Is your compensation program really doing what you want it to? You have to make time to look at the data your compensation practices are producing to find out.There are many to-dos when an HR professional or business owner is deciding on compensation at their company. You need to set up formal ranges, put people into the ranges, complete performance reviews and much more. But, an essential area that may not receive enough attention is to step back once all of that nuts and bolts work is completed and say, “How’s it working?” That is compensation analytics and the following post provides advice on how to perform it efficiently and effectively.
Strategic Advantage from Compensation Analytics
Regularly performing compensation analytics can pay big dividends for your career as an HR professional. Through these analyses, you take all of the activities around compensation at your company to the next level. Being knowledgeable about compensation analytics gives HR professionals the opportunity to show themselves as a strategic business partner to company leaedership. You’re expected to perform salary benchmarking, but looking strategically at the big picture is another task you want to be relied upon for.
The following are some ways that compensation analytics provides strategic advantages for your company:
Supports business intelligence. Compensation analytics is one facet of a larger effort at healthy companies called business intelligence. PayScale is seeing more and more compensation data for positions related to this work appear in its database. It’s a growing “must have.”
Business intelligence looks at what you’re doing as a business from a statistical prospective. Namely, “This is what we say we’re going to do. This is what we’re doing. Are we accomplishing what we set out to achieve?”
Business intelligence provides information that is very specific and carefully analyzes the results of every aspect of your organization – marketing, business development, recruiting, compensation and more. It is an area of business strategy that HR can and should be involved in. Maybe you’ve done analyses of the ROI generated from programs you’re leading or run some statistics on the cost of employee turnover. Business intelligence would dig even deeper to measure the effects of those activities.
Provides quantifiable data. Compensation analytics gives detailed information about the compensation costs within your organization. In most any company, paying your talent is the most expensive budget item. That’s why it is very important to make sure you’re compensating your employees in the most efficient way possible and have the numbers to show that your compensation dollars are being spent to support organizational goals.
Works as a scorecard. Compensation analytics is an evaluation tool for understanding if your compensation program is meeting the goals you set for it. By analyzing trends in compensation, you can find out (1) if you are following your stated goals for compensation at your organization and (2) if those compensation-related goals are actually supporting your overall organizational goals. In this way, compensation analytics serves as a scorecard for your company’s compensation program.
How Do You Explain Value of Compensation Analytics to Leadership?
You may already understand the value of performing compensation analytics, but it’s possible that your colleagues do not. Because compensation analytics requires extra time, money and resources beyond what your company leadership may expect, you’ll likely need to convince them of its monetary value before you can get resources for it. The following are some suggested reasons you can share:
Ensure goals met. Compensation analytics helps to make sure your compensation programs are achieving the goals as defined in the compensation philosophy. And, if not, it can tell you where to make necessary adjustments. In any organization, it’s easiest to stick with status quo when it comes to compensating employees because it’s tough to change course on a system that has been established for years and years. But, as the economy transforms around us and the world market continues to evolve, we need to respond to those shifts and keep our policies and practices up-to-date.
Find problem spots. By analyzing your compensation program, you’re more likely to discover irregularities in your pay practices that create unjustified costs to your organization. Too often, there are inappropriate compensation decisions made either for a newly hired individual or someone who has been in the organization for a number of years. Every one of those decisions costs the organization money.
Company time is often spent implementing programs that save a few hundred dollars here or there. Compensation costs, by comparison, are larger and keeping them closely monitored can easily save thousands. A five percent error across the entire organization, or just in one department, or even with one individual, is extremely costly to the organization. It’s important that you’re analyzing your compensation decisions so you can find these issues.
Avoid legal troubles. There has been media attention paid recently to many irregular, unfair or careless compensation errors, including President Obama’s first act he signed into law, the Lilly Ledbetter Fair Pay Act. As an HR practitioner, you must be aware of any weak points in your organization’s compensation practices so you can help the company avoid trouble and reduce legal risks. Through compensation analytics you can see irregularities that could create risk for the organization.
What Is Compensation Analytics’ Value to the Organization?
Beyond saving money, compensation analytics is simply smart business. Performing it now and every year from now on can produce a stronger organization on more than just the balance sheet. Here are some reason, as an HR practitioner, that you can take pride in your work on compensation analystics.
Takes a traditional HR activity and links it to the organization’s mission. Compensation analytics provides the data to show that your philosophy on talent links to your philosophy on growing the business. When you have numbers from your analyses, it shows that you’re actively working to make your HR efforts support business goals.
Provides a set of measurements that you can monitor over time to see trends and show progress toward stated goals. You’ll have a history of successes and failures that you can use to make better decisions in the future. You can see trends.
Can expose risk in the organization in time to take action. You can take action before a lawsuit is filed instead of after. Everyone at the company will be grateful to you for this preventative work.
Can be used with other performance measures to identify the health of the talent management programs of the company or organization. Talent management is a huge piece of making an organization successful. Compensation analytics tells you exactly how your talent management practices are working for you.
Hopefully, you are now more clear about what compensation analytics is and how it can be used to promote success for a company. In a follow-up post on compensation analytics, we’ll present information about how compensation analytics is actually performed. You will learn how to determine whether your salary ranges need adjusting, whether you’re compensating your top talent according to your company’s compensation philosophy and how to differentiate between positions in one pay range versus another.
Director of Customer Service and Education
- Compensation Budgeting: Determining Merit Pay Increases
- Writing an Employee Compensation Policy
- Developing a Compensation Philosophy
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