How to Benchmark Salaries at Your Small Company
Paying below market is the most common retention problem that founders cannot see until it is too late.
Most small companies do not know if they are paying at market until someone quits. Salary benchmarking gives you that information proactively.
Why compensation benchmarking matters
Compensation is not the primary reason employees leave, but it is the primary reason employees accept counteroffers and start looking. Paying below market in key roles is a slow, invisible drain on retention that compounds over time. By the time a star employee is actively shopping, the gap between their current pay and their market value has usually become wide enough that a simple raise will not close it.
Benchmarking also matters for hiring. Candidates research compensation before applying, and job postings with below-market ranges either attract no responses or attract candidates who eventually negotiate to the market rate anyway. Knowing your numbers before you post saves time.
Where to get compensation data
Salary data is more accessible than most founders realize. Free sources include Glassdoor, LinkedIn Salary Insights, the Bureau of Labor Statistics Occupational Employment and Wage Statistics (OEWS), and Levels.fyi for technology roles. These sources have limitations but are sufficient for benchmarking most roles at the small company stage.
SHRM and Radford publish more rigorous compensation surveys, though they carry subscription costs. If you are benchmarking senior roles where being off by 10 percent costs you a key hire, a paid survey is often worth the investment. Local chambers of commerce and industry associations also sometimes publish regional salary data.
How to run a compensation benchmarking process
Start by defining each role precisely. Job titles vary wildly across companies and do not benchmark reliably. Define the role by its scope of responsibility, seniority level, and required skills. Then search for compensation data using those parameters rather than the title.
Collect data from at least three sources and compare the 25th, 50th, and 75th percentile ranges. Decide where in the range you want to position your company. Most growing companies aim for the 50th to 75th percentile for key roles and the 50th percentile for supporting roles. Competitive companies in talent-intensive markets often target the 75th percentile.
Using the data and communicating it
Once you have benchmarks, compare them to your current compensation by role. Where you find gaps above 10 percent, prioritize correction. Address the largest gaps first and budget for market corrections as a distinct line item from merit increases. Conflating the two creates confusion and resentment.
Be transparent with employees when you make market corrections. Saying 'we found through a benchmarking process that this role is paid below market and we are correcting that' is well received. It signals that you are paying attention and acting proactively, which itself has retention value.