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3 Reasons Why You Need a Compensation Study

/ October 11, 2020 October 11, 2020

As competition for talent continues to tighten in this employee-centric market, compensation studies are useful tools to help retain and attract talent. These studies determine the market value of each job, benchmark salary ranges, propose equitable salary ranges for managers and ensure internal parity.  In order to remain competitive, it is recommended that organizations conduct compensation studies every three years. It’s not only a best practice to complete compensation studies but it also has three key benefits.

What is a compensation study?

Compensation studies analyze your current pay practices and determine if they are competitive for your industry and geographic location. They can also help determine if your employee’s salaries are in compliance with current employment, state, and federal laws.

1. Save Time

As you probably know, there are many free compensation resources online. However, pulling compensation information from various sources and trying to interpret it consistently can burnout your team’s resources.  Using fragmented and inconsistent data also puts your business at risk of creating weak internal pay equity and potentially over or under spending on certain positions. Without a baseline understanding of your compensation philosophy, it’s challenging to effectively determine compensation for employees in various roles.

2. Accuracy

There is a fine line when determining salary; you don’t want to underpay and risk losing talent and you don’t want to overpay and negatively impact your bottom line. Compensation studies help you understand what the market is demanding for certain positions. They also help build the business case for salary levels that can be shared with your CEO or CFO. According to a post by, “Salary surveys are important enough that a full 80 percent of human resource professionals said they were consulting them in their business.” A compensation study will give you an accurate and unemotional third-party perspective on your employees’ pay.

3. Create a culture of transparency

Historically, there was a sense of secrecy around compensation. This has changed since millennials entered the workforce, As younger employees who value transparency enter the workforce, it is critical for employers to have a clear and consistent compensation strategy. A good compensation study serves as the foundation of creating this strategy so that all your HR representatives and people managers can clearly communicate pay decisions while staying consistent.

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