Compensation Management – Balancing Science and Art

On Tuesday, November 22nd, Chuck Csizmar posted an insightful blog entry on the Compensation Café blog titled, “Is It Rocket Science Where You Work?”  Chuck was making a point that over analyzing market pay data may create survey “paralysis” and “analytic exactitude”.  He mentioned several reasons why the competitive “marketplace”- (market pay data surveys), is not “well defined” and is fraught with “numerous variations and interpretations”.

We agree with Chuck’s points that

1) surveys change from one year to the next,

2) job matching is not easy or precise,

3) surveys often represent a variety of company data (“industries and revenue size”) and reported wages are not “consistent” by definition of average wages.

For these reasons stated by Chuck and for several additional reasons, the compensation consultants with Johanson Group and DBSquared believe that depending on market pay data alone for analysis can cause discrepancies and holes in an organization’s compensation management planning and base pay structure.

The combination of Job Evaluation and Market Pay Analysis popularized by the Hay Group job evaluation system was the norm in the 60’s and 70’s.  It fell out of vogue as technology and other evolving job factors made this job evaluation process less comprehensive, more subjective and time-consuming.  At the same time, market pay data was being more quickly accumulated and offered via packaged databases so compensation and HR professionals could initiate and complete market pay analysis for benchmarked positions.

The balance between compensation science and art we believe is the combination of job evaluation and market pay analysis.  Integrating both internal and external analyses drives more precise compensation management planning outcomes and decisions.  Internal job evaluation is increasingly needed for more compensation compliance audits by the DOL and OFCCP where multi-factor job and pay analyses are utilized to identify and address systemic pay equity issues.  Improved methodologies and increased objectivity in defining and applying job evaluation factors coupled with the Software-as-a-Service (SaaS) technology architectures deliver integrated system capability that leverages both internal job valuing processes with external market pay analyses providing integrated and optimized compensation management decision making.

As illustrated below mapping precise job evaluation ratings (X axis) to employee pay (Y axis) graphically demonstrates your company’s compensation philosophy and equity.  Evaluating this internal analysis against multiple pay regression lines from market studies truly brings scientific analysis of both internal and external factors. With the more efficient and technologically advanced compensation management systems (Science), compensation and HR professionals are able to utilize their knowledge and skills (Art) to offer more precise and balanced compensation management analysis.

It is not necessary to employ a rocket scientist compensation analyst for your compensation management base pay structure and pay analysis as mentioned by Chuck.  Utilize a proven and automated internal job valuation process and a thorough external pay analysis to develop and maintain your fair and transparent compensation management program.