How does salary benchmarking Impact Employee Retention by IRJET Journal

How does salary benchmarking Impact Employee Retention

Sohail Firoj Jamadar, Dr. Neha Choudhary

Amity University Mumbai, Mumbai, Maharashtra, India, sohailj1547@gmail.com

Amity University Mumbai, Mumbai, Maharashtra, India, nchoudhary@mum.amity.edu

Abstract - Salarybenchmarkingisanessentialmechanism for organizations to provide competitive and equitable compensation, which has a direct impact on employee satisfaction. This research explores how internal pay alignment with market norms improves perceptions of fairness, equity, and value among employees. It emphasizes theimportanceofopensalarypracticesandcompetitivepay structures in increasing morale, engagement, and motivation. The study also discusses the threats of inappropriate benchmarking, for example, dissatisfaction, decreasedloyalty,andelevatedturnover.Usingcasestudies, the article assesses the effect of effective benchmarking on retention,jobsatisfaction,andorganizationalperformance, providing actionable lessons for HR practitioners and managers.

Key Words: Employeesatisfaction,salarybenchmarking, compensation strategy, fairness, market standards, employee retention, transparency, HR practices, job satisfaction,organizationalperformance.

1.INTRODUCTION

This study highlights the significance of salary benchmarking as a strategic process that enables organizations to evaluate and align their compensation structureswithprevailingindustrystandards.Bydoingso, companies can ensure competitive, fair, and legally compliantpaypracticesthatareessentialforattractingand retainingtoptalent.Salary benchmarking plays a keyrole inenhancingemployeemorale,promotinginternalequity, and reducing staff turnover, all of which contribute to improvedorganizationalperformanceandstability.

Theprocessmayinvolvecollectingsalaryinformationfrom various credible sources like salary surveys, country and industry reports, government statistics, and job postings, and thereafter matching internal jobs with comparable fromexternalpositionsforpurposesofoutsourcingbased upon responsibilities, experience, and industry context. Definition of market analysis would involve variation characteristicssuchascompanysize,geographical region, sector, job demand, and so on. The above allow firms to decide whether to adjust pay structures for maintaining positionsinaconstantlychanginglabormarket.

Thereareconsiderablechallenges,suchasdisparitiesinjob titles, the existence of inconsistent compensation

information, and mélange fast changing market. However, regular and well-executed benchmarking empowers organizations to develop fair, open, and financially sustainable monetary packages and is the means to minimizetherisksofinequityinwagesandnoncompliance withequalpaylegislation.

Today, salary benchmarking is an inevitable condition for achievingasatisfied,engaged,andloyalworkforceinafastpacedworldofemploymentchanges.Withaccuratedataon the market and careful planning for compensation, organizations can position themselves to become employers of choice, improve employee retention, and buildaninstitutionthatwilllastwellintothefuture.

2.Literature Survey

EquityTheory(Adams,1963)

Employees compare their salaries with industry peers. If they perceive underpayment, dissatisfaction and turnover increase. Salary benchmarking ensures fairness andreducesretentionrisks.

Maslow’sHierarchyofNeeds(1943)

Competitivesalariesfulfillfinancialsecurityneeds, leadingtogreaterjobstabilityandlong-termcommitment.

Herzberg’sTwo-FactorTheory(1959)

Salary is a “hygiene factor” that prevents dissatisfaction. Fairpaystructuresimproveretentionbyreducingturnover triggers.

CompetitiveSalariesandRetention

Trevor et al. (1997) found that below-market salaries lead to higher turnover, while competitive pay increases loyalty. SHRM (2020) confirms companies with structured salary benchmarking experience lower turnover.

SalarySatisfactionandJobCommitment

Judgeetal.(2010)linksalarysatisfactiontohigher engagement and retention. Pay transparency (Cable & Judge, 1994) also improves employee trust and reduces attrition.

