November 20, 2018
Compensation ROI (the Return on Investment of your company’s compensation and total rewards policies, programs, and practices) is often misunderstood and underappreciated. In fact, most employers and Human Resources professionals tend to view employees as an expense – a necessary evil, if you will – rather than as valuable human capital assets worth the investment. To change this mindset, it helps to understand some of the factors that make up compensation ROI, as well as how to measure and quantify the value of your employees. Read on for insights from the ROI of Compensation section of my book, Compensation Sense 101: Common Sense Answers to Your Questions About Employee Compensation and Total Rewards:
Gaining Perspective on Compensation ROI by Measuring Your Programs
Compensation ROI can be measured in many ways. These include costs or savings associated with turnover, replacement costs, recruitment and retention, and employee engagement and productivity. Ways to measure your compensation programs include the following:
- Analysis of Employee Churn Rate
- Market Rate Analysis
- Pay System Review
- Internal Equity Analysis
- Compensation Scorecards
- Total Compensation Reviews
- Total Rewards Strategic Assessments
These can provide essential information for managing costs and putting compensation ROI in perspective. Thus, they should be conducted periodically to keep your organization on track and enhance your competitive position in the marketplace. While each analysis or practice can spotlight strengths and weaknesses across the spectrum of total rewards, let’s take a quick look at one analysis that is often underutilized:
Total Compensation Review
A Total Compensation Review is an analysis focused on all employee compensation programs. It is an evaluation of both compensation and benefits to the organization. The compensation piece is accomplished by market benchmarking every role in your organization for both base pay and incentive compensation. Then, jobs are grouped together by various employee levels (e.g. non-exempt, exempt professional/technical, supervisor, manager, etc.); so that a report can be developed to show the overall comparison by employee group as a percent of market. This analysis can be completed by department or division and then rolled up to the entire company level.
The compensation analysis will help you see how each group of employees compares to market by department/division and company-wide, so you can determine how it aligns (or doesn’t align) with your compensation philosophy. The analysis can also help you plan where you need to budget and spend to better align with your compensation philosophy. Thus, it provides leaders a clear picture of where their areas stand, as well as the company as a whole.
The evaluation of benefits to market is a little more complex in determining a true percent-to-market comparison. You should utilize a national human capital consulting firm with a database of employee benefit plan details for your industry. It is possible you could get a comparison to your competitors if there enough of them in the database. This analysis will compare your benefit plan offerings and design details to market for each major benefit area and then provide you an overall percent to market for your benefits. The combination of these two analyses – a Market Rate Analysis and a Benefit Design Analysis – provides a robust Total Compensation Review for your organization.
The Bottom Line:
To maximize compensation ROI, it is essential to always see your employees as an investment and not an expense. Of course, this means you must make the necessary investments IN your employees. These investments can take many forms, from compensation to benefits to technology improvements to training or career development. Making the right total rewards program enhancements requires a solid understanding of where your current programs stand – where they are succeeding and where they are falling short. If you aren’t sure how to conduct the necessary analyses to gain the perspective you need, contact us at Total Reward Solutions at 317.589.8529. In the meantime, check out the book for more detailed insights into this and many other compensation and total rewards topics.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.
Call us today at 317.589.8529 to discuss how we can help your organization develop and implement competitive and effective compensation and total reward programs.