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Benefits of Compensation Analysis

It is important to conduct compensation data audits frequently in order to produce an equitable and appropriate compensation plan. Smart businesses understand that offering competitive pay for full-time employees is one of the most important factors in attracting and retaining top talent. A comprehensive salary report offers the facts and insights needed to make critical choices on executive pay and overall benefits.

For most businesses, labor costs account for the bulk of their expenditures. In fact, they can account for up to 70% of a company’s expenses. As a result, it’s important to know what this cost entails through a base pay salary survey. Compensation benefits research is necessary to ensure fair working conditions and helps improve employee retention plans. The aim of this guide is to give you a clear overview of total compensation analysis and the incentives that come with it. 

What Are The Benefits of Compensation Analysis?

Compensation analysis reviews look at both internal and external data to see whether an employer is paying workers equally for the job they do. A well-researched compensation management plan allows you to meet goals around pay equity and other critical factors while retaining talent and rewarding employees for work well done. Designing an effective compensation management strategy can also help you attract and retain talent and remain agile as market conditions change. Compensation management is one of the most complex processes handled by an organization’s HR department, especially in highly competitive and regulated industries like financial services. Although many firms use similar approaches to structuring their plans, at the end of the day, each organization has a very unique way of managing compensation.

You should be aware of the following main principles in compensation analysis:

External Competition – Employers evaluate their pay data and activities in comparison to those of competitors. Everyone wants to be competitive with the market. You have to define what that market is. It is important to remember that you need flexibility within your program designs. Flexibility can mean doing something unique for a business unit outside the corporate perspective to incentivize new product development, for example, or a new strategy within the organization. It can mean knowing you need to go above and beyond what the target market median is for certain individuals who are viewed as high demand, strong performers. So when we talk about pay positioning, overall, remember there has to be flexibility built into the system.

Internal Equity – Employers compare pay and indirect compensation statistics internally to ensure that workers are fairly compensated for the amount and quality of job they do. Pay data is compared with employees who perform related jobs in the same field. It’s worth noting that, while wage information is valuable to consider, it’s just one aspect of pay. Such work perks include medical coverage, discounts, a company vehicle, stock options, and living allowances. Compensation is complex and continually progresses in response to the internal and external world.

Human Resources: Compensation Analysis 

A compensation analysis is an important part of a company’s workforce acquisition approach because it lets them recruit and retain the best workers. Compensation audits can help measure benefits program participation, employee engagement, and salary structure.  

Let’s look at some of the other advantages of a compensation analysis:

  • Salary benchmarking provides companies with an unbiased view of sustainable pay that helps them to make rational decisions. Salary metrics offer information about whether or not paying an employee more than the average salary is worthwhile. It also aids in comprehending workers’ total remuneration packages.
  • Wage equity encourages businesses to fairly reward workers who do the same amount of work. You will also correct historical wage disparities by doing a systematic salary review.
  • Transparent pay decisions place reliable and unbiased results in charge of determining wages. Employees have more confidence in the company and their management as a result. 
  • Recognizing possibilities – You will find areas where the pay strategy can be improved by doing a detailed compensation review. You may be able to remunerate workers in a variety of ways, for example.

Compensation Strategy: Salary Ranges

It is important to determine an employee pay structure that aligns with your organization and goals. You must examine competitors’ salary ranges in conjunction with their benefits and incentive strategy to develop a complete picture of compensation strategies across your industry. Be sure to look at different geographic locations and what salary ranges succeed in what region. In large organizations, you should engage a compensation department to manage the creation and development of salary compensation packages

Ask these questions when determining salary ranges

  • What is the pay rate for this geographic area? 
  • What is the seniority of the position?
  • How many years of experience is required for this position? 
  • How competitive is the market for this position?
  • What does success look like in this position?
  • What is the retention rate for this position?
  • Do employees need a bachelor’s degree for this position?  
  • What is the competitiveness of this position? 
  • Will overtime pay be provided in this position? 
  • What do current market conditions dictate for compensation?
  • How often will salary increases be offered? 
  • What competitive advantage does your company have over competitors’ pay practices

Salary Audits for Compensation Strategy

We all know how quickly markets shifted in 2020. Successful businesses must adapt to changing market conditions to thrive in the coming years. Examine your company’s pay scale to see how many people are on the high end, low end, or in the middle of the curve. Adjustment and review protocols should be developed. When are salary adjustments implemented and review processes completed? Look at compensation trends for your industry when conducting salary audits as well. 

Bonuses and cost-of-living changes will all play a part in the compensation package. Managers and staff should be aware. Present the software to the managers after the board has approved it. Request feedback and consider all suggestions. Create a roadmap for managers to explain the structure to their staff. Establish effective implementation protocols, develop appropriate data input formats, and produce effective reports for senior managers in partnership with HR information management personnel. 

Compensation Strategy: Benefits 

Your total compensation strategy will also contain a benefits package for employees. Benefits and perquisites make up a smaller and smaller percentage of overall compensation for executives today. The level of shareholder discontent is much greater than the value of the benefits/perks offered, and the emphasis has turned to “irritants.” Executives’ wellbeing and efficiency are typically supported by the remaining perks today. SERPs that offer extra benefits to senior executives, such as retirement programs customized to senior executives, are under fire. Excess/Restoration Plans are still allowed. In view of pay-for-non-performance issues, severance and change-of-control incentives are being reconsidered. Severance multiples have decreased, and excise tax gross-ups have been eliminated.

This can include: 

  • Flexible time off 
  • Flexible working hours
  • Stock options/equity
  • Fully covered healthcare
  • Matching 401k
  • Other retirement plans
  • Maternity and paternity leave
  • Transit reimbursement
  • Work from home
  • Unlimited PTO
  • Child care reimbursement
  • Learning seminars
  • Wellness benefits 
  • Student loan reimbursement
  • Education reimbursement 
  • Profit-sharing
  • Other employee benefits 

Legal Compliance in Your Compensation Strategy

When designing a compensation plan, it’s necessary to keep legal enforcement in mind. Do you know what the local and national payroll codes are? When you build your compensation package, your HR department will advise you on any legal considerations. By avoiding expensive penalties, more funds would stay in the payout pool and out of the hands of governing bodies.

The Future of Compensation Analysis 

Compose has completely overhauled our Reporting & Analytics capabilities. We reconfigured how the process functions, what it can do, how it displays, and most importantly, we have put you in control of it all. We have created a fully functional, fully customizable, and completely dynamic self-service reporting dashboard. The largest expense of any company is compensation, and all companies need analysis and reporting on how compensation money is being spent and if it is truly incenting their employees in the right ways. This reporting is company-specific, there is no one size fits all. Our goal was to give our clients the tools to easily create custom reporting for themselves. 

Our new Dashboard Analytics achieves this goal like no one else can. This will become an indispensable part of your compensation process. The dashboard is easy to use, role-specific, viewed with the Comp Grid, and most importantly, updates in real-time. This means that planners, managers, human resource management professionals, and the compensation analyst teams can view up-to-date analytics during the compensation cycle and without having to refresh and distribute the reporting themselves – all within one system. Your organization’s compensation analysis team needs DecuSoft, today. 


Why you should do a compensation analysis
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