That’s a bit of a loaded question, isn’t it? What is compensation analysis? What is analysis? You could ask 10 people in this field and get 10 different answers. A lot of it comes down to the industry you’re in, the size of your organization, and the makeup of your team.
For example, I work in healthcare—a hospital, to be precise. I am responsible for compensation for nurses, housekeepers, radiologists, IT professionals, lab assistants, etc. However, I am not responsible for executive compensation, physicians, or advanced practice providers (APPs, a.k.a. Nurse Practitioners and Physician Assistants).
Compensation could refer to any combination of the following (and even more that I’m likely leaving out):
- Pay rates
- Pay structures
- Career ladders
- Benefits
- Perks
- Bonuses
My role in my organization has little involvement with benefits, perks, or bonuses, though I do find myself regularly involved with pay rates, structures, career ladders, and other various aspects of employee compensation.
I typically say I’m on a compensation team of one, but that isn’t entirely true. There is another compensation analyst who works for a separate department and handles compensation for physicians and APPs, and my Chief People Officer (CPO) is involved with executive compensation efforts.
By and large, however, I am the individual on whom responsibility lands for the compensation programs, practices, and structures for approximately 4,500 employees.
Ok, but what is compensation analysis?
I asked Copilot what “Compensation Analysis” is, and it came up with a rather lengthy response, but the main gist of it was this paragraph:
Compensation analysis is the systematic process businesses use to evaluate and compare their total compensation packages, including salaries, bonuses, benefits, and perks. This analysis helps ensure that employees are paid fairly and competitively, both within the company and in comparison to the external job market.
Sounds fancy, doesn’t it? But even this description differs from what I experience daily. I don’t, for example, have any oversight or input into benefits, bonuses, or perks. My role as it currently stands in the company is to evaluate and maintain pay grades, rates, and incentive programs.
But what does that mean?
I spend a good deal of time responding to salary survey requests, auditing pay rates to ensure they are within our policies and performing ad hoc reviews of individual jobs to ensure they are paid appropriately to the market. I typically do a company-wide review of pay rates compared to the market once a year, but occasionally the market moves more quickly than a once-per-year review can address. For some jobs, the market is more volatile and requires a constant finger on the pulse to ensure your company remains competitive.
A large portion of the “analysis” is evaluating the impact of proposed changes. It’s easy to look at market data for a position and say, “Yes, we’re underpaying this job by 10% compared to the market.” But what that data doesn’t necessarily show you is how increasing the rates of those individuals will impact others in the organization.
- How much does the team lead make, and what adjustments will need to be made to their pay rate?
- What about their manager?
- Will the budget allow for all these adjustments now, or do we need to stagger them over time? And if we do that, who do we address first, and how do we address the compression with those we can’t address now?
Survey data is outdated by the time you get it. You need to age it. There are methods to do so, but the general rule of thumb is to assume 3% per year (or at least, that’s what we did when inflation wasn’t going crazy). You could also use the Bureau of Labor Statistics (BLS) to evaluate based on a number of other factors, such as the Consumer Price Index (CPI).
Regardless of what method you choose, you should be consistent, only deviating when there is insufficient data to make a sufficient analysis.
This is just a very high-level view of what goes into the work of compensation analysis. In future posts, I’ll dig into more fun things like compa-ratios, benchmarking, salary structures, and maybe an incentive plan or two.
