Human Resources Benchmarking: A Beginner’s Guide

In 2022, it’s no secret that data is power. Today’s most successful HR leaders use data to inform every decision they make, from deciding who to hire and how much to pay them to what benefits and perks to offer (and so much more).

Having readily available data is great, but how do you amplify its value to make more informed decisions about the future of your workforce?

The secret lies in benchmarking, the practice of comparing your business’s performance metrics and processes to other companies’ and industry standards.

If you’re an HR professional who’s interested in keeping your business competitive, keep scrolling to learn more about this data-powered performance improvement strategy and how to implement it.

What is human resources benchmarking?

Human resources benchmarking is the process of comparing your organization’s key HR metrics to those from similar businesses. HR benchmarking can also entail comparing your present day metrics to results from years prior.

Why is HR benchmarking beneficial for businesses?

Reason #1: It helps pinpoint organizational problems

Benchmarking provides context that HR leaders need in order to suss out where their organization’s performance falls short. For example, if you compared your organization’s retention rate to a competitor’s or an industry benchmark and found that your rate was much lower, that signals there’s likely an organizational issue that’s spurring higher-than-average voluntary turnover.

Reason #2: …and it also helps pinpoint where your organization is succeeding

On the other hand, benchmarking also makes it easier to identify where your organization outperforms your competitors. Continuing with the example above, you may find that your retention rate is actually much higher than the industry average. This is already a win, but then you could dive further into what within your HR strategy is contributing to that high retention rate so that you understand what makes your workplace a favorable one to employees.

Reason #3: Lastly, it improves data-driven decision making for HR teams

Ultimately, the motivation behind analyzing HR benchmarking data is to understand how you can move your business in the right direction. Whether you use an industry standard, a competitor’s HR metrics, or your own past performance as a frame of reference, the effect is still the same: more informed decision-making when it comes to your business’s HR strategy.

The HR benchmarking process in 6 steps

Although you can benchmark just about any aspect of HR, it’s best to choose one area to focus your benchmarking efforts on. For example, you can benchmark everything from the composition of your workforce and your organizational structure to your HR department’s budget, but if you tried to do that all at once, it would be a challenge to come out of the benchmarking process with a clear vision of what to improve and how.

As mentioned in the step above, you should define the metrics you’re going to use as points of comparison in your benchmarking process. For example, if you’ve determined that employee engagement is going to be the focus of your benchmarking efforts, you’ll want to collect the following HR metrics for benchmarking:

• Employee Net Promoter Score (eNPS): A method of measuring how willing your employees are to recommend their workplace to their family or friends.
• Retention rate: The number of employees who stay at your company for a certain period of time compared to the total number of employees in that period.
• Internal promotion rate: The measurement at which opened positions in your organization are filled by internal hires.
• Voluntary employee turnover rate: The rate at which employees willingly leave your company within a given period.

If you plan to regularly benchmark as a business performance improvement strategy, it may be worth it to invest in HR analytics software. HR analytics tools not only provide you with data and insights about your workforce, they also help you design and implement HR initiatives that will benefit the future of your business.

Now for one of the most challenging parts of the benchmarking process: collecting external benchmarking data—or alternatively, internal data from years prior.

If you’re planning on using external data from other companies: Make sure that you’re looking at businesses in the same industry, of a similar size, and if possible, in the same geographic region. Also know that acquiring a competitors’ data is no easy task; Most workforce information is considered confidential, so if you’re going down this route, you have limited options.

One option is to use publicly accessible data such as benefits and compensation information on job postings and employer review websites (such as Glassdoor), but with this strategy you run the risk of using old or inaccurate data. If you have contacts at similar businesses, a better approach would be to set up interviews or send out a formal questionnaire to get the information you need, but make sure you’re forthcoming about the motivation behind your research.

If you’re planning on using historical internal data for comparison, you can use your HR software system to access information from years prior. If you haven’t been collecting information over the years, consider adopting a data management system of some sort, whether it’s a human resources management system (HRMS) or another tool.

For instance, Gartner has multiple reports from the last year available to clients:

• HR Budget & Efficiency Benchmarks
• Employee Flexibility Benchmarks by Function and Level
• Benchmarks for the Roles and Responsibilities of Regional and/or Business Unit Heads of HR

Once you have all of the data needed to benchmark (both your organization’s and the external or historical information) it’s time to compare the metrics. To do this, build a spreadsheet or report with the two sets of metrics side-by-side, then identify where the data aligns as well as where there are significant deviations.

Deviations between your data and the comparative data should not be taken as “good” or “bad” at face value. In fact, deviations should be expected, as every business is different in how it operates—the bigger the discrepancy, though, the greater the need for further analysis.

For example, if your cost-per-hire is much higher than that of the comparative data, it could be because you’re recruiting in a competitive location where it takes more time and money to fill a role. But that’s not necessarily a lost cause: You could expand your recruiting pool to include remote workers in other geographic locations, hopefully helping to bring more qualified candidates into the process earlier on.

Your analysis of the benchmarking data should bring to light which areas of your people strategy can be improved. Next, it’s time to put pen to paper and brainstorm how you can do that. The plan you create should directly address what you believe to be the drivers behind performance gaps.

For instance, if your eNPS is poor when put side-by-side with the comparative data, the first step of your plan of action should be to collect feedback on the employee experience at your organization from your workers.

Of course, any time you kick off an improvement plan, you have to measure the results in order to accurately judge whether it was successful or not. Fortunately, you already know which metrics you should be tuned into, because they’re the same ones that inspired the focus on your improvement plan.

Capterra Tools & Tips

If you plan on making benchmarking a regular part of your business performance improvement strategy, make sure you bookmark the resources below.

• 8 HR Benchmarks You Should Be Tracking and How to Calculate Them: A rundown of eight different HR metrics you can benchmark and why they’re useful.
• 3 HR Benchmarking Examples From a Real HR Pro: Get an inside glimpse at benchmarking in practice from a real HR professional.
• The 2022 Capterra Shortlist for Human Resources Software: Having the right HR software tool means less time crunching numbers and more time making sense of them. Start your search with a list of over 20+ top-rated HR software systems.

Invest in a platform that prioritizes continuous improvement

Currently, we’re in the midst of a widespread talent shortage that’s prompted over 75% of CEOs to change their talent strategy to address the key causes of talent risk (full content available to Gartner clients).

As an HR leader, you’re responsible for supporting today’s workforce and planning for tomorrow’s. Don’t let your organization fall behind by failing to take action. Adopting a regular benchmarking process will help you make more informed decisions about your talent strategy. And luckily, today’s wide range of HR software tools are here to help lighten the load. And even better: Many of them are free.

Whether you need a data management solution that will store and make sense of employee data, or you’re looking for an advanced HR analytics platform that will turn insights into improvement plans, there’s a tool out there that will fit your needs and budget.