Compensation is one of the top three reasons people leave a job. Get pay wrong and nothing else you do, culture, perks, mission, can save you.

Large companies spend $10,000 to $50,000 per year on compensation consultants and enterprise survey data. That is not realistic for a 20-person company. The good news: you can build a credible, defensible salary structure using only free public data and a few hours of work.

Why salary benchmarking matters now

Three things are changing compensation fast:

Pay transparency laws. In the US, Colorado, California, New York, Washington, and others now require posted salary ranges. Candidates can see competing offers in real time.
Remote work. You are no longer competing only with local employers, your engineering manager in Austin is choosing between your offer and a fully remote role at a company in Boston.
Pay equity scrutiny. Internal pay gaps are easier to spot than ever, and employees share data openly (Glassdoor, Levels.fyi, Blind).

If your salaries are not grounded in market data, you will lose your best people to companies that have done the homework.

The 7 free tools every small business should use

1. Bureau of Labor Statistics (BLS.gov)

The US government publishes median wage data by occupation and metropolitan area through the Occupational Employment and Wage Statistics. It is free, authoritative, and updated annually. Best for: establishing baseline ranges by role and region.

2. Glassdoor Salary

Anonymous self-reported salaries from employees at specific companies. Best for: seeing what specific competitors pay specific roles. Noise is high at small sample sizes; use with caution for niche roles.

3. Levels.fyi

The gold standard for tech roles. Shows verified offers with base, equity, and bonus breakdowns. Best for: engineering, product, and design roles at technology companies.

4. LinkedIn Salary

Pulls from LinkedIn profile data (user-reported) and job posts. Best for: comparing across industries and geographies, and seeing how a title maps to pay across different company sizes.

5. Payscale

Offers free salary reports for individual roles based on title, experience, and location. Best for: quick range estimates on common roles.

6. Built In Salary

Startup-focused salary data, including equity. Best for: early-stage companies competing with other startups in tech hubs.

7. Job posts on LinkedIn, Indeed, and Wellfound

Thanks to pay transparency laws, many job posts now include salary ranges. Spend an hour searching for the roles you are hiring for and record the posted ranges. Best for: ground-truthing the other tools against current market reality.

The 4-step benchmarking process

Step 1, Define your comparison set

Who do you actually compete with for talent? Be honest. A 30-person Series A startup in Austin does not compete with Google for senior engineers. They compete with other Series A startups offering similar equity upside.

Your comparison set should be 8-12 companies that match on: industry, size (within 3x), funding stage, and location mix (remote or geographic).

Step 2, Collect data for each role

Pick the role you want to benchmark. Pull salary data from at least three of the tools above. Record the 25th percentile, median (50th), and 75th percentile for each source.

Average the medians across sources. That is your market rate for that role, at that level, in that location.

Step 3, Decide where you want to pay

Most small companies should target the 60th-70th percentile, above median but not top-of-market. This gives you a competitive edge without breaking the budget.

If you are cash-constrained but equity-rich (early startup), you can target the 40th-50th percentile on base and compensate with equity. If you are cash-rich but equity-poor (profitable, no outside funding), target 70th-80th percentile on base.

Document your "pay philosophy" in one paragraph, it makes every future compensation decision easier. See our guide to budget planning for HR teams for how to fit this into your broader financial plan.

Step 4, Build ranges, not points

For each role, define a range with a minimum (10-15% below target), a midpoint (target), and a maximum (10-15% above). New hires typically come in between the minimum and midpoint. Tenured employees earn at or near the maximum.

Review ranges twice a year. Adjust when market data shifts significantly.

Dealing with pay compression

The biggest risk of not benchmarking is pay compression: new hires earning more than existing employees because the market moved while your team's salaries did not.

Once a year, compare every employee's salary to the current market range for their role. Anyone paid below the midpoint after more than 18 months in the role should get an off-cycle adjustment, before they get a competing offer and you are forced to react.

This is expensive. Losing them and replacing them is more expensive. Retention is always cheaper than hiring, see how to handle a resignation for what happens when you get this wrong.

Pair benchmarking with performance data

Compensation decisions should not be made in isolation. You need context from the HR metrics that matter, turnover, regrettable turnover, and offer acceptance rate, to know whether your pay strategy is actually working.

Systemize with TracefyHR

Tracking salary history, bonus structures, and pay decisions in spreadsheets gets dangerous fast. TracefyHR stores every employee's full compensation history in one place, integrates with payroll, and makes it easy to run pay equity analyses before they become legal issues. See the payroll guide for how compensation flows into paychecks automatically.

Salary Benchmarking on a Budget: 7 Free Tools to Pay Competitively