TalentAttractionandRetention

Fair salaries enhance employer branding, making iteasiertoattractandretaintalent.Organizationsfailingto adjustwagesrisklosingemployeestocompetitors.

ChallengesofSalaryBenchmarking

Gerhart & Rynes (2003) caution against overreliance on external salary data, which can lead to wage

International Research Journal of Engineering and Technology (IRJET) e-ISSN:2395-0056

inflation. Pfeffer& Langton (1993)emphasizethatfactors like career growth and workplace culture also impact retention.

3. Objective of the Study:

How Salary Benchmarking Helps in Employee Retention

This research explores how salary benchmarking supportsstaffretentionthroughcompetitiveandfair pay.Itaimstoassesshowaligningcompensationwith market standards enhances employee commitment, motivation,andorganizationalstability.

Examine the Relationship Between Salary BenchmarkingandEmployeeRetention

- To understand how aligning salaries with market rates influences employees’ decisions to stay.

Identify Key Salary Components Affecting CommitmentandTurnover

-To pinpoint which pay elements most impact employeeloyaltyandreducevoluntaryexits.

AnalyzeSalaryVarianceAcrossOrganizations

- To explore how differences in pay between companiesaffectemployeemovement.

Evaluate the Role of Competitive Pay in Reducing Turnover

-To assess how market-aligned compensation helpsretaintoptalent.

Discuss the Link Between Competitive Pay and Job Satisfaction

- To determine if competitive salaries lead to higheremployeemoraleandengagement.

Review Case Studies of Companies Using Salary Benchmarking

- To learn from real examples of firms that improvedretentionthroughpaystrategies.

4.Methodology

ResearchDesign

The study adopted a descriptive, cross-sectional researchdesignusingaquantitativeapproach.Thisdesign waschosentocollectstructureddataanddrawstatistically

Volume:12Issue:04|April2025 www.irjet.net p-ISSN:2395-0072

valid conclusions about how does salary benchmarking impactsemployeesatisfaction.

SampleDesign

Purposive and snowball sampling techniques were employed to collect responses from a diverse pool of 180 professionals. Participants were drawn from different industries, age groups, and experience levels. Inclusion criteria required that respondents be currently employed and have at least six months of tenure at their respective organisations.

DataCollectionInstrument

A structured questionnaire was developed and administeredonline.Mostitemsweremeasuredonafivepoint Likert scale (Strongly Disagree to Strongly Agree), supplemented by a few categorical and open-ended questions.

Disagree Agree

Fig-1:Salarybenchmarkingisessentialforattractingand retainingtoptalentinacompany

Most of the respondents believed that salary benchmarking is essential forattracting andretaining top talentinacompany.

Disagree Agree

Fig-2: 2.Acompanythatdoesnotconductsalary benchmarkingriskshigheremployeeturnover

International Research Journal of Engineering and Technology (IRJET) e-ISSN:2395-0056

Fig-3: Competitivesalarybenchmarkingenhancesa company’sreputationandemployerbrand

Most of the respondents believed that competitive salary benchmarking enhances a company’s reputation and employerbrand

Fig-4: EmployeesatisfactionRate

50%oftherespondentsbelievethatensuringcompetitive payattractstoptalentand50%oftherespondentsbelieve that salarybenchmarkingimprovesemployee satisfaction andimprovesemployeeretention.

70% of the employees believe that employee value salary benchmarking because It ensures they are being paid fairly compared to industry standards, other 10% 10% 10%believeemployeevaluesalarybenchmarkingbecause It creates transparency in salary structures. It helps in negotiating better compensation packages It boosts job satisfactionandmotivation.

Volume:12Issue:04|April2025 www.irjet.net p-ISSN:2395-0072

Fig-6: SalaryBenchmarking

70% of the respondents feel that the most challenge that companies face when conduction salary benchmarking is findingreliableanduptodatesalarydata.

Fig:7: Company’sworkforce

70%oftherespondentsbelieve thatsalarybenchmarking encouragesemployeestostaywiththecompanylonger.

