In the last five years, average earnings in the UK have increased by over 23% since 2019. This rise mainly stems from shifts in demand triggered by the COVID-19 pandemic, inflation changes and ongoing increases in living costs. Consequently, salaries throughout the UK remain unsettled, creating difficulties for employers in salary benchmarking for 2025.
In our end-of-year 2024 survey, 75% of candidates stated they will be looking for a new job this year and many of our clients are eager to learn more about salary benchmarking. This insight benefits all businesses, as it helps attract talent, retain employees and engage staff.
In this blog post, we will explore the significance of salary benchmarking, provide guidance on salary negotiations and offer tips on staying informed about market averages in a competitive yet realistic manner.
What is salary benchmarking?
Salary benchmarking, also known as compensation benchmarking, involves comparing a company’s pay to that of other organisations or competitors, determining factors such as industry, location and job title. By gathering and analysing market data, businesses can ensure they offer competitive salaries that attract talent and maintain fair and consistent salary bands within their teams.
Before comparing wages to similar companies in your industry, it’s wise to establish your company’s average salaries. Collecting data on the current salaries of employees based on their job titles and levels will help you to understand the range of salaries from lowest to highest. This analysis should be conducted before reviewing your overall compensation and benefits package, including considerations for bonus structures and employee pension contributions, as well as your business’s overall financial health.
Why salary benchmarking is so important today
Businesses often compete against similar companies in the same location and sector to attract top talent, whether they are existing employers or ones seeking new hires. In the last year, 40% of employers have presented counteroffers and delivering the right salary is key. Accurate salary benchmarking helps to ensure that offers are competitive and realistic without exceeding budget.
As noted earlier, the UK is experiencing significant inflation and changes to the cost of living, which naturally affect wages and the demand for higher salaries. The BBC recently reported that UK pay has risen at its fastest rate in three years, with an average salary increase of 3.4% between September and November compared to the previous year. Salaries are also rising faster in private sectors, where business leaders have the autonomy to be more competitive.
The Bank of England expects inflation rates to decrease to its 2% target by 2027. To remain relevant in today’s economy, businesses should ensure that their wages remain close to the market average in their sector. Distinct’s Talent Acquisition Director for HR, Louise Carling, commented on the economy’s role when putting together employee compensation packages:
“Whilst the cost for businesses has increased and will consider doing so, with the hike in employers National Insurance contributions due in April, it’s important to keep your employees at the forefront and remember they are paying over 20% more for goods and services. If you aren’t paying them to survive in their economy, they may have no choice but to look elsewhere.”
Factors that influence salary benchmarking
1) In-demand skills. The demand for specific skills can drive salaries up or down. For example, in 2021, as businesses got up and running after the lockdown period, we saw a spike in areas such as talent acquisition. According to Indeed, this is most prevalent today in the technology and finance sectors, with Developers, Cybersecurity Specialists and Financial Analysts amongst the most in-demand jobs in 2024. In addition, specialised training and qualifications will impact an individual’s value to the company.
2) Location. Due to differences in costs of living, salaries for the same job title may differ significantly in different geographical locations. This is most notable in London, where the average wage is 26.4% higher than the rest of the UK. Location-based salaries are also a bigger consideration for businesses that offer remote working.
3) Organisation size. In addition to influencing salary budgets and employee benefits, a business’s size also shapes the responsibilities associated with similar job titles. Roles in large enterprises may differ greatly from those in an SME despite having the same job title, emphasising the importance of accurate job descriptions.
Salary benchmarking and candidate attraction
In January, Total Jobs research reported that 42% of workers in the UK are either already looking or will be looking for a new job in 2025, with higher salaries being the key motivating factor for a move. On average, candidates are looking for a 13% pay increase. Salary benchmarking allows companies to remain competitive in attracting individuals with sought-after skills, by guaranteeing that they provide salaries that at least match or surpass market standards.
While a competitive salary is significant, it’s not the only factor employees consider when looking for a new job. According to a recent Forbes article, “no clear career path” was cited as the top reason (24%) why employees want to leave their jobs beyond the money. Businesses can also utilise salary benchmarking to establish clear career paths and outline transparent progression opportunities that align with candidates’ long-term career goals.
A CIPD survey of UK employees also found that 27% of those contemplating a job change were motivated by improved job satisfaction, while 24% desired a better work-life balance. Therefore, alongside providing competitive salaries, it’s crucial to highlight the benefits that differentiate your company when attracting talent, especially in situations where salary offers are similar. For instance, addressing the need for a greater work-life balance by offering flexible working hours or additional annual leave could significantly impact your job package compared to a competitor.
Salary benchmarking and staff retention
When the cost of replacing an employee is the equivalent of 6-9 months’ pay or more for a senior hire, competitive salary benchmarking is crucial for retaining staff and ensuring they are invested and motivated to perform well.
A survey conducted by PwC in 2024 found that 82% of workers feel more productive and fulfilled when they believe they’re being paid fairly. When employees know their salary aligns with industry standards, they are less likely to look at what they could earn elsewhere.
Establishing salary bands for roles is also beneficial for businesses where multiple employees hold the same job title. Salary bands allow for different salaries based on experience or performance levels in the same role, while being fair to the broader workforce. Referencing third-party salary or market data during negotiations also demonstrates equality and removes personal opinions or managerial biases. Thus reducing the possibility of dissatisfied employees within your team or organisation.
Keeping up with the market average
Ultimately, offering a competitive salary to current or prospective employees is necessary to maintain a satisfied workforce and attract in-demand talent. As a leading recruitment agency in the Midlands and London, we know how much market wages have varied in recent years. As such, employers should refer to a salary benchmarking tool that provides real-time data to outline average salaries in your industry.
Our complimentary market wage insights tool uses data from our CRM database to produce an accurate salary based on job title and location. Designed for employers, it produces an average salary band from low to high and will identify where your salary offer stands in relation to the market. Our tool updates in real-time and remains within a 12-month range to guarantee that average salaries are always relevant to the current date.
For a more personalised experience, we would also recommend consulting with our knowledgeable and experienced consultants. They can provide direct advice on the market and the salary ranges for your specific job openings. Contact us today.
