Understanding salary benchmarking for startups

In today's fiercely competitive talent market, early-stage startups face unique challenges in attracting and retaining top talent. One of the most effective ways to build a compelling employee value proposition is through salary benchmarking, a data-driven approach to setting fair, competitive, and transparent compensation.

Whether you're a startup founder, CFO, or HR professional, understanding and implementing salary benchmarks is essential for building a strong team and ensuring pay equity.

What is salary benchmarking?

Salary benchmarking is the systematic process of comparing salaries against market data to ensure competitive and fair pay. This data-driven practice enables startups to make informed decisions about salaries, equity grants, and benefits that attract top talent while managing costs effectively.

Why does salary benchmarking matter for startups?

For startups, salary benchmarking is crucial because it ensures competitive compensation, aids in attracting and retaining top talent, and helps maintain financial stability by preventing overpayment.

Attracting and retaining top talent

Startups compete with established private companies for skilled employees. Offering competitive pay, equity compensation, and other benefits (such as work-life balance and development opportunities) is crucial for attracting high-caliber candidates and reducing employee attrition, especially since nearly half of remote workers say they would be unlikely to stay if remote work was no longer an option. Salary benchmarking ensures your offers are in line with market and industry standards.

Building a competitive compensation strategy

A well-defined compensation strategy, grounded in benchmarking data, helps startups allocate resources efficiently and plan for growth. It also supports the creation of clear salary bands and job leveling frameworks, making it easier to scale teams as the company grows.

Ensuring pay equity and transparency

Salary benchmarking promotes pay equity by identifying and addressing pay gaps across roles, genders, and locations. With increasing emphasis on pay transparency, and with data showing that a declining share of workers are highly satisfied with their pay, startups that benchmark compensation are better positioned to comply with regulations and foster trust among employees.

Key factors influencing salary benchmarking

Salary benchmarks vary based on several key factors:

• Industry and role seniority: Compensation varies widely across industries and experience levels. Tech startups typically offer different compensation mixes than traditional industries.

• Geographic differences: Location traditionally impacted pay significantly, but remote work has shifted this dynamic, with a growing number of employers instituting in-person work requirements. Some companies use geographic differentials while others offer uniform salaries.

• Company stage and funding: Early-stage startups often balance lower base salaries with higher equity grants. As companies mature and secure funding, they typically adjust toward more robust salary bands.

How to implement salary benchmarking

1. Set compensation goals and develop a strategy

A company's compensation philosophy is its high-level strategy for attracting, retaining, and rewarding talent. It's a guiding framework that defines the overall approach to employee compensation, going beyond just the balance of salary and benefits to include key principles like market positioning and company values.

Use these guiding principles to develop a scalable compensation strategy, outlining the plan and methods you'll use to achieve your compensation philosophy.

2. Define roles and job levels

Clearly outline roles within your organization and establish job levels for each function. As job titles and responsibilities aren't standardized across markets, create clear job descriptions that outline expectations. This step ensures benchmarking data is applied consistently, creating a foundation for fair and transparent compensation decisions.

3. Collect and analyze compensation data

Gather benchmarking data from reliable sources to make informed compensation decisions:

• Industry surveys: Access salary surveys, industry reports, and professional association data

• Technology platforms: Use advanced compensation management software like Carta for accurate, role-specific benchmarking

• AI-powered analysis: Leverage automated tools to identify trends, uncover pay gaps, and predict market shifts

Analyze this data to identify market salary ranges and equity benchmarks for each role. The right tools can automate data collection and provide predictive insights for strategic planning.

1. Establish salary bands and equity benchmarks

Create clear salary bands and equity ranges for each job level. Over time, you'll need to review and adjust your compensation bands to align with market shifts and external benchmarks, especially as 2025 data shows that compensation costs for private industry workers increased 3.6 percent over the year. This helps to ensure pay equity, transparency, and scalability as your team grows.

5. Communicate pay transparency and total rewards

Share internal pay structures with employees, using your compensation philosophy to explain pay and equity decisions. Transparent communication through features like Carta Total Compensation builds trust and helps employees appreciate their total rewards package.

Dynasty CEO Alessandro Chesser demonstrates this approach: “I went through [Carta Total Compensation] step by step, like, ‘This is your role. This is your experience level. Here's where you live,’ and we discuss compensation systematically. It eliminates any adversarial conversation—people just say, ‘Yeah, that makes sense. You're being fair with me.’”

Challenges and solutions in salary benchmarking

Modern startups face three critical compensation challenges. Here's how to address each one:

Building your salary benchmarking strategy

A thoughtful salary benchmarking process is a continuous strategy for attracting and keeping the right people. By grounding your compensation philosophy in reliable data, you build a foundation for sustainable growth, pay equity, and team morale.

Take Guide, a talent-acquisition startup that switched to Carta Total Compensation to create transparency with employees. “We've used Carta data alongside our own products to make our interview process aggressively transparent,” says CEO Troy Sultan. This upfront approach helps candidates understand compensation before investing in the full interview process, creating trust from the start.

As your startup scales, this strategy adapts to new market trends and internal goals. The right tools make this process manageable and data-driven, turning compensation into a strategic advantage.

How Carta Total Compensation helps

Carta Total Compensation helps startups and high-growth companies make informed, data-driven decisions about salary and equity. The platform leverages real-time compensation data from over one million employees and uses machine learning technology to ensure compensation benchmarks reflect market trends.

Key features include:

• Accurate data: Access up-to-date salary and equity benchmarks tailored to your company's stage, industry, and geographic location.

• Job leveling: Standardize roles and levels to ensure consistent, fair compensation across your organization.

• Compensation planning: Model different pay scenarios, set salary bands, and manage total rewards.

• Equity benchmarks: Compare your equity offers to market standards, ensuring you remain competitive without overdiluting your cap table.

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Frequently asked questions about salary benchmarking

What is the difference between salary benchmarking and compensation benchmarking?

Compensation benchmarking includes the entire rewards package (salary, equity, bonuses, benefits), while salary benchmarking can refer more narrowly to base pay.

How often should a startup review its salary benchmarks?

Review salary benchmarks annually, or semi-annually during rapid scaling or competitive talent markets.

How does company stage affect salary benchmarking?

Early-stage startups typically offer lower base salaries with higher equity grants, while mature companies increase base salaries as equity percentages decrease.