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Diving Deeper Into Rewards Practices

Monday, October 1, 2012
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If it ain't broke, don't fix it, as the old saying goes.

While compensation professionals' methods for making pay decisions may not be broken, a recent Mercer and WorldatWork study suggests they could at least use some tweaking to incorporate more sophisticated techniques.

The survey of compensation professionals at 560 organizations in North America finds most use techniques such as benchmarking among internal and external peer groups (95 percent and 90 percent, respectively) and ongoing reporting (87 percent) to make pay decisions in their organizations. Meanwhile, the use of more sophisticated analytical techniques -- projections, simulations and predictive modeling -- was significantly lower, at 80 percent, 64 percent and 43 percent, respectively.

"[These findings] are a great example of 'Because it's always been done this way,' " says Kerry Chou, senior practice leader with WorldatWork, based in Scottsdale, Ariz.

Compensation professionals in many organizations are also somewhat bound by leadership's desire to base pay decisions largely on external market data, adds Jack Dolmat-Connell, CEO of DolmatConnell & Partners, a Waltham, Mass.-based executive-compensation consulting firm.

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"Most executives and board members are most interested in what the market is paying, in terms of making these decisions," he says, "as most executives don't want to try and justify comp decisions based on projections."

Still, compensation and HR professionals should incorporate more sophisticated techniques such as projections, simulations and predictive modeling to augment benchmarking and reporting as analytic techniques, says Chou.

"One of the fundamental deficiencies of benchmarking and internal reporting is that you're primarily looking backward at what's already happened," she says. "These more sophisticated techniques ... help project what may happen in the future ... ."

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