Using pay analytics to get more value from your compensation budget

Economic pressures are making the balance between compensation budgets and maintaining competitive pay increasingly important for compensation and HR professionals. Achieving this balance requires a careful assessment of current pay structures and market positioning, as well as a deep understanding of compensation and business strategy. Through this assessment, you can identify the reward actions that are likely to have the greatest impact.

Developing an effective compensation plan requires alignment between internal organizational priorities (e.g., business strategy, compensation strategy and structure, culture) and broader market dynamics. Luckily, digital innovation is making it easier than ever to ensure this alignment through data-driven pay analytics dashboards that help you visualize pay pressure points and articulate the business case for rewards alignment projects.

Compensation analytics tools serve as a comprehensive diagnostic to proactively address compensation challenges and optimize their strategies. Compensation and HR professionals can efficiently target their efforts with compensation analytics that are focused on four key areas.

Case example: Compensation strategy in a traditional environment

WTW recently collaborated with an engineering firm with a pay strategy aimed at aligning to the market median, with most employees compensated within a competitive range of this benchmark.

Through this work, pay comparison analytics by job family and level revealed that the company was consistently underpaying engineering roles across all grades. Additionally, certain job families like customer service, IT support and finance were consistently paid above market.

These insights, combined with data on turnover and recruitment challenges, underscored the need to evaluate whether a differentiated pay positioning strategy for core functions or levels was needed to maintain a competitive edge. This analysis also helped the rewards team effectively demonstrate the need to reallocate budgets to specific areas. By doing this, the organization could address pay gaps and proactively align compensation with the organization’s stated pay strategy.

Moreover, internal levels were not being translated to the right market grades because of a lack of job evaluation systems. Some levels were being underpaid in terms of their guaranteed and variable pay. Additionally, pay gaps against the market emphasized the inconsistency between internal job levels and market grades/evaluation systems and the need for a formalized job evaluation framework.

Balancing your compensation budget with competitiveness

Effectively balancing precious compensation budgets against market and peer competitiveness requires a well-thought and considered assessment based on both internal and external data. Analytics dashboards provide a toolkit of comprehensive insights that help organizations regularly evaluate their pay strategy, making changes as needed — a critical input into developing successful rewards programs that are worth the investment.