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When You Need a Compensation Analysis
Before a merit cycle opens
Running a compensation analysis before opening the merit cycle gives HR and Finance visibility into where the budget will have the most impact: which job families are most below market, which employees have the most significant compa-ratio gaps, and where compression exists that will require equity adjustments separate from merit. Without this analysis, merit budget is allocated based on manager advocacy rather than data.
After a period of rapid hiring
Rapid hiring, particularly in competitive talent markets where new hires are brought in at or above band midpoint, consistently creates compression for tenured employees. A compensation analysis after a hiring surge surfaces the compression before affected employees leave rather than after.
In response to pay transparency law changes
When your organization enters a new state or jurisdiction with pay transparency requirements, a compensation analysis validates that your salary ranges are grounded in documented methodology and defensible against regulatory review before you are required to post them.
Before or after an acquisition
Acquisitions bring together two organizations with different compensation structures, pay philosophies, and grade systems. A compensation analysis of both organizations is the foundation for harmonizing the two structures in a way that is equitable, defensible, and financially sustainable.
Step 1: Define the Scope and Objectives
Before pulling any data, document what the analysis is designed to answer. Is the primary objective market competitiveness, pay equity, compression identification, or a combination? The objective determines which data fields are required, which analyses to run, and what the output should look like. Undefined scope leads to analyses that answer the wrong questions.
Step 2: Gather and Clean Your Compensation Data
Required data fields
Current base salary, job grade and level, job family, demographic information (gender and ethnicity at minimum), location, tenure, most recent performance rating, and date of last salary adjustment. Benefits and equity grant data are required for a total compensation analysis.
Common data quality issues to resolve first
Employees without grade assignments should be reviewed and graded before inclusion. Part-time employees should have their salaries converted to full-time equivalent before comparison. Employees in transition (new hires in first 90 days, employees mid-promotion) may need to be excluded or handled separately. Missing demographic data should be sourced from employment records where available.
Step 4: Calculate Compa-Ratios Across the Organization
Individual compa-ratio review
Calculate the compa-ratio for every employee: current salary divided by the midpoint of their salary band times 100. Flag employees below 80 percent as potential flight risks and employees above 120 percent as potential compression sources.
Group compa-ratio review by department
Calculate the average compa-ratio by department, job family, and grade cluster. Departments with average compa-ratios below 88 to 90 percent may have systematic underpayment that requires band updates or targeted equity adjustments rather than individual-level corrections.
Step 5: Run a Market Competitiveness Check
Matching roles to current survey data
Pull current market data for each job family using your configured survey sources and blend weights. Age the data to the current date. Compare your salary band midpoints to the market reference points for each family. Job families where your midpoints are more than 8 to 10 percent below the market reference point require band updates.
Identifying roles that are significantly below market
For roles where the band midpoint is competitive but individual employees are paid significantly below midpoint, the issue is individual pay positioning rather than an invalid band. These employees require targeted merit or equity adjustments rather than a band change.
Step 8: Quantify the Cost of Remediation
For each category of finding (band updates, equity adjustments, compression corrections, market adjustments), calculate the annual payroll cost of bringing affected employees to the target position. This quantification is what enables Finance to approve the remediation plan as a specific budget line rather than an open-ended commitment.
A Compensation Analysis Is Only as Good as the Data It Starts With Compensation analyses that run from spreadsheets take weeks to set up and produce results that expire within a quarter. CompBldr gives you the governed compensation data infrastructure that makes a nine-step analysis a regular process rather than an annual fire drill. Book a 15-Minute Demo
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