we experienced the Great Resignation – a period of mass movement and change in the talent market that caused huge instability and upheaval. Because of this, organisations across all sectors placed a heavy focus on recruitment, in an attempt to fill the gaps left by departing staff. Work culture shifted dramatically, with greater emphasis on flexible working and employee wellbeing, which are both now set to remain as a lasting legacy from the Covid era.
Given this huge recruitment drive, salaries became inflated beyond the usual levels of increase – partly due to companies scrambling for talent, and partly because new hires tend to command greater salaries than existing employees holding the same position. This subsequently led to financial strain for many companies, on top of the rise in inflation and the cost-of-living crisis which has stifled growth across a wide range of industries.
In the midst of this challenging post-pandemic economy, and following on from the recruitment rush of the past few years, the priority on hiring is now waning in favour of retention. We are now witnessing “The Big Stay” – a trend of employers choosing to maintain their current workforce, and employees choosing to remain where they are. But why is this happening? Why are companies shifting their focus to retention?
One major factor is the cost of recruitment. It is no secret that the overall cost of the hiring process far outweighs the cost of keeping salaries in line with the market, or even providing a pay rise or promotion to an existing employee. Recruiting and training a new hire can cost a business between 20%-30% of an employee’s salary, according to Bravo Benefits, and the impact is even bigger when taking lost productivity into account. Therefore, retaining talent keeps costs down in the long run.
Another reason for the focus on retention is around skills shortages and skills gaps. When it comes to skills shortages, these are often caused by a rising demand for specific skill sets but an inadequate supply of appropriately qualified people to fill the positions. For example, in the field of technology and AI, advancements are being made more rapidly than people are being trained up to manage the systems. These skills gaps lead to a highly competitive talent market, with increased movement as companies hike up their salaries to attract the talent needed. Organisations therefore want to hold on to their existing people who possess these hard-to-obtain skills, to avoid a potentially strenuous hiring process.
On the other hand, with skills gaps, this refers to gaps of certain skills and experience within the workforce, often caused when those at the upper levels (in terms of leadership, experience and age range) begin to retire or change occupation, and there is a lack of sufficiently qualified talent moving upwards. There may be talent at an entry level gaining the necessary skills, or people with a few years’ experience; however, gaps often present within the middle management tier, where more experience is needed but the talent at this level is hard to come by. Retention is key, then, for companies to avoid this kind of gap in their workforce.
Benchmarking your company’s remuneration packages is a valuable part of developing effective people strategies, especially if staff retention is high on the list of priorities. Whatever their level of experience or expertise, employees want to work for companies that are open about how salaries are determined, and ones that pay at a fair and appropriate level. Developing an equitable workforce where people feel valued and appreciated is a vital part of navigating the uncertain talent market.
By investing in market research and analysis and setting clear, evidence-based pay strategies, this demonstrates to employees that you are committed to looking after your people, just as they are committed to your business. Employees’ pay perception can often be just as important as your reward packages, so clear communication around pay is key to a satisfied staff cohort who understand (and stay loyal to) your company’s pay ethos.
What is the process of remuneration benchmarking?
When it comes to planning your remuneration benchmarking, the first step is to look at your workforce as a whole and think about any roles, levels, or even entire directorates that may be on outdated salaries or pay scales. It may be that some positions in the company are starting to lag behind market rates, especially in areas such as technological development where there is a high demand for skills. Identifying the areas where there are retention risks is crucial for prioritising the right roles within the benchmarking process.
The next step is to carry out the research – either manually, through a dedicated system, or by enlisting the help of a consultancy firm to undertake the research and provide the relevant data. This will give you the important numbers (often given as quartile ranges and averages) around up-to-date industry standards for pay within your sector. In the research process, it’s important to factor in aspects such as geographical location, job scope and experience levels – so having clear, well-defined job descriptions for each job role is essential for making accurate comparisons against similar roles in the market.
Remuneration benchmarking can cover many aspects of compensation packages, including but not limited to: base pay, bonus provision, Long Term Incentive Plans (LTIP), pension rates, annual leave policies, health benefits, family friendly policies (such as enhanced maternity & paternity leave policies) and car allowances. Data around pay and benefits can be gained from a number of sources, such as market salary reports, job advertisements and online databases – and benchmarking software can also be used. For more tailored research approaches, consultancies can carry out confidential conversations with relevant post holders within a target market, harnessing the most accurate and real-time data.
