Completing A Pay Analysis
Many small businesses avoid conducting pay analyses for various reasons -- some believe they may not need them, and others think they're too complicated to do themselves. The fact remains that all businesses, regardless of size, should conduct regular pay analyses if they want to stay competitive and attractive to their current and prospective applicants. Sometimes, things may happen in the business that urges you to conduct a job analysis outside of your regular schedule, like a state or federal wage increase or a significant increase in turnover in your long-term employees. Don't worry, a pay analysis doesn't have to be daunting or complicated! We have some tips to help you find the resources you need to conduct a pay analysis and how to put it all together to make the right decisions for your team, and in the end, your business.
Internal Analysis
When conducting an internal pay analysis, the primary goal is to establish the frequency of rate changes, the satisfaction of employees, and inflation comparisons, each explained below:
Rate Change History
The first thing I recommend companies do when conducting a pay analysis is to audit the frequency of rate increases in that position. This process can be straightforward, as many payroll companies provide reporting that will help you analyze historical rate information. If your payroll provider does not offer reporting for historical rate information, check out our Rate Analyzer for assistance. During this part of the analysis process, ensure that rates are increased systematically, aligning with your company's procedure if there is one. If your company does not have a proposed rate change schedule, ensure that the rates are still fair to your employees.
Salary vs. Inflation Rates
Inflation rates are a standard indicator, and best practice, for wage analysis in many businesses. How does your current rate compare if you adjust it for inflation? If you don't already have a standard rate change policy, creating one based on inflation could be a simple solution for your business. These policies adjust rates based on changes in the inflation rate after a certain amount of time has passed. I recommend using these policies if you do not have a development path in place or have employees who may surpass the standards in those paths. Since inflation adjustments are best practices for many businesses, it's still important to know where your rates stand even if you don't adjust them for inflation or have different adjustment policies in place.
Employee Satisfaction Survey
One of the MOST important things about a pay analysis is how your employees feel about their pay – after all, it's how YOU are assessing THEIR value and all the skills they bring to the table. If you have created an open environment in your business that allows for transparency and great communication, an employee satisfaction survey will provide you with unique insight into how employees feel about whether their pay reflects their value. This is extremely important because you don't want to change a compensation package that's already working and you DO want to get feedback on how these rates affect the way your team works.
External Analysis
After conducting your internal analysis, it's also important that you perform an external analysis – just so you know where you stand. The external analysis will help you understand how your pay compares to your competitors and how attractive you'll be to prospective applicants. These can be more difficult to conduct, but the results can be enlightening and will help you create a package that's attractive both internally and externally.
Salary Sites
Salary websites like Salary.com and Glassdoor.com provide free and paid subscriptions that allow companies to search through similar jobs and compare salaries submitted by real employees. Their paid services also provide reporting features that help you easily compare other jobs to yours and see exactly how you stack up to other competitors. These services may be useful if you are having a difficult time attracting and retaining candidates and you suspect it has to do with your compensation package. There are also several independent companies that conduct external pay analyses for businesses.
Job Boards
One of the easiest and most inexpensive ways to conduct an external pay analysis is to review job board posting of positions like the one you are analyzing. Many companies (like you, right?) post their rates and benefits on their job postings to attract quality candidates and promote transparency allowing you to compare these rates to the job you are analyzing. Remember the Rate Analyzer from before? You can use this to analyze external rates, too!
PRO TIP: Check your state and federal laws! Remember that some state and federal regulations may prevent you from calling businesses and asking for rate information. This could be viewed as predatory and manipulative and could bring legal implications to your business.
Other Resources
Some payroll providers have unique reporting tools that help you compare your actual wages to other related jobs on their platform and using these services can provide you with a unique data advantage over your competitors. We recommend checking with your vendors to see if they provide any unique solutions or resources for conducting a pay analysis.
Putting It All Together
Once you've completed both your internal and external analysis you need to put it all together to see if you need to make a change or not. How does your wage compare to others? How happy are your employees with their wages? How LIVEABLE are your wages? At the end of your analysis, you should be able to answer all these questions and make a decision on if and how your compensation should change.
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