Compensation analytics is a fairly new discipline with its foundations in HR analytics, focusing on the effectiveness and optimization of the employment costs. It uses people analytics and helps organizations make data-driven decisions regarding fair compensation.
A study by CEB Global, found that leaders in HR analytics improved talent outcomes by 12 percent, which resulted in a direct increase in 4 percent rise in gross profit margin. If you know where to focus and use the right HR tech to make analytics more accessible, you can turn compensation into a strategic function and data-informed. Doing so, it enables HR leaders to identify top performers and reward them adequately, thereby increasing morale, reducing attrition, and improving the bottom-line.
How analytics has changed the compensation landscape
Compensation is the largest item in your annual budget; it’s also the largest source of data, containing precise and varied information, that can be used to develop strategic and tactical plans as well as guide business objectives.
Whether you’re hiring a new employee, addressing the pay concerns of existing ones, ensuring fair pay, or developing a competitive compensation strategy to attract top talent, leveraging data takes guesswork out of the equation. Your decisions will be based on hard facts as opposed to assumptions and gut feels.
Managing salary expectations
Salary benchmarking is how organizations determine the market rate for each position in their organization. With analytics, compensation professionals can be proactive in identifying gaps in their compensation structure and to fill them appropriately, leading to a reduce risk of talent loss.
The loss of talent not only increases the cost of hiring, but it is also a loss of productivity; it takes time for a new employee to match the levels of someone who’s been at the job for quite some time.
Investigating pay gaps
Even though businesses strive to achieve pay equity, the wage gap persists and is a major concern across industries. The World Economic Forum estimates that it will take at least 202 years to close the wage gap. You can use compensation analytics to unearth answers to important questions like how the pay varies across races, genders, age groups, and several other factors.
Assessing the effectiveness of sales
Sales compensation is particularly complex and can get quite difficult to administer effectively. But, it’s key to determine if they are getting the return on their investment. In addition to the commissions and bonuses, there’s also the travel costs which can add on slowly yet steadily. With analytics, you can identify who’s performing best, which geography brings in the most revenue, and finally, if it’s worth the cost.
Getting buy-in from management
A lot of these exercises can result in a complete restructuring of compensation and benefits which can result in an overshoot of the proposed budget. Knowing how, when, and where to make changes is an area that requires meticulous planning and flawless execution.
Compensation management is a function that has to spend money wisely to create the biggest impact. Analytics helps C&B professionals to justify these costs by reflecting past, present, benchmarked trends and precisely identifying ways to put the right amount into the right place. Also, it helps HR professionals identify potential ROI on this spending by reflecting cost savings, productivity improvement and employee satisfaction supported by various researches.
Choosing the right tech
There’s no shortage of data when it comes to people analytics–HRMS, payroll software, ATS, and more. The sheer volume of data generated by these different tools can be overwhelming and more often than not, drown the key insights in an ocean of data. To leverage the data to make informed decisions, you need a compensation management tool like Compport. In addition to the core analytics like employee turnover and workforce effectiveness, you can also keep track of compensation positioning, employee costs, salesforce productivity, and more. Learn more here.