Topic: Can companies easily develop compensation that is both internally consistent and market competitive?

While I do think it’s possible for companies to develop compensation systems that are consistent and market competitive; I wouldn’t say this is could be done easily. According to my research in order to develop a compensation there a few steps that should be completed…

1. Conduct a strategic analysis, which “entails an examination of a company’s external market context and internal factors” (Martocchio, 2020). 

2. Conduct a Compensation Survey: this can be completed using a published compensation survey, or the company can create their own compensation survey. 

3. Integrating job structure with market rates. Most companies use the regression analysis which “describes the linear relationship between two variables (i.e., simple regression) or between the linear composite of multiple variables and one other variable (i.e., multiple regression)” (Martocchio, 2020). 

4. Determining Compensation Policies. Top management ultimately owns this process and need to decide the direction of the organization based on the compensation professional’s data analytics. 

These items are do-able, but potentially problematic. If an organization does not have dedicated compensation professionals, these tasks are then left up to HR professionals to undertake. While an HR professional understands the market and internal factors that affect the business, creating a compensation survey is a specialized task, requiring not only data but the ability to perform different analyses on the data. Obtaining data and information from competitors about their compensation, which consists of both wages and benefits – can be difficult and misleading depending on the competitor and what data they choose to provide if any. It’s also expensive. If an organization decides they’ll use published survey data, then the data is usually only wage information and very little if any information on benefits can be obtained. 

Another challenge also lies with how frequently the data will need to be compiled. In today’s market with inflation quickly on the rise, market data and compensation surveys need to be obtained on a frequent basis. My organization along is one where we are constantly looking at market data using published compensation surveys. I utilize ERI, at least on a monthly basis depending on the role. In the last year alone, inflation and the great resignation have caused the last three companies I’ve worked for to evaluate their wages on an at least bi-annual basis; and even then, sometimes our data was already old. 

References:

Martocchio, J. J. (2020). Strategic compensation: A Human Resources Management Approach (10th ed.). Pearson.