Fair and competitive wages remain critical to attracting talent and retaining and engaging your workforce. According to SHRM, employees consider fair compensation more important than both work/life balance and better benefits packages, with 53% of workers citing compensation as the top reason they begin to search for new jobs.
To stay on top in a tight market and keep your organization’s pay equitable, you can and should complete a compensation analysis – a review of current internal compensation rates and external trends in your organization’s industry and region.
Interested in conducting a compensation analysis at your organization? Be sure to download our free compensation analysis template before you get started!
Essential Steps for a Successful Compensation Analysis
Step 1: Set Your Goals
You’ll have a lot of data to go through when conducting your analysis. Establishing a clear goal ahead of time will narrow your focus, guiding you toward specific methodologies, and ensuring you’re less likely to be bogged down by extra data.
So, pinpoint one or two specific goals you’d like to achieve before you start.
Here are a few reasons you might run a review:
To identify any existing pay inequities that may put your company at compliance risk. In this case, you’ll want to focus on brushing up on compensation laws everywhere you operate.
To improve your competitive edge in a tight or volatile job market – focus on benchmarking your current salaries against competitors in your industry and operating area.
To improve retention and boost engagement and satisfaction with existing employees.
Because you want to remain competitive after major changes to the labor market in your region or industry.
Because you anticipate major growth, restructuring, or expansion into a new region, and will be ramping up hiring in the future.
Step 2: Review Your Current Compensation Strategy in its Entirety
Once you’ve got a clear goal in mind, the actual analysis can begin. This starts internally, with gathering up as much relevant compensation data as you can.
Review your compensation strategy and philosophy. If you don’t have a compensation strategy in place at your organization, now is a good time to develop one. A strong compensation strategy offers a point of reference that will make decisions easier down the road.
Review how raises and promotions are determined. Are there safeguards in place to ensure employees are paid fairly?
Map out all roles, the skills needed to complete them effectively, job descriptions, and current pay ranges, bonuses, and other compensation for those roles.
Collect data on current employee pay rates. This will paint a clear picture of where your resources are going.
Do your compensation rates vary depending on where a person is working? Make note of that, as well.
Much of this data should be available through your HRIS or perhaps through the company that handles your payroll.
Step 3: Research External Trends
Looking beyond your own organization is absolutely crucial to a successful compensation analysis. Depending on what your goals for the review are, there are a few different factors you will want to consider:
Compliance. Review current and upcoming pay legislation in your organization’s places of operation.
Average compensation rates for job titles, roles, and skill sets your company currently uses. Gather numbers for your industry at large, your specific reason, and if possible, your direct competitors.
Rates for skill sets that your organization may soon need, particularly if those skill sets are coming into demand in your industry or in general – knowledge of AI, for example.
Make sure you are utilizing current, accurate, validated data from a reputable source. The Bureau of Labor Statistics is a great free resource for current salary data. You can also find useful data from sites like Payscale and Salary.com.
Step 4: Benchmark Your Current Salary Ranges
With your organization’s current pay rates, market data, and an up-to-date reference of legal compensation requirements, you can begin benchmarking your roles.
Compare current salaries at your organization to your company’s compensation philosophy to ensure rates align with your organization’s values and business needs.
Do an internal review of where your resources are going to ensure no one department is understaffed, undercompensated, or using more resources than it needs. This could be an opportunity to create some cost savings.
Compare current salaries for specific roles to those of your direct competitors and other businesses in your industry and area of operation. Are you at, above, or below market average? Does that align with your compensation philosophy?
Step 5: Make Adjustments, Communicate Your Process
You’ve done the work to determine where changes are necessary to improve resource allocation and bring your roles more in line with market rates, now it’s time to make the necessary changes.
Look at your company’s demographic data to ensure there is no bias in pay rates based on race or gender.
Tweak or establish pay ranges for each position you’ve benchmarked.
Ensure your management teams are well-trained on how best to communicate compensation changes to your people. You and your leaders should be able to answer questions on rationale and process. Direct, clear, honest communication will be vital for the next steps.
Bring your current employees in line with those new numbers and adjust any job postings to reflect the changes. You may need to bring some employees up to meet their range and potentially freeze salaries for others if they are over their ranges.
If you don’t have the budget for major pay increases, look to other benefits that might make your organization more attractive. Raw salary remains the most important factor for most workers, but work/life balance and better, more benefits, like access to mental health care, are still in high demand.
Tips to Make the Most of a Compensation Review Once It’s Done
Naturally, once you have the data, you’ll want to make use of it – implementing changes to compensation and benefits to bring your business more sustainably in line with both its needs and market standards.
Past that, though, there are a few things you’ll want to consider.
Transparency is important! Be prepared to explain both your decision-making process and rationale to employees. When well-communicated, pay transparency can have a positive impact on business outcomes, while secrecy can add to workplace stress.
Compensation analysis isn’t a one-and-done process. Ideally, you’ll conduct compensation analysis annually, and not wait more than two to three years. However, it’s important to remain dynamic, and it may be beneficial to review compensation more frequently. For example:
If your company is growing rapidly, restructuring, or expanding into new regions or industries.
If there is a major shift in the job market necessitating change.
If new pay legislation may affect compliance – for example, changes in minimum wage.
