How to Conduct a Compensation Analysis

Compensation analyses meet the needs of startup businesses and established organizations alike. A compensation analysis is beneficial in constructing new compensation structures, as well as modifying existing compensation plans. Compensation analyses are especially helpful to ensure an employer's competitive advantage in the recruitment and selection process. Therefore, much of strategic human resources management and compensation and benefits planning depends on accurate and thorough compensation analyses. Conducting a compensation analysis generally requires a compensation and benefits specialist or human resources expert with deep knowledge of employment, workforce and labor market trends related to salary, performance, economic factors and industry-specific practices.

Instructions

1. Determine the purpose of your compensation analysis. Starting a new business or developing workforce planning for newly established human resources functions can require a different methodology than a comparative analysis for an existing company restructuring its compensation plan. Analyzing compensation data to determine if your company complies with federal guidelines such as Executive Order 11246 requires comparing salaries and wages according to demographics identified in laws enforced by the U.S. Equal Employment Opportunity Commission. Analyses that determine where employees' wages rank in terms of experience, performance and tenure require more extensive compensation metrics and data.

2. Access online resources for general information about compensation analyses. Look for examples of compensation studies, based on company size, purpose and location. Compensation practices and structures vary depending on company focus, philosophy and performance management. Contact colleagues for input on their companies' compensation and benefits structures. This is where networking and membership in professional associations come in handy; maintaining relationships with colleagues can help you obtain inside information about competitors' compensation structures to which you would not otherwise have access.

3. Obtain employee data for your organization's compensation and benefits. If possible, it's wise to stick to human resources department-generated data instead of relying on your company's information technology staff to produce employee compensation. Confidentiality is one of the most important aspects of conducting a compensation analysis. Therefore, if your HR department has the capability to do so, limit access to salary and wages data to the compensation specialist responsible for conducting the analysis.

4. Gather salary data from reliable sources. The U.S. Bureau of Labor Statistics compiles extensive salary data for thousands of occupations and industries. In addition, there are subscription-based databases available to human resources and compensation specialists. Familiar names of associations and companies that provide compensation data include PayScale, Salary.com, Society for Human Resource Management and World at Work. The Employee Benefit Research Institute provides research materials on benefits, trends and employer costs for public sector agencies and private sector organizations.

References

• Jackson Consulting: OFCCP's New Systemic Compensation Discrimination Standards and Voluntary Guidelines for Compensation Self-Evaluation; Shirley Wilcher
• U.S. Bureau of Labor Statistics: National Compensation Survey Frequently Asked Questions (FAQs); August 2010
• PayScale: Compensation Metrics Defined; July 2010
• Salary.com: Compensation Surveys; Bill Coleman; November 2004
• "The Wall Street Journal": Occidental Pressured to Review Compensation Policies; Scott Thurm; May 5, 2010

Resources

• HR.com
• Society for Human Resource Management
• National Human Resources Association
• Employee Benefit Research Institute
• World at Work
• Workforce Management