30 Aug A Quick Guide to Conducting a Compensation Analysis
Most companies need to adjust their salary ranges frequently. Performing a compensation analysis ensures your organization’s pay decisions are in line both external factors, such as current market trends, as well as internal needs, including your company goals. While a full analysis can be an involved process, the following guiding principles can be used as a foundation for success.
Avoid Falling into a Static Routine
PayScale explains that many companies fall into the dangerous pattern of handing out two to three percent salary increases to their entire workforce. This approach is flawed for a number of reasons. First, it often fails to reflect actual market shifts for specific jobs and industries. In the healthcare sector, pay grew at a rate of 8-to-12 percent increases during the late 2000s and early 2010s, for instance. Of course, some positions’ base salaries decline, too.
Beyond this issue, following the same routine with salary can also undermine pay-for-performance strategies. With 90% of companies now using variable pay in at least some form, it’s clear that pay-for-performance is a popular and effective way to align your workforce with your company goals. Yet, in order to do this effectively, you must ensure that your pay policies truly do reward your company’s top performers, and that salary increases aren’t handed out at the same rate across the board.
Balance Internal & External Pay Equity
When analyzing salary ranges, it’s also important to consider how you’ll balance internal pay equity with external pay equity. A straight market pricing model aligns with external equity and could be beneficial for highly competitive positions, in which talent acquisition could present challenges for your organization. Or, you might opt for a wider pay range, but keep everyone in the same pay grade to support internal equity. For some companies, using a market premium on top of the pay range is a balanced approach that works well. Of course, there’s no right answer, and factors like the industry, company culture, and geographic location can all play a role in this decision.
Regardless of which approach you take, make sure that the market data you use to frame your pay decisions comes from quality sources. According to SHRM, nearly 90% of organizations use compensation surveys with job-specific, employer-provided data to perform their analyses. This will help to ensure accuracy and help you achieve a data-driven analysis.
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