Employers often base decisions about pay too strongly on external comparisons and benchmarks.
Some analysts say that the 2012 Metrics and Analytics: Patterns and Use of Value survey by WorldatWork and Mercer suggests internal measurements would be more meaningful. The survey's results indicate that pay decisions are most often based on simpler analyses, such as internal and external peer group benchmarking and ongoing reporting, according to the Society for Human Resource Management (SHRM).
More complex techniques, such as simulations and projective modeling, were found to be much less common. While more than two-thirds of respondents said they have the skills needed for more complex analytics, the survey suggests they cannot or do not use those skills. Specialists in determining compensation have more data and analytical tools than in the past. They need to use internal labor market analyses and other data more effectively in order to better arrive at compensation that will benefit the business, rather than concerning themselves with comparisons to external benchmarks.
"A disconnect exists between the abilities and outcomes of the comp function – comp professionals are relying heavily on less sophisticated techniques for pay decisions, yet clearly have the know-how to use more involved methods," stated Wendy Hirsch, a principal at Mercer. "More sophisticated analytics allow organizations to make better, more fact-based decisions."
She noted that other aspects of human resource systems and management are incorporating such data and analytics. Failure to do so could mean that compensation decision-making is left behind, operating less efficiently.
More sophisticated approaches could help organizations assess the impact of their compensation strategies on workers, particularly the impact on employee retention. They might also serve in evaluating the most talented workers' satisfaction, motivation and engagement, and determining whether future talent needs will be met under the current strategy.
