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Why You Need to Use Data to Inform Your Compensation Strategy

Jul 5, 2023| Reading time: 5min

BY Sharon Rusinowitz

Director of Content Marketing

Creating a fair and competitive compensation strategy that’s bias-free and based solely on merit is a must for People teams. And while appointing great managers with strong instincts about compensation and progression might seem like enough on the surface, it will only get you so far.

You simply can’t 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.

What you really need to create an informed compensation strategy is data, including performance data and market trends. This type of data empowers your People team to identify star performers, weed out any gender or racial bias already in your payroll, and create a compensation plan that is both fair and competitive.


Data Allows You to Focus on Results in Your Compensation Strategy

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

Without data, your compensation plan may be biased according to personal relationships and other extraneous factors. People with better personal connections may get promotions over others who are performing better, as even the most competent and fair-minded managers can subconsciously favor certain employees. And when that happens, team members can easily feel overlooked.

You can use data to solve this problem by basing your compensation plan and promotion criteria on clearly defined metrics that apply 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 resolve within a day of being opened

You can then create promotional thresholds based on these KPIs, using your data to assess who exceeds 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.

comprehensive view for effective compensation management planning

Plan more effectively with a comprehensive view of performance ratings, equity, compensation, salary history, bands, and more — all in one system.

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

The world has spoken quite a bit about gender and racial pay disparities over the last several years, but a 2023 report from Pew Research shows that we still have a long way to go. For example, in 2022, American women typically earned 82 cents for every dollar earned by men, a number that only increased by two cents since 2002. And that gap only widens when adding race and ethnicity into the mix, as Black women earn 70% as much as white men and Hispanic women only earn 65% as much.

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.

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.

Reviewing industry-wide imbalances in compensation can help you identify the best areas to look within your own organization, such as evaluating compensation based on race, gender, and even in-office vs. remote employees.

Data Allows You to Remain Competitive with Your Compensation Strategy

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

Of course, we’re not just talking about salaries. Benefits and wellness provisions matter too. According to Headspace, 93% of CEOs agree that it’s important that their company encourages the mental health of employees.

So how can you keep track of what others are doing? Start by consulting data sources about how your industry and any specific competitors approach compensation. For example, sites like PayScale run a number of surveys you can use to create compensation benchmarks for competitive salaries that can help minimize pay and benefits related turnover.

And don’t forget that when it comes to employee satisfaction, data isn’t just quantitative. Scouring your competitors’ Glassdoor profiles can give you a great idea of how others in your industry pay their team members as well as any areas of their compensation strategies that leave employees wanting more. You can then use those windows to identify where to best invest in compensation and overall employee wellness to stay ahead of the curve.

The Better Your Data, the Better You Can Act

It’s easy to say all the right things about creating a fair work 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.

Ready to get started? Check out ChartHop’s Total Compensation Quick Start Guide


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