7 Common Compensation Questions

Types of sources to use, frequency of market studies, handling employee questions about fairness, etc.—these are just a few of many compensation issues and questions that you face every day. We’ve compiled answers to some of the most frequently asked questions we receive related to compensation.

1. What sources do most employers use to benchmark compensation?

Most employers use more than one salary data source to make compensation decisions.

Common choices of salary data sources include Mercer, Willis Towers Watson, CompAnalyst, ERI, and Aon Hewitt.

Local, state, and industry-specific surveys can be used when obtaining market data.

2. How frequently should we be formally reviewing compensation?

The best practice is at least every two years; however, if your organization has made a number of changes to jobs, has fallen behind on benchmarking pay in the past few years, is competing for hard-to-find talent, or is focused on retaining above average talent, then it may consider benchmarking compensation more frequently.

In these cases, we suggest an annual review. Although you may only formally review compensation every other year, it’s important to at least stay abreast of the latest compensation trends each year and review key positions.

You need to make sure that your key players’ pay is in line with the market at all times.

3. What’s the future outlook for compensation?

Salary increase budgets in the U.S. are expected to remain at about 3%, consistent with many past years. 

However, the rate of pay acceleration for some jobs in the market makes the need to watch for market related changes in pay that much more important. 

4. How do the rising costs of benefits play into total rewards?

Some employers have questions about how the rising costs of health care and other benefits play into decisions about compensation. Benefits and health care costs have become a larger component of the total  rewards package offered to employees, so it’s more important than ever before that employers are looking at total  rewards in addition to base pay in order to make appropriate decisions.

There’s also no question that rising benefits costs and uncertainty about the Affordable Health Care Act will likely be a consideration in overall costs. 

That’s why it’s important to review benefits and pay data annually to make sure you’re in line with the market on both. This will provide you more insight on what changes you need to make in terms of cost-sharing, benefits contributions, and pay increases.

5. How should I evaluate compensation data?

Things to look for when evaluating compensation survey data:

1. First, you will want to make certain you utilize credible, reported data from robust and reliable market survey sources.
2. Second, you’ll want to ensure that you apply your organization’s specific demographics (industry, revenue/employee size, geographic location) to the market data for your jobs. 
3. Third, make sure you also know when the salary survey data is effective so that you make appropriate aging adjustments to ensure that you are comparing data according to consistent time periods.
4. Fourth, for industry-specific surveys, look at participation in the survey, specifically the number of employers participating for each breakout reported, if this is available.

Breakouts which have statistically significant participation are more reliable than breakouts with limited reporting.  That’s why you may see less reliable salary trends in positions that have less participation.

6. What should we do if we find that pay isn’t in line with the market?

Nothing or something—it all depends on your compensation philosophy, considerations taken regarding the employee functioning in the position, and your ability to make the change.

If the employee is a solid performer, your philosophy is to pay at or above market, and the position is valuable to your organization, you should consider a phased approach to adjusting an employee’s pay to market-competitive levels.

If the employee is a low performer, sometimes it’s okay to do nothing. As an employer, you don’t have to make pay adjustments unless you feel they are warranted and worthwhile.

7. One of my employees thinks their pay is unfair, what should I do?

Employees often question the competitiveness and fairness of their compensation and how they are paid relative to employees in similar roles at other organizations. Let’s just say that pay is never a workplace issue with which employees are most satisfied.

This often stems from lack of communication with regard to compensation administration and the proliferation of unreliable, employee-reported pay data available online.

Here are things you can do to make sure employees are aware of the steps your organization takes to keep compensation competitive:

• Do your homework. Conduct market studies to see how employees’ pay stacks up to other peer organizations.
• Create and communicate a compensation philosophy or policy about how your organization intends to pay employees relative to the market. Most importantly, make sure employees understand it.
• Explain the salary survey sources you use to benchmark compensation.
• Communicate the process by which your organization makes compensation decisions as transparently as possible. It will make the process seem less mysterious and secretive.
• Provide total rewards statements. Employees often don’t realize how much they are earning in benefits and other perks your organization provides and these figures usually surprise them.

It’s important to note that even despite your organization’s best efforts to be transparent, there will always be a number of employees who aren’t satisfied with their pay.

This is natural and common and isn’t anything to be concerned about provided your programs and administration are legally compliant and you are attracting and retaining top talent.