What is the best way to determine which jobs to benchmark when creating a compensation structure?

Compensation benchmarking is the process of comparing the job summaries and descriptions at one firm to the same or similar positions in the industry to determine the current market rate for any given job.

Identify key positions critical to the organization's success. Prioritize roles with high market demand, unique skill sets, or significant impact on business outcomes. Consider industry standards and trends to determine relevant benchmark jobs. Evaluate job complexity, responsibilities, and required qualifications. Review internal job hierarchies and pay equity to ensure fair and competitive compensation across roles.

Start by Understanding the organizational structure: Identify key departments, functions, and roles within the organization. This includes top-level executives such as the CEO, CFO, COO, and other C-suite positions. These individuals typically have significant decision-making authority and responsibility for guiding the overall direction of the organization. Management and Supervisory Roles: These positions oversee teams or departments within the organization. They may include middle managers, department heads, team leaders, and supervisors. Management roles play a critical role in implementing organizational strategies and ensuring day-to-day operations run smoothly.

When creating a compensation structure, the best way to determine which jobs to benchmark is to focus on positions that are critical to your organization's success, have a high impact on performance, are difficult to fill or retain, and are key to attracting top talent in your industry. Additionally, consider benchmarking jobs that are similar in size, complexity, and scope of responsibility to ensure fair and competitive pay practices.

🔍 Start by identifying the key jobs within your organization that are critical to its success. These roles typically have a direct impact on the company's strategic goals and operational effectiveness. Focus on positions that are either unique to your industry or pivotal in your company's workflow. It’s important to select a variety of roles that represent different levels and functions within the organization to ensure a well-rounded compensation structure.

To do a proper Job Evaluation and map jobs within job bands to pay-grades, we start with selecting critical roles/positions to benchmark. These roles should have visible differences in their basic pay so as to create job bands. Further we decide on which competitors to benchmark in the industry and collect their median basic pay, other salary components; usually by primary survey or buying reports. The main aim is to create bands and pay-grade for those roles to follow a lead-lag or at-par compensation strategy.

Identify external benchmark jobs that closely resemble the internal positions being evaluated. Look for benchmark jobs that have similar job titles, job descriptions, and skill requirements. Consider factors such as industry, company size, geographic location, and organizational structure when selecting benchmark jobs. Criteria for Comparison: Establish clear criteria for comparing internal positions with external benchmark jobs. This may include factors such as job title, job duties, required skills and qualifications, level of responsibility, reporting relationships, and market demand for the role.

According to SHRM, "the most relevant results come from using data that are no more than one year old, but if there is no budget for surveys, BLS data are better than guessing at something so important. HR can progress the data by the market wage increase rate to bring the information approximately up-to-date." This is a solution for many small organizations because the BLS data is free and the origins of the data is reputable. Beware of free surveys that do not list data sources. (Source: SHRM Toolkit: Building a Market-Based Pay Structure from Scratch)

Entry-Level Positions: Entry-level roles are typically filled by recent graduates or individuals with limited work experience. These positions provide opportunities for career growth and development within the organization. Examples include interns, entry-level associates, and junior-level technicians.