Compensation benchmarking for Indian SMEs: what the surveys miss and how to fill the gaps.

Why standard salary surveys fail Indian SMEs.

The major compensation surveys in India — Mercer, Aon, Willis Towers Watson, Deloitte — are built on data from large, typically multinational companies. Their sample frames skew towards organisations with formal HR functions, established pay structures, and the budget to participate in surveys. The result is benchmarks that are directionally useful for large companies and materially misleading for an SME in Nagpur, Coimbatore, Surat, or Bhubaneswar.

The mismatch operates in both directions. In some functions and levels, published benchmarks overstate the market for a Tier-2 city by 20 to 35%. In others — scarce technical skills, niche domain expertise — they understate the competitive rate because the sample includes few companies of the relevant type. Applying published benchmarks uncritically in either direction produces pay structures that are simultaneously expensive in some places and uncompetitive in others.

What you can actually use for benchmarking.

The absence of perfect data does not mean the absence of data. SMEs that build defensible pay structures do it by triangulating across multiple imperfect sources rather than relying on a single survey.

Offer letter data from recent hires.

Every organisation has internal data on what the market demanded when they last filled a role. Offer letters from the past 12 to 18 months, by role, level, and city, are the most current and relevant market data available to most SMEs. Build a log. It becomes a reference point for the next hire.

Exit interview data on competing offers.

Employees who leave for other companies, and who are willing to share the offer they accepted, are providing real-time market intelligence. Not every leaving employee will share this. Some will. The ones who do are giving you the most current and specific data available: what a competitor paid, for a similar role, today.

LinkedIn and Glassdoor (with significant adjustment).

Self-reported salary data on these platforms skews high and skews towards urban, tech-adjacent roles. It is not reliable as a point estimate. It is useful as a directional indicator and as a cross-check against other sources. If your pay is 40% below what employees are reporting for comparable roles on Glassdoor, that is a signal worth investigating even if the absolute numbers are not accurate.

Peer network data.

Founders and HR leaders who compare notes with peers in similar companies, in the same city or sector, have access to the most useful benchmarking available to SMEs. It requires trust and reciprocity. Industry associations, founder networks, and HR peer groups are the mechanisms for building this. If you are not in one, join one.

“The best compensation benchmark an SME has is the last five offer letters they extended. Everything else is context, not data.”

Building a pay structure from imperfect benchmarks.

A pay structure for an SME does not need to be a complex matrix. It needs to do two things: give managers a defensible frame for what to offer new hires, and give employees clarity on where they sit in the range and what it would take to move.

Define bands, not points.

A pay band for a role level defines a minimum, a midpoint, and a maximum. The minimum is what you pay someone who is learning the role. The midpoint is a fully competent performer at market. The maximum is what you pay an exceptional performer at the top of their market value in that role before promotion to the next level. Bands should overlap slightly across levels — a senior person in band B can earn more than a junior person in band C — because this is what the real market looks like.

Anchor to a clear market position.

Decide where you want to sit relative to the market, and be explicit about it. “We target the 50th percentile for operational roles and the 65th for technical and leadership roles” is a strategy. “We pay market” is not, because it says nothing about which market, at what percentile. Your market position should reflect your ability to pay, your brand as an employer, and the scarcity of the skills you are competing for.

Review annually.

A pay structure built in 2023 on 2023 data is not a 2025 pay structure. Markets move. Inflation in India has been material. Technical skill premiums shift quickly. A pay structure that was competitive three years ago may now be producing quiet attrition — the kind where your best people are not leaving yet, but they are quietly entertaining calls. Annual reviews, even informal ones, prevent this accumulation of competitiveness risk.

The conversation with employees about pay.

The final and most neglected part of compensation management in SMEs is the conversation. Employees who understand how their pay was determined, where they sit in the range, and what it takes to move up, are more satisfied with their compensation than employees who earn more but do not know why. Transparency is not the same as publishing everyone’s salary. It is explaining the framework: this is how we think about pay, this is where you sit, and this is what would change it.

Managers who can have this conversation confidently retain people that managers who cannot have it lose. Building this capability into your management layer is as important as building the structure itself.