What Is Benchmarking?

You probably already know that your role as a Human Resources professional is vital to the success of your organization. Without someone to pay and manage employees, how will anything get done? 

But how can you quantifiably measure how your role is impacting your organization’s performance? 

HR Metrics are key sets of data points that measure the effectiveness of an organization’s initiatives. When you make strategic decisions about your company’s HR function based on key metrics, you make good use of easily obtainable data and set your organization up for success. 

What Is Benchmarking?

Benchmarking is a tool businesses use to identify trends, areas of improvement, and assess their performance by comparing valuable internal and external HR metrics. Employers can use benchmarking to connect people management practices to business outcomes. In essence, benchmarking can help organizations see how HR practices are impacting their performance and set goals for improving that performance.  

External vs. Internal Benchmarking

Employers use external benchmarking to compare their HR metrics with metrics from other organizations of similar size and industry. External benchmarking shows you how your organization is performing in your industry. You should identify comparable companies (such as direct competitors) before starting your benchmarking process. 

Internal benchmarking helps organizations compare data points across time or across company divisions like departments or teams. Seeking out data for individual groups can help you identify which teams are the most engaged, have the highest performance, etc., so you know where you can start implementing new strategies. 

What Can You Benchmark?

While each organization will find different metrics useful, you can benchmark just about anything that you feel is a valuable metric to track. The only requirement is that your metrics are quantifiable. Here are a few examples: 

• Salaries: You can analyze employee salaries across positions and departments. Compare this data to that of other organizations in your industry to see how you can offer more competitive salaries that will attract more talent. You can also measure your workforce salaries against the market values of your workforce. This can help you discern if you may need to adjust salaries to match employee expectations and decrease turnover. 
• HR Costs: These include cost-per-hire, HR expense-to-FTE ratio, health care costs per employee, revenue-per-FTE, and more. These metrics can help you analyze how money is being spent at your organization, and find more cost-effective solutions. 
• Employee Turnover Rate (ETR): You can compare turnover rates across teams/departments to see what teams with lower turnover rates are doing differently. A high turnover rate can signal issues like poor candidate selection, poor management, no pay increase structure, or lack of opportunity. 
• Employee Satisfaction: This can be measured using the Employee Net Promoter Score (eNPS). While employee satisfaction, on face-value, doesn’t seem like it would impact business outcomes, there is a clear tie between employee morale and productivity. 

Check out SHRM’s list of HR Metrics and our blog on the top 5 HR metrics and why they’re important for specific details on how to calculate HR Metrics. 

Before Benchmarking, SHRM recommends knowing your business strategy, plans, and goals. SHRM states, “Success when benchmarking HR data depends on the employer having a firm understanding of these areas and obtaining support and buy-in from colleagues in all areas of the organization.” They also recommend including people across different departments in the benchmarking process. 

Before jumping into the data collection process, you should also know what exactly you’re looking for. Begin with the end in mind: What exactly are you trying to achieve or learn?

What are the Benefits of HR Benchmarking?

HR Benchmarking can provide you with powerful information that can help your organization reach its goals. Some benefits of HR Benchmarking include: 

• Identifying gaps within certain practices
• Identifying issues in areas such as training or onboarding
• Identifying employee retention issues 
• Identifying ways you can make your organization more competitive
• Identifying where money is being wasted (or not spent enough!)
• Identifying benefits that are more highly sought after in the industry
• Identifying ways to improve your compensation and benefits packages
• Identifying where your organization’s work culture stands compared to other organizations
• Improving employee perception of your organization
• And more! 

Keep in mind that you should not base important decisions solely on the results of the studies you conducted. Think about your organization as a whole, including its size, budget, and location, and take a more holistic approach to implementing new strategies. 

Let’s look at the following example to learn how Laura, an HR party of one at Company A, used benchmarking to decrease employee turnover rate at her company: 

In her 1:1 meeting with her boss, Laura complains that many new hires are leaving the company and moving to company B, company A’s competitor. She thinks it’s because company A offers a lower salary than company B for the same position and years of experience. 

Her boss tells her to let them go, and that they’ll “find others soon enough.”  

But the problem persists. 

Laura decides to do some benchmarking to identify the issue and prove to her boss that without a salary increase, it will be hard for their company to be competitive in the job market. 

She begins by gathering internal data about the salaries for the various kinds of positions at company A. She then gathers data on the salaries offered at company B. Laura finds that company B offers the same benefits package, but pays on average $5-$7,000 more than company A. 

Because Company A is relatively smaller than Company B, significantly raising the salaries to match company B’s salaries may not be the wisest decision. 

Laura decides to assess other metrics like work flexibility. She finds that both Company A and Company B require employees to adhere to stringent 8-5 work schedules. 

(Note: This is a prime example of taking the holistic approach when benchmarking.)

She meets with her boss again and proposes 3 different solutions:

1. Company A can raise the salaries of its employees to match company B.

2. Company A can offer more flexible work schedules than company B.

3. Company A can offer a stronger PTO policy or more robust benefits package than company B. 

Laura's boss appreciates the effort she has taken to identify solutions that may improve employee retention across the company, and they involve other leaders in their decision-making process. 

Laura and the team opt to create more flexible schedules by implementing flextime. Flextime loosens restrictions on workday start and end times. As long as workers meet their hours every week, they can set their own schedules. Flextime has been proven to increase employee satisfaction and overall sense of work-life harmony. 

After implementing flextime and including that perk on job descriptions, company A saw an improvement in recruitment and retention. Flexible work schedules gave company A the edge that many job candidates were searching for. 

Additional Resources

You can stay informed, educated, and up to date with important HR topics using BerniePortal’s comprehensive resources:

• BernieU—free online HR courses, approved for SHRM and HRCI recertification credit
• BerniePortal Blog—a one-stop shop for HR industry news
• HR Glossary—featuring the most common HR terms, acronyms, and compliance
• Resource Library—essential guides covering a comprehensive list of HR topics
• HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics
• Community—the HR Party of One Community forum, a place devoted to HR professionals to ask questions, learn more, and help others