Being a people analytics expert doesn’t mean you need years of technical experience. Rather, it’s about knowing where to focus and using the right technology to make analytics more accessible. In this post, we share how you can use data to support the people moments that matter, solving compensation challenges for both your employees and your organization.
Compensation is one of the key culture-definers for organizations. In Aligning Compensation Systems With Organization Culture, the authors state: “Depending on how [compensation is] designed, communicated, and managed, it can positively or negatively influence an organization’s culture and impact an organization’s optimal performance.”
A CEB Analytics study found that when organizations lead in HR analytics, their talent outcomes improved by 12% leading to a 4% improvement in gross profit margin — that’s about $12.8 million in savings for every $1 billion in revenue. Strategically using workforce analytics to optimize salaries and rewards can help HR positively impact the bottom line while also providing employees with fair wages.
What is compensation management and why is it important?
Compensation management is the practice of ensuring that an organization is paying employees fairly and competitively. Compensation managers work with employment data to understand all of the factors that go into pay and whether or not the benefits an organization offers meets the needs of their workforce.
The objective is to make informed compensation decisions to attract and retain the right talent. This is why it’s so important to base these decisions on relevant and accurate data. Organizations need to analyze compensation programs to figure out what’s working and what isn’t.
Compensation management solutions: What to look for
Compensation management solutions help organizations visualize all of their compensation data in one place. HR departments use these solutions to streamline compensation planning and reporting. Having this data in a single dashboard also empowers leaders to view current compensation policies and develop fair compensation strategies for their teams.
When you’re evaluating compensation management solutions, look for an option that makes it easy for HR to understand what competitive and fair pay looks like for your workforce. Every business is unique, and it’s important to choose a compensation management software that can connect to a people analytics solution. This will allow you to get insights on how to improve and optimize your compensation program to meet the needs of your people.
There is no shortage of people data — from your HRMS to Applicant Tracking to Payroll to Learning Management systems, the scope of data being generated each day can be overwhelming. To be successful in leveraging that data for insights, it’s critical that you and the business leaders you support have a way to mine for insights quickly and correctly so you can make the best calls for both your organization and employees.
Whether it’s managing job candidate salary expectations, addressing employee pay concerns, developing our workforce plans recruiting strategies, ensuring compliance, or helping our managers understand opportunities to differentiate top talent, data allows me to make decisions based on fact — not guesswork or assumptions.
Working with data can be daunting for many, but people strategy platforms make workforce analytics more accessible — so it’s faster and easier to get the insights needed for the people moments that matter. As analytics become more widely used in HR, I’d like to share a few ways you can use a people strategy platform to overcome compensation challenges:
1. Negotiating Counter-Offers
Ian Cook, Head of Visier Workforce Solutions, shares a great example of a typical counter offer scenario in this blog post. When an employee receives a competing offer, their manager’s first instinct may be to match it. The key word here is instinct, which can lead to costly mistakes: intuition can cause even the best managers and HR professionals to make poor judgment calls. The way to mitigate this risk is to look to the data: to find out how the employee compares to the rest of their team and what the market is paying for a similar role.
Compare compensation profiles, incentive rates, performance ratings, and attributes of employees to others on the same team or in similar positions. Armed with this information, managers can make decisions that are no longer based on emotion, but reality.
2. Investigating Pay Equity
Pay equity is a top concern across all industries; there have been an average of 1,000 charges of pay discrimination a year under the Equal Pay Act since 1997. As Steve Boese urged, if you haven’t done an internal compensation review across salary bands, job roles, gender, ethnicity groups, age, and tenure to check for any potential discriminatory treatment, then you need to put this on your priority list this quarter.
Use people analytics to get answers to important questions such as: what is the variation for pay within different ethnic groups, how do budgeted salary increases compare for male and female employees, or what is the variation in pay within salary band based on age and tenure.
Look for insights that reveal how fair your compensation practices are. If you find any indication of discrimination, analyze that data further to uncover evidence that you can use in discussions with managers and executives to resolve the issue before it results in fines and other legal troubles.
3. Managing Compensation Costs
Performing internal audits like the pay equity example above can lead to company-wide changes to pay and benefits. Movements can lead to more hires and reduced turnover, as well as increased wage and benefits pressures at competing organizations. If you find your organization behind the pack, it can be tempting to simply follow the lead of others. However, this can lead to wasted spending.
How, when, and where to change pay and benefits is a strategic decision that requires careful consideration of your total rewards strategy and prior analysis to ensure any money invested impacts the organization in the way intended. Presenting cost increases to the senior executive requires more than pointing to the fact that someone else is doing it.
Being able to backup the proposed solution with a clear analysis of the context around the business, as well as specific internal factors which impact the business is critical.
Your people strategy platform should be connected to business and financial data (in addition to your HR systems) so you can get a complete view of the impact compensation changes will have across the organization. This enables you to check that pay is being added in the right places to support retention or drive performance instead of just a blanket addition to costs.
It also helps you achieve the right balance of base and variable so you have the flexibility to adjust overall costs without resorting to a reduction in force during slow periods. In addition, you gain the ability to plan out how your cost changes will impact the organization in the longer-term so you can factor future budgeting and business results into your projections.
Aha Moments and HR Analytics
Looking into compensation data (or any workforce data) enables you to see the forest and the trees.
You get clues into other factors that affect pay conversations, such as engagement levels, performance, manager effectiveness, recognition, career development, and even workload. Compensation analytics can reveal just how different an employee’s experience may be from the experience of others on their team or in a similar role. It’s an Aha! Moment that makes you go, “How did we miss this person out of 8000 employees?” and then, “How do we use facts to fix the problem?”
Armed with the right information, you can be more strategic with salary negotiations and pay decisions, focusing on the levers that will retain and reward the right talent while keeping business outcomes on track.
I invite you to watch this video to see why people moments are HR moments: