Carroll talks of one CEO who was frustrated about compensation. He had his 12 top people that he wanted to compensate well, but he couldn’t seem to afford to do it. He thought that setting up a formal comp program would interfere with his ability to do what he wanted, but Carroll said to him, “I want to rework pay so that you can afford to compensate the 12.”

“I’m on board,” the CEO said.

Carroll is Director of Professional Services & Education at PayScale, Inc.

‘I’m leaving because of pay’

HR and comp managers hear “I’m leaving because of pay” often, says Carroll. And most of them take that at face value believing that pay is the problem. But that’s often not the case, says Carroll.

“Leaving because of pay” is just the easiest thing for departing employees to say, but pay probably is NOT why the employee started looking for a new job, Carroll says.

Always see if you can find out what the real motivation was that got the employee looking. There may be another problem (like an overbearing, ineffective manager) that won’t be solved with pay increases.

What Are Compensation Analytics?

Compensation analytics include:

• Business Intelligence. What are the data telling us?
• Quantifiable data. Things like engagement are hard to quantify, but there are hard data.
• It’s your scorecard. If you find that people are leaving for “pay,” change pay and then look to see the results. (People often forget to go back and check the results, Carroll notes.)
• Information for action. The best action often is NOT just to give people more money. Share your market research, Carroll says. Often you can say, we’ve studied the market; we’re competitive. It’s important to communicate that. People need to know that their pay plan is fair. And that the pay of people who contribute more reflects that contribution.

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Why Should You Spend Time Doing Analytics?

Carroll offers several reasons why it is important to spend the time on analytics:

• To make sure your compensation programs are achieving the goals as defined in the compensation philosophy (are you leading or lagging?); and if not, to make the necessary adjustments.
• To look for irregularities in your pay practices that create unjustified costs to the organization.
• To look for irregularities that could create risk to the organization including legal trouble, and to expose the risk in time to take action.
• To link a traditional HR activity to the organization’s mission.
• To maintain a set of measurements that you can monitor over time to see trends and show progress toward stated goals.
• Along with other performance measures, to identify the health of the talent management programs of the company/organization.

The Five Major Categories of Analysis

Compensation administration is all about asking questions, says Carroll. Her five key questions are:

1. Do your compensation ranges need adjustment?
2. Are you compensating your top performers according to the company’s stated philosophy?
3. What is the alignment of incumbents within their pay grades?
4. What is the relationship between positions within one pay range as compared to positions within another pay range?
5. Where are the risks to the organization?

1. Do Your Compensation Ranges Need Adjustment?

How often do you want to move ranges?

Many compensation managers assume that they have to move the structure every year, but that’s not the case, says Carroll. Don’t just do it automatically, she adds.

Do you have positions in the right pay grades?

• Have you captured all the key evaluation measures for slotting jobs into the appropriate pay grades?
• What is the relative important of internal equity vs. external equity?
• Should you move to a straight market pricing model (external equity)?
• Should you create a wider pay range and keep everyone in the same pay grade (internal equity)?
• Should you use a market premium on top of the pay range (combo)?

What is happening in the market?

Look to the market (some clients are rebenchmarking every 6 months, she says). Remember, she says, “the market has no judgment.”

CFOs ask, what’s everyone else out there doing for raises? It’s a broader issue than that, Carroll says. Yes, you look at the market, but you also consider proficiency level and performance level.

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2. Are You Compensating Your Top Performers According to the Company’s Stated Philosophy?

If you are using a standard formula of making COL adjustments and then merit on top of that, but your entire budget is only 4-5% and the market is moving an average of 3%, how can you move top performers through the range?

You can’t, says Carroll. You need to:

• Reduce or eliminate across-the-board increases
• Create a system that seamlessly integrates performance and compa-ratio

If your company says that they have pay for performance, do your pay practices support that? Ask yourself, What is the comparison of top performers’ compa-ratios to other compa-ratios?

In tomorrow’s Advisor, more of Carroll’s compensation tips, plus an introduction to a unique, checklist-based audit system.