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Why You Need to Use Data to Inform Your Compensation Strategy

Aug 18, 2021| Reading time: 8min

BY Sharon Rusinowitz

Director of Content Marketing

An entirely meritocratic, empirical, bias-free approach to compensation strategy is every HR professional’s dream. Appointing great managers with strong instincts about compensation and progression might seem like enough on the surface, but it will only get you so far. What you need to create a truly informed compensation strategy is data.

You cannot recognize and reward excellence purely on the basis of a manager’s gut feeling. Left up to instinct, all kinds of things can get in the way — sadly, that very much includes biases, conscious or otherwise, relative to factors like gender, race, and class.

In order to make informed decisions about your comp strategy, your HR leads need to consult both performance data and insightful market trends reporting. A data-based approach to compensation will allow you to identify your star performers, weed out any gender or racial bias already in your payroll, and create a comp plan that is both fair and competitive.

Data Allows You to Focus on Excellence

A data-based comp strategy allows your HR team to measure and reward your employees’ performance more accurately.

Without data, your compensation plan will be biased according to personal relationships and other extraneous factors. Even competent and fair-minded managers can subconsciously show promotional favor to an employee with whom they have a great personal rapport. But this will justifiably leave employees who are performing better, but who don’t have the same quality of relationship, not just being overlooked but feeling overlooked too.

You can use data to solve this problem by basing your comp plan and promotional criteria on transparently defined metrics that apply the same way to everyone. The best way to do this is to create measurable KPIs that demonstrate the amount of value your employees bring to your company. For example:

  • For product managers: KPIs based on the proportion of new annual recurring revenue their product brought in
  • For sales reps: KPIs based on how many upsells/new contracts they secured
  • For growth pros: KPIs based on how many activations they secured in their user sector
  • For support teams: KPIs based on how many tickets they’re resolving within a day of being opened

You can then create promotional thresholds based on these KPIs and use your data to assess who’s exceeding those thresholds and deserves a pay bump. For instance, let’s say your promotion criteria requires a product manager to be responsible for a product with an ARR of more than $100k to be eligible for a raise. The product manager who reaches this threshold should be promoted without asking for it, while the others have a clear target in their head to strive towards.

ChartHop compensation planning

This kind of data-based system rewards excellent performance, not someone’s assertiveness in requesting a pay raise at a yearly performance review or their knack for getting along well with the manager recommending them.

Data Allows You to Eliminate Bias From Your Compensation Strategy

Data allows you to eliminate bias from your compensation strategy by demonstrating any imbalance in your pay structure relative to factors like gender and race.

Progress has been made in reducing gender and racial pay disparity, but ChartHop’s research shows that pay disparities between race and gender still exist. For example, men earned 22% more than women in 2020. In addition, White employees earn 44% more than their Black counterparts.

In recent times, plenty of companies have rightly turned their attention towards social justice — but it’s easy to talk the talk. Unfortunately, without a data-based approach to your comp strategy, you might end up reinforcing existing biases and inequalities through your compensation plan instead of correcting them.

ChartHop’s research reveals that pay disparities between race and gender still exist.

To avoid making this mistake, collect data on how your wage structure relates to the different demographics represented in your company. You need to know, for instance, how your Black employees on each team are paid compared to their White or Hispanic colleagues. Likewise, you need to know how your female employees are compensated compared to your male ones.

ChartHop compensation planning data by intersectional group

Then, collect data about industry-wide imbalances in compensation and make an effort to find out if they’re reflected in your payroll. For instance, our research shows that White employees earn 24% more than their BIPOC colleagues. Find out if this imbalance is reflected in your own payroll and, if you find that it is, address it.

Likewise, we found that men on engineering teams make 7% more than women on engineering teams. Again, find out if your engineering team reflects this disparity and, if so, make targeted improvements.

Data Allows You to Remain Competitive

Data is not just important for keeping your comp strategy fair — it’s also crucial for keeping your compensation competitive against other players in your industry. Without a competitive comp strategy, you can’t expect to retain your existing talent and draw new talent.

You need data to see how you compensate your employees compared to others in the industry. Of course, we’re not just talking about salaries. Benefits and wellness provisions matter too. According to Glassdoor, almost 90% of employees actively expect their employers to focus on employee wellness.

Consult data sources relative to how your industry/competitors approach compensation. For example, sites like PayScale run a number of surveys that will help you create compensation benchmarks, helping you minimize employee turnover by offering more competitive salaries than rivals.

Don’t forget that, where employee satisfaction is concerned, ‘data’ isn’t just quantitative; it’s qualitative. Scouring your competitors’ Glassdoor profiles can give you a great idea of how fairly your rivals pay their team members, as well as any flaws that exist in their compensation strategies. Use those windows to find out if they underpay their employees and if they are bothering to invest diligently in employee wellness.

The Better Your Data, the Better You Can Act

It’s easy to say all the right things about wanting to create a fairer working environment and compensation strategy for your employees, one that truly rewards excellence and dedication. However, to actually make that happen, you need to be able to quantify that excellence using data.

Embracing a transparent, data-based compensation strategy provides a motivational boost to your whole company. Your employees know exactly what they have to do to level-up and don’t have to worry that they’ll be overlooked because another candidate has a stronger pre-existing relationship with management, or that they’ll suffer a likeability penalty.

It becomes all about performance — and that’s as it should be.

Using data to chart more equitable workplaces: ChartHop’s compensation insights

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