Nov 29, 2022

How Does Your Compensation Look Under the Microscope and Why Should You Care?

Written by Rebecca Tipton, SHRM-SCP

With the end of the year quickly approaching, many companies are in the middle of budget planning, which is the perfect time to conduct a compensation analysis so that you can plan for any needed changes instead of fighting to find room in the budget after the fact. Compensation analyses are a regular necessity for two main reasons: ensuring pay equity and ensuring your pay strategy is in line with current market rates. While the functions can be combined into one analysis, it is important to understand that each function has a different approach and may be even more important to your particular organization based on your industry or location.

Pay Equity Compensation Analyses

An important function of a compensation analysis is to ensure pay equity among your job groups. This is completed by grouping all positions that are similar in qualifications and duties and identifying any discrepancies in wage rates that could indicate unfair treatment, whether intentional or not. If discrepancies are identified that cannot be ascribed to documented experience, advanced education/certification, or reasonable merit increases; the affected positions should be identified and included in a strategy for correction.

Pay equity is important for every employer to ensure a fair working environment. Unequal pay could lead to resentment which leads to morale issues or, worse, EEOC charges and lawsuits. Additionally, it is important for employers to demonstrate equity with employees in certain states, such as California or Illinois, that may require employers to regularly report their wages on a consistent basis. It is also especially important for government contractors, who are subject to even greater scrutiny in fair employment practices.

Compensation Market Analyses

Another function of a compensation analysis is to identify how your current compensation program compares to the current market, which is important for maintaining employee satisfaction and ensuring your employees don’t succumb to “quiet quitting,” a recent term referring to employees who purposefully put forth less effort to better match the perceived value of their compensation. It also serves to prevent your employees from jumping ship the second a better offer is presented to them. The market analysis is completed by using external data sources to identify how each position is paid within the industry, using your desired compensation strategy to identify which percentile your company’s pay structure should be aligned with, and identifying any positions that need to be adjusted to better match the market.

While this is important for every employer to protect or improve employee retention, it is especially important for those employers in industries with a particularly competitive labor market, which has traditionally been the tech industry. However, according to the BLS November 2022 Monthly Labor Review, the competitive labor market is expected to include the healthcare, social assistance, leisure and hospitality, and professional and business services industries due to their projected growth for the 2021 to 2031 decade.

Whether your goal is to protect or improve employee retention or to ensure pay equity and fair employment practices, a compensation analysis is an important HR project that should be completed at least annually to keep a good pulse on your organization. If your organization lacks the resources or the bandwidth to do so internally, BMSS HR Advisory Services is ready to support you. Contact our office at (833) CPA-BMSS or visit our website for more information.