Are you likely to lose your sales reps to higher-paying jobs? If you haven't conducted a compensation analysis recently, the answer might be yes. This important tool helps businesses understand their market position and whether their employees are among the small group of 34% of Americans who are satisfied with their pay. 

Read on to learn more about this essential business assessment and how to conduct it using data-based tools that save you time. 

What Is Compensation Analysis?

Compensation analysis involves assessing employee compensation to ensure it is fair and appropriate. Compensation may include commissions, bonuses, and other payments to sales reps. 

A competitive analysis looks at the following key data:

• Market data
• Internal comparisons
• Benefits and incentives
• Legal requirements
• Performance metrics

Companies use this information to determine whether they pay sales reps too much or too little. They may be doing both in some cases, as not all reps are paid the same. 

Why Is a Compensation Analysis Important?

A proper compensation analysis guides companies on how much to pay their employees. Without this, organizations may struggle to keep employees or risk spending more than required. Compensation analysis helps companies strike the right balance between rewarding teams and meeting these larger corporate goals. 

Breaking it down further, there are additional benefits for companies that regularly review their compensation plans and adjust them accordingly. 

Pay Equity

The analysis takes a data-based approach to deciding what to pay people, which can reduce bias and ensure fair wages based on the work done. Instead of using arbitrary compensation ideas, the analysis looks at objective criteria like experience or role level.

Not only does this create a more equitable environment, but it also helps companies avoid legal trouble. The U.S. Equal Employment Opportunity Commission (EEOC) defines pay discrimination as paying someone differently based on their “race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, disability, age (40 or older), or genetic information.” If a compensation analysis reveals patterns of even unintentional pay discrimination, you can make the necessary changes to comply with the law. 

Enhancing Talent Retention, Employee Satisfaction and Recruitment

Compensation analysis tells leaders if their pay practices are enough to attract top talent. This information allows leaders to adjust to market conditions and hire the best employees for available roles. Compensation analysis also helps with retention by informing pay raises, bonus plans, and other perks needed to keep the employees they already have. 

Currently, employees only stay at a company for an average of 3.9 years (down from 4.1 years in 2022). Wage improvements may be the key to keeping sales reps on board for longer, even in tight labor markets. It may only take a pay adjustment to see a difference in your recruiting efforts and overall cost-per-hire (CPH).

Aligning Compensation with Business Objectives

By evaluating compensation structures, businesses can ensure that their compensation plans and pay structures incentivize the right behaviors. For example, if a company wants to increase customer conversions or overall deal size, the compensation analysis can reveal if the current compensation encourages that.  

It can also draw a connection between company performance and earnings and the sales rep’s role. If pay doesn’t reflect the sales rep’s contribution, it can be adjusted to optimize sales performance and drive overall growth.

Incentivizing Reps

Compensation analysis can tell you how much you need to pay your reps to keep them happy, working hard, and pushing past quota. This information is especially vital for sales positions where bonuses and sales commissions make up the bulk of pay, as compensation formulas aren’t as straightforward as they are for hourly wage earners. 

A data-backed analysis gives you the roadmap for rewarding high performers so they feel appreciated for their good work. It also gives you a better understanding of how much pay they need each year to continue performing at their current pace, especially in light of inflation or other economic factors. 

How to Conduct a Compensation Analysis

Here are the steps for conducting your own compensation analysis.

1. Define Objectives, Stakeholders, and Timeline

The first step of a compensation analysis is to decide its ultimate purpose, identify stakeholders, and set up timelines for completion. This is also the stage where you define parameters for assessing the success of your analysis — how you will know if it worked.  

Clear objectives for your analysis might include:

• Ensuring compensation packages match market demand
• Addressing issues of pay fairness
• Complying with legal or regulatory requirements
• Aligning pay with corporate budget needs

Stakeholders who can help set goals and provide accountability include:

• Department heads
• Human resources
• Finance managers
• C-suite leaders

With input from stakeholders and a solid understanding of your goals, define how you’ll measure success. It could be based on employee churn numbers, sales performance metrics, feedback from an employee survey, or resolution of an issue such as a legal action. 

You’ll also need a timeline for measurement and assessment.

Here are some sample goals:

1. Create a performance-based commission structure that meets overall corporate budget goals by the end of the fiscal year.
2. Identify any unnecessary or discriminatory pay gaps by Q1 of 2025. 
3. Determine if compensation is competitive enough to attract new reps and reduce churn in the next year. 

Each goal should be clear and independent of other goals, but you can create more than one. 

