Most people who do compensation work end up there by accident. I don’t know any 5-year-old that says they want to be a Compensation Analyst when they grow up.

Compensation is a profession that requires many skills and competencies. Things like data analysis, Excel skills, storytelling, effective communication, influence (sales) skills, critical thinking, problem solving, business acumen, and empathy are on the list of competencies I look for when adding people to my team.

Most people start off doing broad-based compensation work. Then there are the specialties within the profession that they sometimes go toward as their career progresses.

It usually starts when you are under resourced.  

You don’t have enough time to do all the work that is expected of you, so you do something quick to answer a question. And then you never go back and do the full analysis and implement final decisions made with intention and integrity.

·        Instead of assigning the grade to the job, you market price it and then calculate a base pay range around the 50th percentile. Then you share that specific range with the hiring manager or on the job posting.

·        Instead of updating the pay grade structure for the next year by doing the external market analysis, you just age it by 3%.

In the last 24 hours, I’ve listened to two podcasts on this topic:

a)        The Modern People Leader, hosted by Stephen Huerta, Episode 186 with Hebba Youssef

b)       Josh Bersin, The Ever-Expanding Role of the CHRO

To summarize, they point out that the CHRO role has grown in responsibilities and impact over the last few years. Not only do these leaders need to understand the multiple disciplines within HR but they also must know about:

When I started doing compensation work in the 1990s, the only compensation data we used to market price jobs was the traditional salary surveys.

Traditional salary surveys are still published by a variety of firms ,but now there are more pay data sources employers can use.

1.        Crowd sourced and/or self-reported pay data

2.        Job offer pay data (from your ATS, for example)

3.        Web scraped or job posting pay data

What’s the paper ceiling?

The paper ceiling references the career advancement barriers people without a college degree experience.

62% of the workforce in the U.S. potentially has paper ceiling barriers given that about 38% of the population (age 25 and older) have a bachelor’s degree. 

I hear from employers all the time that they struggle to find qualified candidates to fill open jobs.

1.        Compa-Ratio, short for compensation ratio, is a comparison of an individual’s salary to the midpoint of a given pay range.

2.        Range Penetration measures an employee’s salary as a percentage of the total pay range.

3.        Market Ratio compares an employee's salary to the market rate for their job.

4.        Salary Range Spread is the percentage difference between the minimum and maximum salaries in a pay range.

1.      Driving in heavy traffic

2.      Wear shoes that hurt my feet

3.      Not being authentic

4.      Seeking approval from others

5.      Pretending to be happy

Step 1 – Determine area(s) of focus. Pay compression is when the pay of an employee is very close to or above (a) the pay of more experienced and higher performing employees in the same job title or (b) their first level supervisor.

·        Example: We pay our supervisors at least 10% above their highest paid direct report. Exceptions are made for the following reasons: insert text.

Step 2 – Determine the executive summary needed at the completion of the analysis.

Step 3 – Determine the fields needed in an Excel file to do the analysis. Pull the Excel data from your HRIS.

The siloed functions within HR, especially at large employers, can be problematic. Example:

·        Talent Acquisition doesn’t know the impacts of the job architecture being designed by Compensation.

·        Talent Development creates the new performance management program without including Compensation until the new program is almost ready for implementation.

·        HRIS is working with an outside implementation partner to get Workday in place. They haven’t worked with any of the HR functions to review/change current processes to be in alignment with Workday functionality.

ALTERNATIVE 1 - Black & White:

I’ve worked with a few employers who have pay decision tools (Excel spreadsheets) that tell the user what the employee or new hire should be paid based on a few factors.

The factors are usually one or more of the following:

·        Years of relevant experience

·        Performance rating

·        Education and training

·        Seniority

I talk about this when I am working with pay negotiation clients.  For example, when an employer makes a job offer and the pay is so under market that you cringe, it is time to consider walking away.

And low pay plus red flags like an employer that is struggling to find a competitive advantage or learning that several executives have left recently can add to your confidence that walking away is the right decision.

There are red flags I look for when I am talking to employers who want compensation work done.  I look for slow decision making, a small budget for a large project, and a lack of an ability to influence other decision makers within the organization.

Be sure to not over emphasize the years of experience in the job description as the primary element on which you base your market pricing match decision.

The elements that should be considered when market pricing include:

·        The level of the job’s responsibilities – example: entry, intermediate, senior, or expert if the job is an individual contributor role.

·        The reporting hierarchy – Does the job report to a supervisor, manager, director, or VP?

An example: “Employees with similar jobs, performance, skill sets, and experience within a company are paid similarly. This includes salary, benefits, and other forms of rewards.”

Let’s look at that definition in more detail.

“Employees with similar jobs,...

·        Similar jobs can be further defined as (a) same job title, (b) same job family and career level, and/or (c) same job family and pay grade.

A fundamental human need is learning and growth.

If an employer can't show you what jobs would be a natural next step in your career, it means they haven't invested in developing career paths.

Career paths are not difficult to define.

Step 1 - Group jobs by their functional focus. Example: Accounting, Finance, Legal, Sales, Operations, HR, IT, Marketing, Communications, Government Relations, etc.

Market pricing 100, 500, or more jobs is a grind. It is slow and deliberate work, but the data ultimately tells a story.

Employers: Are you paying too much? Are you paying too little?  Where do you need to spend money? How much should your budget be for pay changes going forward?

The market pricing of the jobs depends on well written job descriptions. Reading hundreds of job descriptions and then using that understanding to choose matches from salary surveys can be viewed as tedious. Or it can be done with curiosity and a focus on learning.

How can AI help with this work?

Billie’s description of their workplace and boss was shocking. They worked over 12-hour days 6 days a week and so did their colleague, Sam. 

The two were doing the compensation work for more than 5,000 employees. Compensation included all things base pay related, all incentives (bonus, sales commissions, LTI), and stock administration.

How complex was their employer? It was a global company with employees in more than 10 countries and about $3B in annual revenue.

Often employees and their managers are focused on getting the employee’s pay level to the midpoint of the base salary range or above.

There is a myth that the midpoint number is “market.” It isn’t.

So, ensuring that each employee has a compa-ratio of 1.0 (or 100%, the midpoint) or above shouldn’t be an employer’s goal automatically.  

Instead, the “market” for a job is the competitive base pay range assigned to the role. That is in turn based on reliable and valid salary survey data used in the market pricing and job evaluation process.

1. Creates an organizational language and terminology to consistently define and categorize jobs.

2. Provides a way to effectively communicate career path and total compensation opportunities.

3. Improves trust with employees and the ability for an employer to attract and retain talent.

4. Foundation for aligning and delivering rewards, resources, and support for employees.

Pay transparency and equity laws are going to continue to be passed in the U.S. and globally.

Your efforts as an employer to comply will become more complex. It will require HR and Compensation to:

·       Manage and understand pay and performance data better than ever before

·       Influence employee expectations and the perspectives of senior executives

If the process you use to determine an employee’s base pay or incentives is complex, I encourage you to move toward simplicity.

I have worked with employers who say, “The only person who understands how the bonus payouts are calculated is the person who runs the spreadsheet. We talk generally about how the employees’ bonus payouts are calculated but have never shown them an example.”

I have also heard, “The only person who really understands our LTI program is our General Counsel. It is complex and all the documents that explain it are written in legalese.”