New Technologies and New Possibilities
Advancements in technology have opened up a new world of possibilities for HR professionals. Now, HR can obtain valuable talent analytics just-in-time to address business priorities; integrate compensation data with talent and financial data to provide a holistic view and drive value from internal metrics and comparisons.
With the user-friendly functionality of new technologies, visual displays are readily available, facilitating understanding and insight development. Additional data cuts, comparison groups, and outliers can be examined with technology drill down capabilities. Questions are answered in real-time, allowing for HR to derive insights and monitor progress towards pre-specified compensation KPIs.
Technology-driven internal compensation analyses are customized for the audience and assess alignment with compensation philosophy and programs. Ideally, these analyses will:
• link to talent and business strategies, evolving to address specific timely questions rather than being attached to a compensation process or cycle;
• easily be accessed, created, and interpreted; and
• targeted to the right comparisons such as different talent or workforce segments and relevant time periods to help aid interpretation.
Five Compensation Analyses You Can’t Ignore
There are many compensation metrics from which to choose, and it is easy to lose focus and look at ones with little significance while missing important KPIs. The following five analyses build on one another to ensure a complete and holistic foundation from which to judge compensation programs.
1. Distribution of employee headcount in job grades or organizational levels
The analyses can be viewed over time to ensure alignment with the relevant business priorities and workforce planning efforts. In self-service environments where managers have the ability to determine job grades, promotions and other employee movement decisions, this analysis helps assess the effectiveness of the self-service model and ensures consistency across different organizational groups. When focused on a specific job family, the analysis indicates if there is a balanced number of employees at an entry versus senior level(i.e. Sales Associate compared to Sales Directors) and how that aligns with the talent strategy. If there is a trend of increasing number of employees at higher job grades or organizational levels – and it is anticipated that the trend will continue – the implications for the overall future compensation and benefits expenses should be assessed.
2. Distribution of employee salaries within salary ranges
A normal distribution of employee salaries within salary ranges ensures the organization’s pay practices are consistent with the established compensation philosophy and salary structure. This analysis identifies if any employee groups are paid outside of the market reference range (i.e. below the midpoint). Additional metrics referencing talent acquisition and performance data can help diagnose the driving factors for those outcomes.
3. Average salary per employee comparisons
Analyzing average salary over time helps determine whether the organization’s compensation philosophy and annual salary increases are suitable. Ideally, as the organization keeps up with common factors such as cost of living, the average salary rises at a predictable rate. Additionally, a comparison of the average salary by job at different locations and/or business units can help with workforce planning.
4. Analyzing compensation levels of high performing, high potential, and/or employees performing critical roles compared to other employee groups
New technologies give us easy access to talent management and talent acquisition data in addition to compensation data, which helps assess whether the right compensation guidelines and practices are in place to attract, retain, motivate and reward key talent. While in the past pay-for-performance analysis were built around annual performance management and compensation processes, the availability of data from various sources supports the creation and roll out of pay-for-performance metrics focused on the entire employee lifecycle.
5. Compensation metrics for employees joining or leaving the organization
Compensation metrics predict the expected position in the salary range for new hires and whether this has an impact on the budgeted compensation expenses. Analyzing the compensation positioning for employees voluntarily leaving the organization (e.g. outside of the market range, below the midpoint) helps assess whether compensation could be contributing to voluntary turnover. Both types of compensation metrics provide valuable insights to guide proactive compensation decisions.
Summing It All Up
New technologies give HR easy access to a plethora of data – including compensation data – which can be used to make predictions, address business questions and provide valuable insights. With the ability to combine talent and compensation data, the importance of compensation analytics grows. While there is no magic formula for selecting the right analyses, these are starting points and guiding principles which can help focus HR on the compensation KPIs with the strongest link to the talent and business strategies.