2. Gather Internal Compensation Data

You’ll need accurate data for a useful compensation analysis, or your results won’t properly reflect what you pay your reps or any existing gaps. Aim to get the most recent and complete version of data from the following sources:

• HR records, which can outline the compensation details for each position and employee
• Finance department reports that explain the compensation budget and pay-related expenses
• Payroll software that shows historical pay for a given role
• Performance management systems that provide detailed information on bonus structures, sales quotas, and performance awards

A compensation management platform like CaptivateIQ makes it easy to integrate all this data into a single source of truth.

3. Collect External Market Data

The outside data you use in compensation analysis is very valuable, as it ensures pay decisions aren’t biased to your own understanding and better reflect the conditions of the overall market. It factors in the state of your industry, competitors, and the context in which you operate. 

External data sources may include:

• Salary surveys that show what reps are paid at similar companies around the country.
• Industry reports with insights on economic conditions, law changes, and trends unique to your industry. 
• Online databases from Salary.com, Glassdoor, and Payscale.
• Conversations with peers and colleagues who work in the field.
• Government agency reports, such as those from the U.S. Bureau of Labor Statistics (BLS)
• Job postings from other companies that include salary ranges.

With this outside perspective, you’ll have a better idea of how your compensation plan reflects the conditions in your industry.  

4. Analyze and Compare Data

By comparing your internal data findings with the external benchmarks, you can see where you fall short with your compensation plan. 

Here’s a breakdown of what happens in the data analysis stage:

• Standardize the data so that you’re comparing the same data types (job titles, units of compensation, time periods for commissions).
• Prepare reports to help stakeholders view data meaningfully, including visuals (charts, graphs, etc.) and summaries of findings.
• Validate the findings with stakeholders and those who shared data to ensure accuracy and relevance to their work.

The process doesn’t have to be completely linear; make adjustments as you go as new information becomes available. For example, a new industry report on commission structures for energy sales could give you clarity on your existing bonus structures. Word-of-mouth information about what your competitor now pays new employees could help you address your own pay gaps. 

Automating this analytical stage with a solution like CaptivateIQ saves significant time and effort, allowing you to get results and utilize data much faster.

5. Develop and Implement Action Plans

Use the findings to create an action plan, which will typically entail changing your compensation in some manner. It could include increasing some pay types for certain positions while leaving or reducing others. The plan should be specific and leave no question of the compensation for each and every position within your organization.

Things to include in your action plan include:

• Summary of findings, including key issues such as pay gaps.
• Objectives for addressing the issues.
• Detailed plans for salary adjustments, new benefits plans, or bonus structures.
• Implementation plan, including timelines, resources needed, and the people carrying out the changes.

The action plan should be written by someone who understands both the needs of the sales department and the organization as a whole. Sales managers, operations managers, and financial professionals might consider bringing someone from each team to add this input.

6. Communicate Changes

Sales reps can be resistant to change in their compensation plans, especially if there’s potential for them to initially earn less than they’re used to. A clear communication plan reduces confusion and helps them understand the intent behind changes. To increase buy-in:

• Include all stakeholders in the communication plan, such as payroll, HR, etc., so they can offer input into the best way to share the changes. 
• Be transparent about the reason for the changes and how they came about.
• Give ample time for questions from reps and offer one-on-one feedback sessions, if possible.
• Create an ongoing feedback channel for additional questions or concerns after the update rollout. 

Expect at least some resistance in the beginning and possibly even employee churn. Keep HR in the loop so they can assist during this time. 

7. Monitor and Reassess Regularly

Tracking compensation changes is important to ensure you meet your initial goals:

• Measure performance, budgets, and other metrics for a set period of time after the changes.
• Compare them against set benchmarks, as well as the time period before the changes took effect.
• Make any necessary adjustments, but only after enough time has passed for a true assessment.
• Communicate changes as you make them, using the same processes as before.

There’s no such thing as a one-and-done compensation analysis. Figure out a reasonable review cadence for your organization, and conduct a new analysis each time. Some organizations do this quarterly or annually. Because you’ve already created many of the processes (goal setting, communication, etc.), subsequent analyses may be more efficient than the initial analysis. 

How CaptivateIQ Supports Compensation Analysis

CaptivateIQ is a sales compensation management platform that simplifies compensation analysis. It takes the hassle out of planning, executing, and analyzing compensation by offering the following benefits:

• Automated collection and analysis of compensation data from different places.
• Centralization of compensation planning according to internal rules and policies.
• Transparency around decision-making through automated documentation and reporting.  
• Actionable insights from real-time data visualization and analytics. 

We recommend regular compensation analyses using data-driven technology like CaptivateIQ to ensure your compensation plan is up-to-date and competitive for the hiring market.

Ready to upgrade your compensation strategy? Sign up for a CaptivateIQ Incentives demo today.

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