Compensation Questions – Analytics

Compensation Questions – Applying the Results of Compensation Analytics

The following is a transcript of the question and answer session that followed PayScale’s webinar, How to Perform Compensation Analytics. The topics covered in these compensation questions include red-circling high performers, benefits and job evaluation tools. Answers are provided by PayScale’s director of customer service and education, Stacey Carroll, M.B.A., SPHR.

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Q: My compensation philosophy is to pay people what they deserve according to the company’s bottom line instead of paying what we can get away with. Is the external market always dictating what we can get away with? No. We want to retain talent but we also want to pay people well even if the market dictates otherwise.

A: That’s a very important point. It all comes back to your compensation philosophy. Your compensation decisions have to start there. Those people who have attended our webinar on determining your compensation philosophy know that we talk about a philosophy really being the foundation. Because, you can do all of the compensation analyses you want, but it all comes down to, “What is your stated philosophy?” And, if this organization’s compensation philosophy is to pay people what they deserve, then I think that is fabulous. And, I don’t think it means that you don’t pay attention to the market. But, I think it means that you take it for what it’s worth in relation to the other goals for your company and its compensation program.

Q: Can you recommend internal tools to help determine what jobs fall under what pay grades? Do you know where I could get a sample of this tool?

A: There are actually all different types of job evaluation tools. There are whole job classification systems, ranking systems and, probably one of the most popular, a point factor evaluation tool. All of these are job evaluation tools.  I would suggest using Google to do some research on job evaluation tools. There are a lot out there so I encourage you to do some research and find the one that suits your organization best.

Q: I do a compensation analysis of my organization’s compensation program every other year. Is that okay?

A: Probably. The age-old answer to any question is, “It depends on your organization.” It depends on how much employee turnover you have, your size and the complexity of your organization. These factors can matter if you don’t do compensation analysis every year. The most important thing is that you do engage in the analysis process regularly so kudos to anyone who is actually engaging  in this process, even every other year.

Q: What is the formula to determine compa ratios?

A: It’s dividing the person’s pay by the midpoint of their pay range.

Q: Does PayScale target markets for jobs in Canadian cities?

A: Yes, we do. We actually have worldwide data. Obviously, our strongest data comes from English-speaking countries. So, we have data in Canada, the U.K., Australia and other places like that. So, yes, we do have international data.

Q: How are people rewarding high performers who are red circled?

A: In my experience working with the customers that we have, most organizations who look at red circling build their pay ranges around base salary. This does a couple of things. One, they have the ability to reward their top performers with great incentives or bonuses or other forms of compensation that aren’t base salary. That obviously has a pretty great impact on the organization because then those are not reoccurring costs but rather those are one-time costs that hit the books once and then they’re done.

Another approach is simply to create your red-circle policy so that it doesn’t apply to an employee who achieves a certain performance rating. And, again, you have to decide if that is the right move for your organization but that’s another way of handling it. It all goes back to your philosophy. You have to remember that these decisions are well within your control but you want to be doing some analysis to make sure that they’re fair and equitable – in other words, so that they don’t have discriminatory impact. And, they also need to achieve what your organization has set out to achieve.

Q: Do you recommend showing individuals how they compare to the market if their compensation is equitable to market?

A: For those of you who have heard me speak before, you know that I am not big on hiding information from employees. I believe that communication is important in all programs. And, I believe that if you have done good work to establish fair pay ranges that balance the need to maintain market competitiveness and, also, keep internal alignment in check, then I believe you should proudly share that information with your employees.

If employees have questions about why they’re placed where they’re at, then your managers should be able to a answer those questions about education and experience and what it takes to get to midpoint and all of those great things. That’s my sunny, perfect world and I know that isn’t as easy as it sounds. So, at a basic level, I do believe that it is a smart idea to communicate with employees about pay ranges and where they sit relative to those. It may not make sense for your organization to do so right now and you’ll know best if that’s the case. But, I believe that if you’ve done all of the hard work that you should really talk to employees about it.

Q: How do benefits affect a compensation plan? Are ranges defined on base pay only?

A: Most organizations that we work with build their ranges around base pay. A handful of organizations do it off total cash compensation. But I have not, to date, run into any of our customers who are using a total rewards philosophy. Now, that being said, your total rewards philosophy may actually drive what you target in terms of your base pay or your total cash compensation. In other words, if you happen to be a very benefits-thrift company you may have to actually target the 40th percentile for your TCC or your base salary., I have not actually worked with an organization that has gone to a place of compensation benchmarking against a total rewards strategy.

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