How to Better Connect Finance and HR
Finance and HR now have a powerful, data-rich tool with which to cooperatively manage compensation strategy and its impact on the business. PayScale’s Insight product team recently released an executive summary reporting tool that succinctly provides the information finance and HR leaders need to ensure that the company’s compensation strategy yields its promised returns. The report gives finance and human resources a dashboard that lets both know when the compensation engine is humming, and also provides warnings of potential issues.
Dashboards Manage Complexity
Compensation strategists deal with a lot of numbers, so do financial professionals. Finance, though, must deal with numbers from across the organization, so finding ways to provide insight with as few rows and columns as possible makes cooperation possible. Since the market conditions that impact compensation strategy move quickly, it is important to have information that moves as quickly, according to Geary Eppley, Vice President of Business Products at PayScale.
Two Numbers You Need to Share
Compa-ratios and range penetration metrics, well known to compensation professionals, are excellent metrics to share with finance in managing compensation strategy, according to Eppley. Among their advantages is that they provide meaningful, high-level views of performance, as well as allow for deeper drill-down. For those new to compensation strategy, here is how to think about these key numbers:
- The compa-ratio’s great advantage is in its flexibility. It provides a measure that employee pay in relation to the midpoint of their pay ranges. This can be calculated at an employee, group or organization level. If your organization has a compa-ratio of 1.02, it means that the organization is, overall, paying employees 2 percent over midpoint.
- Range penetration provides insight into the relationship between an employee’s base pay and the maximum pay for their range. As this number gets close to 100 percent, it may require re-assessing overall strategy or execution.
For a more detailed look at these metrics, read “Compensation Metrics Defined” and “Create a History of Pay for Performance.”
Test Your Targets
Be sure to check your how closely your company is adhering to its overall market compensation targets. Most companies will find that they are paying +/- five percent, and that’s fine, according to Eppley. If you determine that you are off target, you need reexamine your plans.
You should first take a look at the proficiency of your workforce. If your workforce disproportionately consists of new employees who are not yet proficient you will likely fall below your targets. On the other hand, if many of your employees are long-term highly skilled workers, your overall pay rate will likely be higher than expected. You might also review your overall strategy or consider some small adjustments. In any case, a meeting with your compensation strategy consultants will assist you in determining the best course of action.
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