To stand any chance of competing in today's labor market, businesses need a firm understanding of competitive compensation rates. For the uninitiated, this includes employee salaries and contributions toward social security.
This begs the question: Why is it more critical than ever to offer competitive compensation? Well, in 2020, employee turnover rates in the U.S. reached an all-time high of 56.8%. A massive driving force behind this surge in resignations was the desire for better compensation, with 56% of employees citing higher pay as a top reason for resigning.
As a result, businesses have been forced to recognize the importance of employee compensation. So, in this article, we're defining compensation analysis and illustrating how you can use it to refine your salary strategies.
Let’s dive in!
Compensation analysis is the process of using data to determine whether employees are being fairly remunerated. Companies can compare their current salary offerings to industry benchmarks. The latter is calculated using salary data collected across different organizations to determine average compensation rates.
Such analysis includes:
By comparing your business against these benchmarks, it’s easier to evaluate whether your compensation packages match your competitors. Such information may call for internal restructuring of how compensation is decided and provided.
Now we’ve defined compensation analysis, let’s turn our attention to its benefits:
If you’re interested in reaping the rewards of a compensation analysis for your company, here are a few things you need to do to hit the ground running:
You need to assemble a team of people responsible for collecting and analyzing the data. Often a cross-departmental approach is the most effective way to retrieve a comprehensive data set for your analysis.
First, your team needs to decide which data points are relevant for their compensation analysis. Below are a few of many examples:
With these data points in mind, you need to decide on the criteria you’ll compare for your analysis. For example:
You could also factor in different degrees of work experience, qualifications and length of service.
Now that you know what you’re looking for, you can begin collecting data using compensation analysis software like ThinkWhy. With ThinkWhy, you can retrieve data on 20,000+ jobs across all U.S. cities and industries.
To start with, you need to identify a target percentile. This is your employees' compensation rate compared to the market rate, expressed as a percentile. So, for example, if you’re aiming to meet the market rate, this would be:
(The market rate of compensation (USD)) X (whatever percentage above the market rate you hope to target (USD)).
Example: The average salary for a data engineer is $112,493 a year. If we hope to lead the market rate by 30%, the calculation would be as follows:
$112,493 X (30%) = $146240.9
From there, you can determine whether your current pay rate is falling above or below your goal.
Rather than conducting lengthy manual exercises that take you away from strategic and operational priorities, such as recruiting and retaining skilled talent, you can use software to help complete your compensation analysis.
ThinkWhy studies the economy and labor market to eliminate the guesswork where compensation is concerned. This proprietary technology empowers employers to access accurate real-time compensation recommendations across multiple locations and industries. Access to this type of information enables recruiters to strategically target talent searches in the right location and/or conduct remote hiring, too.
Contact us today to find out more about how to take the guesswork out of compensation analysis and to see how ThinkWhy’s technology can give you the competitive edge in the race for top talent.