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How to Analyze Salary Data

by Ruth Mayhew

Human resources compensation specialists and HR consultants with special expertise in compensation and benefits often conduct salary analyses to determine competitive wage setting, establish compensation structures, comply with federal rules on compensation analyses for parity between the sexes or to determine whether your organization's pay is on par with the labor market and surrounding businesses.

Wage Setting

If you're a startup organization in the beginning stages of projecting your operating expenses, you may be analyzing salary data to determine how competitive you can be in the marketplace. For this type of analysis, you need labor market information, salary surveys from industry competitors and wage information for similar jobs in your geographic area. Obtaining salary data directly from your competitors can be a challenge unless you're a member of business community or belong to the chamber of commerce in your area where you can build professional networks with other similar businesses. Use online salary data from reputable sources -- such as human resources consulting firms or professional associations -- that have obtained salary information directly from employers. User-generated salary data that you can find on company review sites, such as glassdoor.com or indeed.com may be unreliable or inaccurate data.

Compensation Structures

Employers often review their compensation structure when there are changes to the organizational structure, business expansion and access to lucrative markets that will increase business demand. If you are considering a compensation analysis to potentially restructure your company's current structure, obtain complete data on all current wages. Review your organization's financials with the chief financial officer, CEO and HR leader to determine the extent to which increasing your company's profitability allows you to develop a new compensation structure. Analyzing salary data for business growth should be forward-thinking yet cautious so as not to raise wages so much that your performance is always driven by payroll obligations

Federally Mandated Analysis

Federal government contractors may be required to analyze compensation as part of a compensation-focused compliance review. The U.S. Department of Labor Office of Federal Contract Compliance Programs, or OFCCP, enforces affirmative action regulations for government contractors. Compensation reviews ensure pay equity and nondiscrimination in pay practices. A compensation review for affirmative action purposes may include analyzing compensation according to gender, race and age. When the OFCCP requests compensation data, it's looking to see whether your company properly classifies positions, compensates employees equitably, without regard to nonjob-related factors such as gender, race, national origin, age, disability or veteran status.

Methodology

You needn't be a government contractor to use federal standards for assessing whether your company's compensation practices are fair. The OFCCP previously issued voluntary technical guidance for contractors to conduct their own review before the government compelled production of their salary documentation for formal audits. The government rescinded that technical guidance in favor of more user-friendly analysis steps and less burdensome data collection. In February 2013, the agency released "Directive 307 - Procedures for Reviewing Contractor Compensation Systems and Practices," which is freely available and often useful for companies searching for a systematic approach to analyzing salary data.

About the Author

Ruth Mayhew began writing in 1985. Her work appears in "The Multi-Generational Workforce in the Health Care Industry" and "Human Resources Managers Appraisal Schemes." Mayhew earned senior professional human resources certification from the Human Resources Certification Institute and holds a Master of Arts in sociology from the University of Missouri-Kansas City.

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