One of the most important parts of tracking compensation analytics is making sure you have a goal in mind. Comp analytics align compensation to organizational objectives and provide the necessary business intelligence to make better business decisions. They help ensure follow-through on business goals. They clarify what you intend to do, your current progress and whether you’ve accomplished what you set out to achieve.
How does it all work? Let’s take a closer look.
Consider this example: If your business goal is to double your revenue in the next five years, your business strategy might be to develop a new product every six months. Your talent strategy would then be to retain and attract top product developers. That would necessitate a compensation strategy by which you pay aggressively for product developers and potentially allocate bonus payments to reward innovation. In this scenario, you’d want to track both base and total cash compensation market-ratios for your product development function, since this group is going to get you to your business goal.
There are additional ways that compensation analytics can help you. For example:
- Substantiate your hunches. Most HR professionals have good instincts. They get what’s going on, but they need proof. Comp analytics give you quantifiable data that allow you to make data-driven decisions – or at the very least, to back up the choices you’ve already made.
- Inform a dashboard. Much like in a car, all your systems are related and they all need to be functioning properly to get to where you’re going. Just as you track engagement, performance and retention, tracking comp can give you an early warning that you might be going off track.
- Identify pay issues that create unnecessary cost. You may be overpaying in some areas. Some companies have given cost-of-living raises to their highly tenured employees to the point of increasing them well out of range. Or, maybe you’re underpaying and your recruitment costs are seriously out of alignment. Tracking analytics can find your problem spots.
- Identify pay issues that create risk of litigation. Whether it’s minimum wage, FLSA or pay equity laws, you must comply with employment-related legislation. Tracking some key analytics can help you avoid legal problems down the road.
- Condense large amounts of information into small, digestible nuggets. Compensation is complex; there are lots of moving parts. Not every leader has the time, interest or skillset to fully grasp the intricacies of compensation. Comp analytics help break things down so you can explain the issues or necessary actions to leadership.
Figure out what you’re trying to accomplish, both as an organization and by tracking compensation analytics overall. Knowing your purpose will help you select the right measures and frequencies.
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How does your organization use compensation analytics to drive business decisions? We want to hear from you. Tell us your story in the comments.