Once the pay data has been collected, you need to compare the market salary ranges for each role against your current remuneration rates, to identify any gaps or discrepancies (these will be your main areas of risk when it comes to talent retention). Based on the analysis, your company can then make adjustments to base salary levels or salary structures, to ensure it is remaining competitive and maximising retention.
What are the potential challenges around the process of benchmarking?
Obtaining the data in the first place can be challenging if you don’t know where to look. For adequate remuneration benchmarking, companies need to get hold of data which is accurate, relevant to their specific organisation and sector, and tailored to factors such as company size and role scope. Publicly available information is often hard to find, or too generic to provide the accuracy needed for informed decision making in pay setting. The data needs to be real-time, using quality research processes, and represent roles from the most relevant comparators.
Another challenge is around the constant change and fluctuation when it comes to salary levels, due to how quickly the market can shift. As mentioned above, salaries for certain roles can change quickly due to market skills demand for particular job roles, or due to other factors such as economic fluctuations and even international politics. Therefore, it’s important to undertake regular reviews of salary information, because the numbers can quickly become outdated – but this high frequency of market testing can pose a challenge for organisations, especially when HR teams are already stretched.
Benchmarking salaries can also be quite labour intensive and time consuming, especially if you want the research to be accurate and relevant. All of this can add to an ever-expanding to-do list for HR and Reward Managers, and so the smart move is often to use a reward benchmarking consultancy service, who can tailor their research to the specific needs of your organisation, providing information that is accurate, timely and relevant.
Overall, why is benchmarking advantageous? Why is it a smart approach to retaining talent?
If your company is truly invested in its people and committed to being a great place to work, then ensuring that you are paying a fair and market-comparable rate is the best place to start. Benchmarking should therefore go hand-in-hand with the setting of pay policies – especially if you want to be competitive against your direct peers, and attract the best talent.
Perhaps most importantly, benchmarking your remuneration policies can help towards reducing staff turnover, because paying a competitive wage undoubtedly leads to improved employee morale and job satisfaction. When employees feel valued and fairly compensated for their hard work, they are more likely to be engaged and motivated, which will ultimately drive company performance. Having a low turnover will also save companies on the costs related to hiring and training new employees; so, ultimately, it’s beneficial for both sides if your people are happy.
Offering attractive pay rates that are informed by salary benchmarking also serves to give companies a competitive advantage in recruitment processes and prevents them from lagging behind the market. Salaries for some jobs can rise quickly and unpredictably due to skills shortages or changes to legislation, leading to an increased demand for particular skills. It is therefore important for companies to stay proactive, keeping track of the market on a regular basis and making adjustments where needed – after all, employees often know where to look for salary information online, so if your company is lagging behind with pay, then your best people will head for the door.
Base pay is not the only consideration here: pay structures are also positively impacted by a focus on benchmarking. This is because the process of market testing helps to inform the development of salary bands, which shows employees what they can expect as they grow and develop – helping to boost performance and retention at an individual level through robust pay progression frameworks. This also aids in general pay transparency, which is an increasingly important aspect of company culture for much of today’s workforce; data from Indeed’s Hiring Lab suggests that salary transparency in the UK has increased by 49% since 2019.
When it comes to justifying the potential cost and effort of remuneration benchmarking as a smart approach, here’s the bottom line: benchmarking is a data-driven method for decision making around pay, providing concrete evidence to support targeted interventions for bolstering retention. In today’s competitive job market, your reward strategies must be attractive, fair, and aligned with the wider market. Without the right data to drive your decisions around pay setting, it’s easy to miss out on (or to lose) the top skills that your business needs to thrive.
Conclusion
Remuneration benchmarking is a reliable, data-driven strategy that can have a hugely positive impact on pay setting by enabling organisations to make informed decisions around pay based on their position within their direct market. By offering fair and competitive salaries, companies can build a solid reputation within their relevant sector, leading to the attraction and retention of high-quality candidates. Organisations that have an effective talent retention strategy will ultimately have a competitive advantage over their peers in the long run, ensuring they have the best people on board to drive innovation, growth and success.
Do you want to know more about remuneration benchmarking services and how they can help your business to thrive?
Get in touch or visit our sister company, Henley Reward Consulting, for an informal chat about how we can support the development of your people strategies.