Compensation Benchmarking: What to Pay, How to Decide, and Why Most Companies Get It Wrong

How to benchmark salaries, decide what to pay, and avoid the mistakes most companies make when setting compensation.

sectionBreak

paragraph

You’re hiring a software engineer. You don’t know what to pay them. So you guess. You offer 120k. They accept. Three months later, you’re hiring another engineer. Same role. Same level. You offer 140k. They’re excited. Now you have two people doing the same work, same level, different pay. The first engineer finds out. They’re furious. They leave. You’ve just created a retention problem by not doing compensation benchmarking. This is a common story. Companies don’t know what to pay. So they guess. They overpay. They underpay. They create internal inequity. They damage retention and morale. Compensation benchmarking isn’t complicated. But most companies don’t do it. And that costs them money and people. Here’s what to pay, how to decide, and why most companies get it wrong.

heading

Why Most Companies Get Compensation Wrong

Most companies make compensation decisions based on:

subheading

Reason 1: Gut Feel

“I think we should pay them 110k.” Why 110k? Because that’s what feels right. Or because that’s what their last company paid. Or because that’s what the CEO paid themselves once. Gut feel is not data. Gut feel is bias. Gut feel leads to bad decisions