One of the first things job seekers consider is if the advertised compensation package meets their needs and wants. Knowing this, smart companies conduct a formal compensation analysis to determine if their salaries are fair and competitive and will help position them as an employer of choice.
In this article, we explore what a compensation study is, why it's important and telltale signs it might be time for your company to conduct one.
What Is a Compensation Study?
A compensation study, also known as compensation analysis or pay analysis, is an organization-wide review of how jobs are classified and compensated. It’s a method that uses internal and external data to determine whether a company's compensation structure is fair and competitive in the areas of salary and employee benefits. In this ever-changing and highly competitive job market, employers can benefit from regular analysis to accurately measure external competitiveness, internal equity and talent retention with a company.
Why Is a Compensation Study Important?
Company-wide compensation should be reviewed on an annual basis to ensure organizations are providing fair, equitable compensation. Smart employers understand that offering the right compensation package is a key pillar of recruiting and retaining top talent. If that alone doesn’t convince you, here are some other reasons your business should consider routine compensation analyses:
- Enhances job market competition
- Enables financial responsibility
- Helps avoid biases & wage discrimination
- Excels performance motivation
- Takes the guesswork out of making pay decisions
Signs It's Time to Review Your Compensation Plan
1. You're unaware of the market wage for positions in your organization.
If you’re unsure whether your company is paying at market, which means exactly what it sounds like — to pay at a level that matches the market average salary for a specific position — then it’s time to review your compensation plan. A compensation analysis uses benchmarking data to show whether you’re paying more or less than other organizations for a similar role (as well as what your employees might see as their earning potential elsewhere). In turn, this also enforces fair and equitable pay practices.
2. You're experiencing costly turnover.
High turnover is an organization killer. While compensation certainly isn’t the only reason talented team members leave, it’s high on most lists. A compensation study can lead to restructuring better pay, so compensation doesn’t play a major role in an employee’s decision to quit. Understanding and effectively managing pay issues within your organization is key to retaining employees and protecting profitability.
3. You're having trouble hiring.
Providing fair, competitive compensation can make your company more appealing to high-quality talent, especially top performers who may be entertaining offers from multiple companies. If you’re having a hard time filling critical roles, it could be a sign that your total compensation offerings are missing the mark. A compensation analysis can be used as a valuable tool in hiring or adjusting compensation packages, including pay, benefits and perks, to acquire skilled employees and enable business growth.
A thorough compensation analysis is a critical component of an organization’s talent management strategy. Unless you’re an amazing guesser, it’s important to use a strategic, data-driven approach when it comes to analyzing and determining competitive pay rates. Need help getting started with a compensation study? Submit a contact form to connect with one of our compensation experts and we'll help build a strategically advantageous compensation plan with you, from the ground up.