5. Key Findings through Primary & Secondary Data

5.1KeyFindingsthroughPrimaryData –

1. Salary Benchmarking Impacts Career Decisions high80%oftherespondentsindicatedthattheycarryout salary information before applying for a job. This shows that salary benchmarking is crucial when it comes to attracting candidates, as employees desire organizations thatofferindustry-averagepay.

2. Competitive Compensation Increases Employee Retention60%oftherespondentsfirmlyagreedthatsalary benchmarkingisessential inreducingemployeeturnover. Competitive compensation results in higher job satisfaction,andemployeesaremorelikelytoremainwith the company and less likely to seek other employment opportunitieswheretheycanearnahighersalary.

3. Pay Transparency Encourages Employee Confidence Survey results emphasized that employees valuepaybenchmarkingbecauseofthepromiseoffairpay structures and narrowing wage disparities. Transparent compensation policies improve job satisfaction, boost motivation,andfacilitateemployee-employertrust.

Fig-5: Salarybenchmarking

International Research Journal of Engineering and Technology (IRJET) e-ISSN:2395-0056

4. Salary Benchmarking Challenges Organizations face several challenges in salary benchmarking. The two most frequent challenges that were ever cited were remaining within budget while being able to offer competitivewagesandbeingabletohavecredible,current salary data with which they could benchmark against industrystandards.

5. Workforce Stability Positives Correct salary benchmarking not only helps retain employees, but it is also a force for overall workforce stability. It allows for sequential career progression, promotes employee enthusiasm, and helps to solidify the organization as an employerofchoice.

5.2KeyFindingsthroughSecondaryData –

1. SalaryBenchmarkingInfluencesJobDecisions

A significant 80% of respondents indicated that they research salary details before applying for a job. This demonstratesthatsalarybenchmarkingplaysacrucialrole in attracting potential candidates, as individuals prefer organizations that offer competitive pay aligned with industrystandards.

2. Studies such as Trevor et al. (1997) support this finding,suggestingthatcandidatesaremorelikelytoapply tofirmswithstructuredcompensationplans.Additionally, SHRM (2020) emphasizes that salary transparency enhances an employer’s brand, making it easier to attract toptalent.

3. CompetitivePayImprovesEmployeeRetention

60% of respondents strongly agreed that salary benchmarkingisessentialforreducingemployeeturnover. Competitive salaries contribute to higher job satisfaction, encouraging employees to remain with the organization and reducing the likelihood of seeking better-paying opportunitieselsewhere.

4. AccordingtoJudgeetal.(2010),salarysatisfaction directlycorrelateswithemployeecommitment.Employees who feel fairly compensated are less likely to seek alternative employment, aligning with Adams’ (1963) Equity Theory, which suggests that perceived fairness in compensationfostersloyalty.

5. SalaryTransparencyBuildsEmployeeTrust

Survey responses highlightedthat employeesvaluesalary benchmarking because it ensures fair pay structures and reduces wage disparities. Transparent compensation policies improve job satisfaction, boost motivation, and fostertrustbetweenemployeesandemployers.

Volume:12Issue:04|April2025 www.irjet.net p-ISSN:2395-0072

6. Cable&Judge(1994)arguethatpaytransparency strengthens employee trust, leading to improved morale and engagement. Organizations that disclose their salary benchmarking practices are more likely to maintain a stable workforce, reducing uncertainty and resentment amongemployees.

7. ChallengesinSalaryBenchmarking

Organizations face several challenges in implementing salary benchmarking. The two most common challenges cited were balancing budget constraints while offering competitivesalariesandfindingreliable,up-to-datesalary datatobenchmarkeffectivelyagainstindustrystandards.

8. Gerhart&Rynes(2003)cautionthatover-reliance on market salary data can lead to wage inflation and financial strain. Additionally, Pfeffer & Langton (1993) highlightthatwhilesalarybenchmarkingiscritical,itmust be complemented by career development opportunities andapositiveworkenvironment.

