Compensation analytics is a practice to analyze whether or not the employer is paying a reasonable amount of salary to its employees. It is a practice to bring discipline. Professionals work on employment data to understand factors from all sides both in the employee as well as employer benefits. The biggest objective is to make informed compensation decisions on the basis of accurate analytics and data. During the process, salaries are compared by region, industry level of experience, and job titles.
Labour costs make up the majority of expenses for most organizations. It can account for up to 70% of the business cost. It is, therefore, critical to understand what this cost consists of. Although compensation analysis can be a complex process, it is a necessary tool to ensure fair workplace practices and contribute to your employee engagement strategy.
The purpose of this guide is to provide a basic understanding of compensation analysis and its associated benefits. It also offers practical steps on conducting a compensation analysis, which you should tailor to your organization’s needs.
External competitiveness: Employers compare their compensation data and practices to external companies. For example, Salesforce found that their engineer salaries were comparable to engineers at Microsoft. It was a fair comparison because of the size and geographical spread of both organizations. On the other hand, engineers at Slack were paid much less, but they are a much smaller organization.
Internal equity: Employers compare employees’ salary and indirect compensation data to ensure fair compensation for the level and type of work done.
Region: Employers compare compensation data of people doing similar work within a particular region.
Level: Employers compare employees’ levels and the level at which they are compensated.
Salary benchmarking gives an impartial idea of competitive salaries and allows organizations to make informed decisions. Salary benchmarks provide data points, whether it is worth it or not to pay an employee above the average salary. It also helps understand the holistic remuneration packages offered by employers.
Evaluating pay equity allows organizations to compensate employees doing the same level of work in a fair way. Conducting a comprehensive compensation analysis also enables you to correct historic pay gaps.
Transparent compensation decisions leave the decision-making of salaries in the hands of accurate and impartial data. This leaves employees with a higher level of trust in the organization and their managers.
Compensation analysis is dynamic, as mentioned before, and thus, you’re able to make projections based on future needs or employees and how this may affect your compensation strategy.
Identifying opportunities: Through a comprehensive compensation analysis, you can identify where you can improve your compensation strategy. You may be able to find different ways to remunerate employees.