Compensation Benchmarking Template

Update market data at least annually, with a mid-year refresh for high-demand roles (engineering, AI/ML, cybersecurity). If you use a real-time data source like Pave, set automated alerts for when market midpoints shift more than 5%. The annual review cycle should use the most recent data available, not data from the start of the fiscal year. Track compensation [trends](/glossary/north-star-framework) in your workforce analytics dashboard.

Most companies target the 50th percentile for base salary and 50th-75th for total compensation. The right target depends on your talent strategy. If you compete for senior engineers against FAANG companies, you may need 75th percentile total comp for those roles while maintaining 50th percentile for less competitive functions. Document your percentile philosophy and make exceptions deliberate, not ad hoc.

Three common approaches: (1) pay the same regardless of location (location-agnostic), (2) tier cities into 3-5 cost-of-living bands with percentage adjustments, or (3) use a continuous adjustment based on a cost-of-living index. Approach 2 is most common. Define your tiers clearly and publish them internally. Employees relocating between tiers should have their compensation adjusted at the next review cycle, not immediately, to avoid surprises. See the [PM Salary Guide](/product-manager-salary) for an example of location-based salary modeling.

A compa-ratio is an employee's salary divided by the midpoint of their pay band. A ratio of 1.0 means the employee is at midpoint. Below 0.85 suggests underpayment risk. Above 1.15 suggests the employee may be at the top of their band and should be evaluated for promotion. Tracking compa-ratios across the organization surfaces systemic pay issues that individual salary reviews miss. Use your [product analytics](/analytics-guide) to visualize compa-ratio distributions by department and tenure.

Run a regression analysis controlling for job level, performance rating, tenure, and location. Any statistically significant pay gap (>2%) by gender or ethnicity requires investigation. Build this analysis into your annual review cycle as a mandatory step before finalizing adjustments. Some companies use third-party auditors for legal protection. The key product requirement is making this analysis easy to run and act on, not buried in a CSV export. ---