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Compensation studies are important tools that help businesses of all sizes, from Main Street to Wall Street, in the fierce competition for talent in an employee-centric market.

“Salary surveys are important enough that a full 80 percent of human resource professionals said they were consulting them in their business,” according to an article from

Compensation studies, also called salary surveys, not only help businesses in hiring top talent but they also bolster employee retention as the data gained from the studies or surveys ensures that your company’s salaries and incentive packages are competitive in your marketplace.

Since companies can spend up to 80 percent of gross revenues on employee salaries, incentives, and benefits combined, getting salaries right when hiring or retaining staff is business critical.

The Wall Street Journal reports that the entire subject of pay is emerging from the shadows with a millennial generation in the workforce that has no qualms about sharing pay information while demanding transparency on the subject from businesses.

“Pay and promotions are not secretive topics anymore,” benefits consultant Mary Ann Sardone told the Wall Street Journal. “Companies are spending more time ensuring their pay decisions are fair and highlighting career paths under the assumption that the information is going to be widely shared.”

What is a Compensation Study?

There are many methods and metrics used to accomplish afirmbee-com-jrh5lAq-mIs-unsplash compensation study which can also be termed a wage survey or salary survey.

To understand what a compensation study is, it may be best to start with what such studies hope to accomplish. Compensation studies usually:

  • Determine a true market value for a specific job including variables for industry, job location, and hiring company size.
  • Present a benchmark salary range for the specific job.
  • Propose to the hiring managers what an equitable salary range would be for the job given a company’s unique position in the market.
  • Ensure internal parity of pay by utilizing the benchmark salary range.

Most compensation studies rely heavily on surveying other businesses, including competitors if possible, for the salaries paid for specific jobs, broken down by location, sector and job requirements.

Results will work best if the compensation data is taken from businesses similar in size and location to your business.

“It may seem strange to essentially ‘consult’ your competitors to help make determinations inside of your own organization, but it can be hugely helpful toward understanding how businesses compensate employees and keeping your own organization on par with others like it,” writes HR instructor Beth Hendricks in “Employee Salary & Benefit Surveys: Uses & Importance”.

Architectural firms in bigger cities such as Houston or Dallas, for example, will have a higher starting salary range for hiring recent college grads, than say architectural firms in smaller cities such as Lubbock or Corpus Christi.

Because employment conditions can change frequently it is recommended that compensation studies be performed at least every three years.

Benefits of Compensation Studies

There are many benefits of utilizing compensation studies including:

Saves Time and Resources

If you undertake a comprehensive compensation study, then you can use it for the next three years, saving your HR staff valuable time. Without a compensation study, each new hiring initiative or employee salary negotiation, requires your HR staff to seek current compensation information from multiple sources.

Accurate Compensation Packages

With the benefit of a compensation study and benchmarks, your company may rely on salary data that puts them at risk by under spending on employment positions, and missing out on top talent, or overspending, and cutting into profits. For HR and other departments, compensation studies can be used to convince CEOs and other upper-level management of fair salary ranges for new hires and current staff.

Competitive Position and Employee Retention

Your business does not operate in a vacuum, so you compete with competitors for the talent in your industry. Compensation studies will give you a complete picture of current labor conditions and what a competitive total compensation package (including bonuses, incentive, and benefits) should be for top talent. A study by consulting firm Robert Half found that 38 percent of employees leave their jobs because of “inadequate salary and benefits.”

Creates Culture of Transparency

While just 36 percent of Americans overall are willing to talk compensation with their friends, nearly half of millennials are comfortable doing it. This culture of transparency will continue to grow as millennials take over the workforce and baby boomers retire, since those ages 18 to 36 are four times more likely to discuss salary with others than workers ages 53 to 71, according to the Wall Street Journal.

Small Businesses and Compensation Studies

Small businesses should not shy away from compensation studies because they think they are too small to benefit or that it will take up too much of their resources.

Compensation software platform PayScale says, “a strong employer brand starts with a strong pay brand, and your existing employees are your most vocal advocates when it comes to that pay brand. Small businesses thrive on employee referrals, and your employees need to know about the investment you’re making in compensation and benefits.”

Many small businesses will agonize over making purchase decisions because of limited budgets and do their due diligence before clicking “buy”.

Yet, many small businesses rely on “gut feelings” and little objective data to base their salary policies, even though those decisions have a huge impact on the company’s finances.

Most small companies will find that compensation studies will pay for themselves within the first few hires while saving your HR team time and energy.

Contact Employer Flexible today to find out how we can help your small business with its HR needs from employee benefits to payroll management.


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