A Complete Guide To Salary Competitive Analysis

Salary competitive analysis is fundamental to providing fair, equitable pay. Innovative companies understand that offering the right salary is one of the key prerequisites in attracting and retaining the best talent. A precise and well-conducted compensation analysis would give you important insights into key compensation decisions and workers' total benefits.

The costs for labour can easily take up the majority of expenses for most companies - accounting for up to 70% of the business cost for most. Hence, it is fundamental to understand how your company approaches pay. And even though compensation analysis may seem like a complicated and tedious procedure, it is still a very important tool for ensuring fair workplace practices and employee retention. 

 

But first, let's dive into the basics. 

 

What is a compensation analysis?

A competitive salary analysis is the process companies adopt to gauge better how they pay their workers compared to other organizations. Since job market trends evolve almost regularly, companies can benefit from occasional compensation analyses to determine whether they are paying fair compensation or if there is a need to reassess pay to retain top-performing employees. The result of a competitive salary analysis is a formal pay structure organizations refer to as a guide in recruiting and adjusting pay.

 

Why are compensation analyses crucial?

For one, compensation analyses allow companies to ensure they are financially responsible for their operations and workers. Here are other reasons why companies should consider conducting regular compensation analyses:

• Talent attraction
• Employee retention
• Responsible operation & compliance
• Increased employee engagement, efficiency, and loyalty 

 

How to conduct an effective compensation analysis?

Performing a competitive salary analysis requires an organized approach to understanding your Company's recruiting practices and how they compare to what similar organizations offer. Here are a few steps to help you get started:

 

#1 Conduct research on salary trends

Collecting data on what other organizations offer to their employees (focused on salary and benefits) will help you gauge your pay structure compared to companies in the industry. It also ensures your pay structure is based on data.

Ensure that the information you're looking at is always accurate and comes from credible sources. It should also be up-to-date and validated. 

 

#2 Conduct a job analysis in your Company

Once you've collected the industry data on pay, you'll need to gather and evaluate information about each position in your organization. Job analyses consider the responsibilities and the experience required to perform that role.

You may collect this data by communicating with your workers, observing their duties, or conducting simple surveys. Then, review your Company's current salary structure and adjust accordingly as required for the position.

 

#3 Determine a salary range for each role

Setting a pay structure does not mean that every worker with the same job position would earn the same amount of money. It's always great to set a salary range to account for differences in education level and amount of experience.

For example, entry-level hires can be brought into a role near the minimum pay range. This allows employees to enhance their skills and earn more pay as their performance improves.

Also, don't forget to look at your organization's data on race and gender to ensure there is no room for discrimination in how you're paying your workers.

 

#4 Be honest and transparent about your pay scale

Once you've decided on your new pay scale, communicate these changes with your workers and potential hires. According to PayScale, the 2 most crucial questions you need to answer are:

• What does my position pay?
• How was that pay scale decided?

It's essential to have data that backs up your reasoning. If not, it could be difficult to explain how these pay ranges were determined. And when your employees feel like you're not being honest in your response, it could cause unwanted issues or gossip in the workplace.

 

#5 Understand your legal requirements

Since you're conducting a salary analysis, do note that you must comply with state and federally-mandated minimum-wage requirements. Failing to follow these requirements could result in unnecessary, costly lawsuits. Consult an attorney if you need clarification on whether your pay rates are legal.

 

#6 Train your leaders and managers

Often, your managers will discuss compensation or contract renewal with employees at their annual reviews. A common mistake for this is assuming your managers already know how to do this. Most of them don't, so you must train them to manage such situations.

A simple way to do this is by creating formal training on how your leaders can discuss pay ranges and benefits with employees. They'll need to understand when these conversations are applicable, how much they're allowed to share with workers, and what questions should be handed to HR.

 

#7 Re-evaluate compensation regularly

Last but not least, remember that employee compensation is not fixed and is constantly evolving in the market. Hence, it is recommended that companies reassess their compensation structure every 2 or 3 years at the very least. This will ensure that your compensation structure is in line with what other organizations are offering and will benefit the Company in attracting and retaining highly-qualified talents.

 

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