What Is Compensation Analysis?

Compensation analysis is a systematic process to evaluate and assess compensation practices. It involves gathering and analyzing data from a variety of sources related to salaries, benefits, incentives, and other forms of compensation offered to employees, in addition to external variables like market competition. 

How does compensation analysis work? 

Compensation analysis involves examining various factors such as market conditions, roles, responsibilities, policies, and employee performance. By conducting a thorough compensation analysis, companies can create sustainable and fair compensation plans that attract, motivate, and help retain top talent. Effective compensation analysis ensures that companies can offer fair and competitive compensation packages. 

Why is compensation analysis important?

Compensation plays a vital role in employee satisfaction and organizational success. While it’s not the only driver of performance, it serves as a crucial motivator and retention tool. Compensation analysis helps organizations understand market trends and salary benchmarks, to ensure competitive pay practices. Compensation analysis can also help companies identify any factors—such as gender or race—that may contribute to wage gaps or pay inequities.

Compensation analysis is important for employees too. Organizations that conduct ongoing compensation analysis ensure that employees are receiving a competitive wage that is equitable both internally and when compared to external benchmarks.

What are the steps in compensation analysis?

Compensation analysis involves a numbers of steps, including:

• Job evaluation. An analysis of job roles and responsibilities to determine the value and compensation structure for each role.

• Market analysis. A look at industry trends, compensation practices and salary benchmarks to ensure competitive and fair compensation.

• Internal compensation analysis. A review of internal compensation data to identify any wage gaps or discrepancies and ensure equitable pay within the organization. 

• Budget and financial analysis. The evaluation of financial resources to determine the appropriate compensation budget and ensure alignment with strategic goals.

• Monitoring and adjustments. Internal and external factors impacting compensation decisions are changing continually, making it important to continuously monitor the effectiveness of the compensation play and make adjustments as needed.

Each of the steps in this process can be augmented and improved through the use of technology.

What role does technology play in compensation analysis?

Technology plays an important role in compensation analysis that can add both efficiency and effectiveness to organizational efforts. Technology can ensure that your compensation practices are tied to business objectives and aligned to ensure internal and external equity. 

In addition, technology can be an important aid in ensuring pay equity by helping to account for more factors that drive differences in pay decisions and proactively addressing bias that may exist in compensation structures and practices. 

Read more on compensation analysis:    

• Compensation Planning: What It Is and Why You Need It

• Compensation Management: How To Solve Key Compensation Challenges 

• Refine Your Compensation Strategy