9. PositiveImpactonWorkforceStability

Proper salary benchmarking not only helps in retaining employeesbutalsoenhancesoverallworkforcestability.It ensuresstructuredcareerprogression,promotesemployee engagement,andstrengthenstheorganization’sreputation asanemployerofchoice.

6. CONCLUSIONS AND LIMITATIONS

The study supports that salary benchmarking has a majorcontributiontoemployeeretentionsinceitpromises fair and competitive wages. Fair compensation not only causes job contentment, but it reduces rates of turnover and maintains the work force stable. Companies who set salary benchmarking as a priority have an advantage of being preferable to top talent in the industry as well as havingadevotedworkforce.

However, in order to gain maximum benefit from salary benchmarking, businesses must overcome some challenges.Constraintsin budgetsmaypreventthesize of anorganizationfromofferingabovethemarketprice,and therefore maintaining a balance between profitability and competitive pay becomes imperative. Also, businesses requiretimelyandreliablemarketsalarydatasothatthey cancomparethemselvesonanequalfootingwithindustry averages. Employing outdated or inconsistent salary information will cause pay inequities and employee discontent.

Furthermore, salary benchmarking is not a retention strategy in itself. Organizations must adopt an integrated approachbysupplementingreasonablecompensationwith other retention strategies such as career progression opportunities, training programs for capability building, work-life balance, and a healthy organizational culture. A

International Research Journal of Engineering and Technology (IRJET) e-ISSN:2395-0056

balancedHRstrategymakestheemployeesfeelvaluedand motivatedbeyondthepaycheque.

Ultimately,althoughsalarybenchmarkingplaysahuge role in employee retention, it needs to be coupled with other activities that enhance job satisfaction and development of careers. Through a structured and transparent pay scheme, organizations can realize a motivated,engaged,andloyalworkforcethatcontributesto sustainedbusinessexcellence.

• LimitedDataAccess

Access to detailed salary and retention data may be restrictedduetoprivacyandconfidentialityconcerns.

• Correlationvs.Causation

It can be difficult to prove that salary benchmarking directlycauseschangesinemployeeretention.

• GeneralizabilityIssues

Findings from one industry or region may not apply to othersduetocontextualdifferences.

• Short-TermStudyLimitations

Retention trends often require long-term observation, whichshortstudiesmaynotcapture.

• VariationinBenchmarkingMethods

Companies use different standards and sources for salary benchmarking,affectingconsistency.

• EmployeePerceptionBias

Employees may feel underpaid even if salaries are competitive,impactingretentionindependently.

ACKNOWLEDGEMENT

Iwouldliketothank my parents,Dr.Dr. Neha Choudhary andAmityUniversityMumbaifortheirkindguidanceand supportthroughouttheprocess.

REFERENCES

[1] Adams,J.S.(1963).EquityTheory.JournalofAbnormal andSocialPsychology.

[2] Cable,D.M.,&Judge,T.A.(1994).PayTransparency& JobSatisfaction.OrganizationalBehaviourandHuman DecisionProcesses.

[3] Gerhart, B., & Rynes, S. L. (2003). Compensation Strategies.SagePublications.

[4] Herzberg,F.(1959).MotivationtoWork.JohnWiley& Sons.

Volume:12Issue:04|April2025 www.irjet.net p-ISSN:2395-0072

[5] Judge, T. A., et al. (2010). Pay Satisfaction & Job Commitment.JournalofAppliedPsychology.

[6] Maslow, A. H. (1943). Hierarchy of Needs. PsychologicalReview.

[7] Pfeffer, J., & Langton, N. (1993). Wage Dispersion & Employee Satisfaction. Administrative Science Quarterly.

[8] SHRM(2020).TheStateofEmployeeCompensation.

[9] Trevor, C. O., et al. (1997). Competitive Salaries & Turnover.JournalofAppliedPsychology.