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Competitive Compensation Analysis: Staying Ahead of the Curve

HR Strategy and Planning

Competitive Compensation Analysis: Staying Ahead of the Curve

Over the last several years, business leaders and HR professionals have focused on making their companies more appealing to job seekers by offering non-traditional perks like remote or hybrid work, lunches, wellness stipends, and more. While these strategies can help you find top talent, they are not a substitute for competitive compensation.

The truth is that money matters a lot, and only about one-third of employees feel like they receive fair compensation. If you want to consistently attract and retain skilled employees, you need to make sure your company offers fair, equitable pay. A competitive compensation analysis is your tool for unlocking actionable insights to benchmark your pay rates and create a compensation package that stands out.

What Is Competitive Compensation Analysis?

A competitive compensation analysis involves evaluating your organization’s pay and benefits packages against industry benchmarks. You want to determine whether you’re paying employees fairly and competitively based on market data. You’ll need to review salary data, benefit offerings, and other components that contribute to total compensation (e.g., 401(k) match). A compensation analysis provides insights into how your compensation packages compare with others in your industry. You want to identify the unique value that you offer employees and potential gaps that could prompt top talent to seek jobs elsewhere.

Why Competitive Compensation Matters for Talent Acquisition and Retention

According to a 2023 report, 96% of workers were open to a new position, and better pay was one of their primary motivators. A competitive compensation package is a major draw for potential employees. When the pay and benefits you offer align with or exceed industry standards, you’ll be better positioned to attract skilled talent who may be considering multiple offers. 

Competitive compensation doesn’t just help with talent attraction. Offering competitive pay is also one of the best strategies to retain top talent. However, it’s important to monitor employee retention metrics before and after making any major compensation changes so you can determine how your pay improvements impact worker loyalty. 

With this monitoring, you can identify and prioritize the types of compensation that are most appealing to your team. For example, some employees may value a high pay rate above all else. Conversely, middle-aged or older employees may prioritize compensation such as health insurance or retirement plans.

Key Components of a Successful Compensation Analysis

A thorough compensation analysis involves reviewing several key metrics to build a clear understanding of how your organization’s pay stacks up against other businesses in your field. Some of the factors you’ll need to consider include the following:

Average Salaries

Learn the average salary and range for each role within your industry and region

Benefits

Look beyond pay to account for benefits like health insurance, retirement contributions, and paid time off 

Industry Norms

Understand the general compensation landscape in your industry

Role-Specific Rates

Break down pay standards by role, specialized skills, and experience levels

You’ll need robust compensation analysis tools that allow you to gather, analyze, and interpret all of these categories of information.

Steps to Conducting a Comprehensive Compensation Analysis

The compensation analysis process includes the following four core steps:

Research Industry Benchmarks

Start by benchmarking compensation packages for similar roles within your industry. You will need to conduct salary surveys, review government reports, and leverage specialized compensation tools during this step. 

Make sure to check out your competition’s websites and job postings as well. These sources can provide valuable information about pay ranges and other perks

Compare Current Compensation Packages to Market Standards

Next, evaluate your current compensation packages against the market data you’ve collected. This step reveals any gaps between what your company offers and what the market expects.

Identify Gaps and Areas for Improvement

Determine where your compensation falls short of industry standards. Are your base salaries lower? Do employees accrue PTO at a much slower rate? Is your benefits package less competitive? Pinpointing specific areas for improvement allows you to create or modify your compensation strategy.

Implement Changes and Monitor Impact

Once you’ve identified gaps, implement changes to align your compensation with market standards. Regularly monitor the impact of these changes and gather feedback from your team members. 

How to Leverage Competitive Compensation Data for Strategic Planning

The data from your analysis can be used to support strategic compensation planning. You need to create a comprehensive plan to adjust salary ranges and enhance benefits to make the company a more appealing landing spot for talented workers. The compensation data you unlock using the process outlined above can inform your workforce management practices and help you cultivate feelings of loyalty among your team. 

You’ll also need to be wary of compression issues. This happens when you raise the starting pay for a position but don’t adjust the salaries or hourly rates of people who are already in those roles. Compression can cause friction between new hires and existing employees.

Think about how you would feel if your employer hired someone in the same role as you and paid them as much or more than you earn. Unless that person possessed significant experience to justify the pay difference, you probably wouldn’t be very happy. Even then, the entire experience could make you feel undervalued.

The Impact of Competitive Compensation on Company Culture and Performance

A well-structured compensation strategy doesn’t just impact recruitment and retention — it also has a profound effect on company culture. Fair and competitive compensation fosters a sense of appreciation among your staff, which can enhance morale, engagement, and productivity. 

Additionally, a commitment to competitive compensation aligns with diversity, equity, and inclusion (DEI) goals. Ensuring fair pay across all demographics strengthens your organization’s reputation and demonstrates a commitment to equitable treatment. DEI goals in compensation can be addressed through regular assessments that focus on pay equity, ensuring all employees receive fair and competitive compensation.

Jumpstart Your Journey With HireRoad

Staying updated on compensation trends and conducting regular analyses helps you remain competitive in the ever-evolving job market. Start with a simple benchmarking exercise to assess where your company stands and build from there to create a strategy that attracts and retains top talent. 

At HireRoad, we specialize in helping organizations navigate the complexity of compensation analysis. Our PeopleInsight platform provides advanced analytics and intuitive visualizations for organizations seeking to make informed decisions. By focusing on competitive compensation, your company can promote business continuity through talent attraction and retention. 

Book a free demo with PeopleInsight and explore our compensation analytics technology.