Conducting a Compensation Study: Ensuring Competitive and Equitable Pay
Dear HR Leaders,
Welcome to the latest edition of the AAIM Sunshine State HR Newsletter!?
In this edition, we’re discussing a critical topic for maintaining a fair and competitive workplace: Conducting a Compensation Study. It is often also called “Compensation Analysis” and is part of the complex compensation management function that every organization must maintain to ensure competitive employee compensation and satisfaction, and overall business success.?
We’re going to start by looking at why businesses should conduct compensation studies or analyses.?
The Importance of a Compensation Study
A compensation study, or compensation analysis, is a vital and comprehensive review of your company's pay structure compared to the current market and industry standards. This process involves collecting data on current employee salaries, analyzing this data against industry benchmarks, and identifying any disparities or inequities in your organization’s compensation structure.
Usually, a compensation study is conducted with a purpose in mind. For example, it can help HR leaders understand why so many high-talented employees are leaving your organization. More often than not, the goal of a compensation study is to ensure that employees are paid fairly and competitively. It helps organizations attract and retain a motivated and satisfied workforce, promote fairness and equity within the workforce, and comply with legal standards.?
Why Conduct a Compensation Study?
There are more benefits to conducting a compensation study, making it a vital component of an organization’s talent management strategy:
Key Steps in Conducting a Compensation Study
1. Define Objectives
Before starting, I typically encourage organizations to clearly define what they hope to achieve with the compensation study. Are you looking to address pay equity, stay competitive, or both? This will also inform the kind and amount of data you should collect before the analysis.
2. Gather Data
The first step to data collection is to gather and consolidate all compensation data within your organization. You may also want to use data from already completed compensation surveys conducted by AAIM. They typically have large data covering a wide range of jobs and industries on both global and local levels.?
Some companies also use compensation analysis software that makes the process seamless and less time-consuming. Alternatively, you can use a spreadsheet with data from your human resource information system (HRIS). Based on the purpose of the compensation study, ideally, you will collect data on current salaries, job roles, experience, education, and geographic location.
3. Analyze the Data (Using the Right Technology)
Evaluate the collected data to identify discrepancies and areas needing adjustment. Look for patterns that may indicate pay inequities or misalignments with market standards. Sometimes, compensation studies can help you understand if you are overpaying or underpaying based on your company size and industry standard. Whatever the case, the analysis will inform how to apply salary increases across the board within the company.
领英推荐
It is also very important to use the right analysis method during your study, as this can affect the accuracy of the results and the quality of the decisions you make in the end. Microsoft Excel is a common tool used by most small and mid-sized businesses. But, if your company can accommodate modern compensation analysis software in your next budget, it’s sure to make managing salary information seamless and straightforward for your HR team.?
4. Develop a Compensation Strategy
Based on your analysis, develop a strategy that outlines how you will address any identified issues. This may include adjusting pay scales, updating job descriptions, or implementing new compensation policies. Based on your resources, you may want to want to be a little above market pay to give you a competitive edge.?
If you can’t afford to pay above the prevailing market rate yet, a good approach would be to consider your company size, annual revenue, employee qualification, and your company’s reputation to enable you to set reasonable pay for each role. The decision you arrive at should also reflect your organization’s compensation philosophy.
5. Communicate the Results and Consequent Changes
Clearly communicate any changes to your employees, managers, and key stakeholders. Who needs to know, what they need to know, and the current climate within and outside the organization are key factors to consider when sharing the insights you gained from the study. From experience, I suggest keeping transparency in mind and providing additional context to ensure employees understand the changes, especially if they already feel unsure of where they stand within the newly established compensation policy.??
Take Action: Start Your Compensation Study Today
Don’t wait to make this essential move towards a fairer and more competitive compensation structure. The benefits of a well-conducted compensation study include fair pay practices that boost employee morale and job satisfaction, a reputation that makes your organization more attractive to potential hires, and ensuring pay equity that helps protect your organization from legal issues related to discriminatory pay practices.
Connect with Us
If you need guidance or support in conducting a compensation study, don't hesitate to reach out to me for a one-on-one chat or schedule a meeting here. At AAIM, we are dedicated to assisting HR teams in creating equitable and competitive compensation strategies that address disparities and align with market standards using comprehensive compensation studies. Ultimately, we help you improve your HR management results, including recruitment and employee retention.
As we wrap up this edition of the AAIM Florida newsletter, I encourage you to take proactive steps in evaluating and improving your compensation structures. Together, we can foster a fair and thriving workplace.
Warm regards,
Dominique Rodriguez
Regional Vice President, Florida - AAIM Employers’ Association
Let's Connect - Book time with me | www.aaimea.org?
MUST HAVE RESOURCES