3 Reasons Why You Need a Compensation Study
As competition for talent continues to tighten in this employee-centric market, compensation studies are useful tools to help retain and attract talent. These studies determine the market value of each job, benchmark salary ranges, propose equitable salary ranges for managers and ensure internal parity. In order to remain competitive, it is recommended that organizations conduct compensation studies every three years. It’s not only a best practice to complete compensation studies but it also has three key benefits.
As you probably know, there are many free compensation resources online. However, pulling compensation information from various sources and trying to interpret it consistently can burnout your team’s resources. Using fragmented and inconsistent data also puts your business at risk of creating weak internal pay equity and potentially over or under spending on certain positions. Without a baseline understanding of your compensation philosophy, it’s challenging to effectively determine compensation for employees in various roles.
There is a fine line when determining salary; you don’t want to underpay and risk losing talent and you don’t want to overpay and negatively impact your bottom line. Compensation studies help you understand what the market is demanding for certain positions. They also help build the business case for salary levels that can be shared with your CEO or CFO. According to a post by Study.com, “Salary surveys are important enough that a full 80 percent of human resource professionals said they were consulting them in their business.” A compensation study will give you an accurate and unemotional third-party perspective on your employees’ pay.
Create a culture of transparency
Historically, there was a sense of secrecy around compensation. This has changed since millennials entered the workforce, a recent Wall Street Journal article, Ask Me How Much Money I Make: Pay Gets More Transparent shared that nearly half of millennials surveyed said they talk about their compensation with friends, compared with 36% of Americans overall. As more and more millennials who value transparency enter the workforce, it is critical for employers to have a clear and consistent compensation strategy. A good compensation study serves as the foundation of creating this strategy so that all your HR representatives and people managers can clearly communicate pay decisions while staying consistent.
Our support on compensation projects range from conducting a full compensation study to supporting organizations at each step of the compensation process. We partner with internal human resources and key stakeholders throughout the project. Below are some of the things we help with:
- Determine the market value of each job based on responsibilities and complexities of work
- Establish a benchmark to better understand the relationship of salary and benefits in overall compensation
- Propose equitable salary range for management positions
- Make recommendations around internal equity
- Provide recommendations on a framework for the control of salary costs
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