The Limitations of Benchmarking: Why Copying the Market Isn’t a Strategy

When discussing pay reviews, bonus structures or retention risk, many HR teams find themselves turning — almost instinctively — to benchmarking. It’s neat. Quantifiable. Comfortable. There is something reassuring about a spreadsheet of industry averages, sliced by sector, region, and role. If your offer is “competitive,” you’re covered. Or so the logic goes.

But what happens when everyone is benchmarking against everyone else? The system becomes circular. The same figures are recycled, adjusted slightly for inflation, and redeployed without much scrutiny. For employers trying to retain high performers or navigate new market realities, this can become a trap. At its worst, benchmarking becomes a substitute for thinking — a proxy for strategy, rather than its foundation.

Take, for example, a fintech company based in Manchester that used national salary benchmarks to rework its compensation model in 2023. The HR team compared their figures with ten competitors and adjusted base pay to fall within the 60th percentile. On paper, this put them ahead of the market. But within six months, three key engineers had resigned. Not because they were underpaid, but because they were under-recognised. One left to join a smaller firm offering fewer benefits but more project ownership. Another accepted a lower salary in exchange for a clearer progression plan.

The lesson? People don’t always leave for money. And those who stay aren’t necessarily staying because the benchmark says they should. Retention is about perceived value — and that value is context-specific.

There’s another problem. Benchmarking data, even when sourced from reputable surveys, is usually historical. It reflects what companies did last year — not what they’re doing now. In a fast-moving market, particularly in technology or specialist sectors, relying on six-month-old averages is like steering with the rear-view mirror.

A healthcare recruitment firm in Leeds learned this the hard way. They froze pay bands based on 2022 benchmarks just as competitors began offering aggressive sign-on bonuses in response to shortages. Candidates were being lost within days. By the time they adjusted, the damage was done — and rebuilding pipeline trust took months.

Beyond pay, benchmarking can also distort organisational values. When businesses benchmark their culture initiatives, benefits packages, or DEI strategies purely against the median, they risk mediocrity. Matching what others are doing might prevent embarrassment — but it rarely inspires loyalty.

In 2024, a national legal firm reviewed its flexible working policies against industry peers. Their decision to offer three remote days per week placed them “on par” with competitors. Internally, however, staff surveys showed widespread dissatisfaction. Employees didn’t want more home days — they wanted autonomy. The fixation on comparative policy had missed the point entirely.

HR leaders must ask: what matters to our people? What do they value in our culture, our approach, our promise? Benchmarks tell you what’s common. They don’t tell you what’s compelling.

This is not to say benchmarking has no place. It’s useful as a reference, a guardrail, a way to ensure minimum competitiveness. But it must be tempered by context. It must be interpreted through the lens of actual organisational behaviour, not just figures on a page.

In practice, that means HR teams should:

• Pair data with dialogue. Internal feedback, pulse surveys, and one-to-one conversations often reveal truths that data masks. A salary may be competitive, but if the bonus scheme is opaque, dissatisfaction will persist.

• Challenge the assumptions in the dataset. Who responded to the survey? What roles were included? How were regions weighted? Are you comparing like for like — or comforted by proximity?

• Factor in non-financial drivers. Recognition, progression, psychological safety, leadership trust — none of these feature in a benchmarking report, yet they are key to loyalty.

• View outliers as signals, not threats. If one firm is offering 15% above the market for a particular role, ask why. Do they know something you don’t? Are they solving a problem you haven’t recognised yet?

The best HR strategies start with insight, not imitation. They are rooted in what the business needs, what the workforce values, and where the market is heading — not where it’s been. Benchmarking should inform that view, not replace it.

In a labour market shaped by rapid change, hybrid demands, and generational expectations, the “average” is increasingly irrelevant. What matters is alignment — between what you offer and what your people need to thrive.

So yes, open the benchmarking report. Study it. Understand the landscape. But before you adjust your salary bands or rewrite your EVP, take a step back.

Ask what story your organisation is trying to tell — and whether your reward strategy is actually telling it.