We have heard many things about salary benchmarking. We’d like to make it happen at the request of our CEO, who has a human resource (HR) background. How do I exceed his expectations? — Green Lantern.

First, you have to discover the CEO’s motive. Know, explore, and understand his reasons. Without that, you’ll be at a loss. Without trying to preempt your meeting with him, let me explain the basics of salary benchmarking so that we’re on the same page.

Also known as compensation benchmarking, salary benchmarking is the process of comparing your organization’s pay structure for specific jobs with those found in comparable organizations.

To get better results, it is ideal to focus benchmarking on your specific industry, jobs that are difficult to fill, their geographical locations, and company sizes. For example, it is not advisable to copy from a manufacturing set-up if you are in the banking sector, or vice versa.

The stakes around pay data have also risen beyond the HR department. Pay transparency is becoming law in several markets: the European Union’s Pay Transparency Directive must be transposed into national law by June 2026 and will require employers to provide pay ranges to job applicants, while several US states and cities already mandate salary ranges in job postings. Even where no such rule applies, remote and hybrid work has widened every worker’s comparison set beyond local employers, so market-aligned pay is increasingly a baseline expectation rather than an HR nicety.

Having a specific industry survey is difficult because organizations will treat you as a competitor, if not as someone that would make pay and perks standards unreasonably low or high. That’s the challenge, especially if your employees continue to migrate directly to your competitors, even if you make them sign non-compete contracts.

Reasons

With that as an introduction, let’s discuss why organizations conduct benchmarking. Generally, they do it to maintain competitiveness, present an objective pay structure to workers, and sustain rates in the long term.

Organizations cannot operate in a vacuum. They must implement a strategic pay structure, including a total reward system with the following objectives:

One, to attract and retain talent. It’s easy to understand the role of competitive pay in attracting, hiring, and keeping skilled workers. Underpaying people increases turnover and makes recruitment difficult in a tight labor market. Every resignation also carries replacement costs — recruitment, onboarding, and lost productivity while a new hire climbs the learning curve — which is why pay competitiveness is a financial issue, not merely an HR one.

Two, to promote employer branding. Presenting the organization as an ideal employer can help attract high-demand people with unique skills. Part of employer branding is having a fair, market-aligned pay structure that boosts morale and satisfaction.

Three, to maintain internal equity. External data secured from salary benchmarking provides an objective baseline. This helps avoid salary biases between new hires and senior workers who have the same qualifications and are performing the same job.

Four, to control excessive salary costs. In general, compensation is one of the largest corporate expenses. With salary benchmarking, you can identify people who are paid above industry rates and those who are underpaid so you can prepare a realistic budget.

Five, to support pay transparency. No matter how you tell employees that salaries are confidential, it is almost inevitable to receive inequality complaints. With benchmarking, it would be easy to comply with equal pay practices and maintain a legally defensible structure, if you have a labor union.

Procedure

In other words, benchmarking can turn your compensation policy from guesswork into a data-driven process aligned with your corporate goals. You should follow a structured process, although the sequence may be adjusted depending on your company size, budget, and other considerations:

First, define compensation philosophy. You can state it broadly in your corporate vision, mission, and values. This is where to clarify where the organization wants to position itself relative to the industry and market. Or, you can state it in your HR strategy, such as if your organization wants to position itself in the upper 60th percentile or higher.

Second, analyze and rationalize internal jobs. Create or review job descriptions complete with the required skills, scope, job grade level, and reporting structure. Don’t rely on job titles alone because they vary across companies. This ensures an apples-to-apples comparison.

Third, collect data from reliable survey firms. They include Mercer, Willis Towers Watson, or the People Management Association of the Philippines, among others. Also, seek data from the Department of Labor and Employment (DOLE), the Philippine government’s labor department. Another reliable source is industry peer exchanges I mentioned earlier.

Fourth, analyze and match industry jobs. Compare your internal jobs with external jobs based on job descriptions. Analyze whether your internal pay structure aligns with market percentiles. Identify gaps, outliers, compression issues, and trends. Then adjust according to factors like size, geographical location, and total reward mix.

Fifth, set or update salary ranges. Translate market data into your own salary structure. Take note of typical range widths to allow room for growth and differentiation based on performance and experience. Document the methodology, assumptions, and decisions for transparency, audits, and future reference. Because most major salary surveys are published annually, market data ages quickly — treat benchmarking as a recurring yearly discipline rather than a one-time exercise, so your ranges track the labor market instead of relying on a snapshot that goes stale.

In conclusion, benchmarking transforms your organization from relying on subjective guesswork to a robust, objective, data-driven pay strategy. By defining a clear-cut compensation philosophy, your organization can build a competitive structure tailored to match long-term budget and goals.

Consult Rey Elbo for free. E-mail elbonomics@gmail.com or DM him on Facebook, LinkedIn, X or via Anonymity is guaranteed, if requested.