HR-Glossar
Gehaltsbenchmarking (pay benchmarking)
How a sound pay comparison is built, which data sources hold up and which errors make the result useless.
1. What is Gehaltsbenchmarking (pay benchmarking)?
Pay benchmarking is the systematic comparison of your own pay against the relevant market. It answers two different questions which are often conflated:
- Outwards – do we pay competitively?
- Inwards – is our pay internally coherent and capable of justification?
Methodologically it stands or falls on comparability. Only roles with a similar set of tasks, similar responsibility and a similar market environment – sector, region, company size – may be compared. A job title alone is useless as a basis for comparison; the same title stands for very different things in two businesses.
What is compared is moreover total remuneration, not base pay: variable components, special payments, occupational pensions, benefits in kind and working time all belong in it. Higher base pay with five fewer days of holiday is not a higher offer.
Legally the subject is flanked by the Pay Transparency Act, which under Section 10 EntgTranspG gives an individual right to information about comparative pay in larger businesses – and by the requirement of equal pay for equal and equivalent work.
2. Origin and development
Pay comparisons long existed as association and consultancy studies, accessible mainly to larger businesses. Two developments have opened that up: salary portals based on self-reporting, and growing transparency through job adverts that state pay.
Both have improved access and sharpened the question of quality. Self-reported figures in portals are not representative, often not normalised to full time, and know nothing about the set of tasks. They serve as rough orientation and not as the basis for a pay decision.
3. Core principles and how it works
Compare roles, not titles
The basis is the actual set of tasks. Without a role description there is no sound comparison.
Look at total remuneration
Variable components, pensions, benefits in kind and working time belong in the comparison.
Define the market environment
Sector, region and company size determine the relevant market. A national average rarely helps.
Ranges rather than averages
Ranges say more than a mean. The question is where in the field you want to stand – not whether you hit the average.
Test internal coherence
Pay that fits externally can create imbalances internally. Both belong looked at together.
4. Who is Gehaltsbenchmarking (pay benchmarking) relevant for?
- Management and HR leads – they decide pay policy. - Businesses in shortage occupations – for them the market position is felt immediately. - Businesses not bound by a collective agreement – they have no table and need their own orientation. - Works councils – involved in pay systems. - Employees in pay conversations – as a basis for their own case.
5. How it differs from related terms
- Benchmarking and collective agreements – a collective agreement prescribes, benchmarking orients. Where an agreement applies, the room is limited. - Benchmarking and pay transparency – the transparency duty concerns the individual right to information, not the market view. - Benchmarking and role evaluation – role evaluation orders roles internally against one another; benchmarking compares outwards. - Market data and salary portals – portals rest on self-reporting and are methodologically weaker than surveyed studies.
6. Variants and adaptations
- Association and sector studies – usually methodologically sound, but not available for every sector. - Consultancy studies – detailed, chargeable, with their own role taxonomy. - Salary portals – widely available, methodologically weak; for rough orientation. - Analysis of job adverts – increasingly possible as pay statements become more common. - Informal comparison in a network – delicate under competition law and therefore to be treated with care.
7. Advantages and challenges
Advantages
- Pay decisions rest on data rather than on feel
- The risk of people leaving becomes visible early
- A basis for argument in pay conversations, for both sides
- Internal imbalances become visible
- Supports the ability to justify pay in terms of equal pay
Challenges
- Data quality varies considerably by source
- Title-based comparisons mislead systematically
- Comparing base pay without total remuneration distorts the picture
- Studies are expensive, free sources methodologically weak
- A benchmark is no substitute for a pay strategy
8. Best practices for implementation
Role descriptions as the basis
Without described roles every comparison is arbitrary.
Calculate total remuneration
Base pay, variable share, pension, benefits in kind, working time – made comparable in one figure.
Choose your positioning deliberately
Do we want to sit mid-field or above it? That decision is pay policy and belongs taken, not derived.
Regularly rather than on occasion
A comparison run only when someone resigns comes too late.
Observe the limits under competition law
Directly exchanging pay data between competitors is delicate; anonymised studies are the safe route.
9. Tips for employers and employees
For employers
- **Titles are no basis for comparison** – the set of tasks decides
- **Compare total remuneration** – otherwise you are comparing apples with half a pear
- **Use ranges rather than averages** – the question is positioning, not the mean
- **Test internal coherence too** – an externally justified rise can have internal consequences
For employees
- **Treat salary portals with caution** – self-reported figures are not representative and rarely normalised
- **Argue on total remuneration** – holiday, working time and pension belong in it
- **Check your right to information** – in larger businesses it exists under the Pay Transparency Act
10. Conclusion
Pay benchmarking is only as good as its comparability. Comparing job titles rather than roles, and base pay rather than total remuneration, produces a figure that looks precise and is worth nothing. It becomes useful with described roles, a defined market environment and ranges rather than averages – and with a deliberate decision about where in the field you want to stand. That decision is pay policy; it cannot be derived from any benchmark.
Two German points deserve their own line in a group context. A grading system that equates job titles across countries is exactly the title-based comparison that misleads. And the Pay Transparency Act gives employees in larger businesses an individual right to information about comparative pay – which makes the internal coherence question not merely good practice but something an employer may have to answer.
Sources
- Section 10 EntgTranspG – Individual right to information (official English version, as at 5 July 2021; the German text governs) (opens in a new tab)
- Earnings and earnings differences (English pages) (opens in a new tab)
- Entgeltatlas (German-language salary atlas) (opens in a new tab)
Related terms
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