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Compensation Intelligence: The Importance of Compensation Strategies

, | Jan 19, 2022 6:00:00 AM | By

It’s no secret that compensation is often a business's biggest expense. Nor that, for job seekers, it can be the most personal and stressful aspect of getting hired. I can still physically recall the depth of my own nervousness when negotiating offers in the past.

 

Compensation has never been more critical to the business nor more complicated. Getting compensation strategies right allows leaders to hire and grow talent to scale their business - which is the key to survival and success for any company. Add today’s realities to those evergreen dynamics — new state regulations requiring pay transparency, employee advocacy, and the Great Reshuffle, where 65% of employees are seeking new jobs, — and the nuances get more complex.

 

Executives and boards of the world’s fastest-growing companies agree that compensation is a critical issue. 

 

They say their organizations’ growth, competitive advantage and reputation depend on their ability to use compensation intelligence — and increase offer acceptance, keep high-performers longer, and cultivate cultures built on trust.

 

But what exactly is compensation intelligence? What does not fit under the umbrella of compensation intelligence? And how can mastering the difference elevate company performance and its brand as an employer? 

 

Compensation Intelligence, Defined

Compensation intelligence is the practice of confidently making the best decisions for your business — anywhere compensation is concerned. 

 

Yes, hiring and recruiting involve compensation. And so do performance management processes and promotions, as well as initiatives involving Diversity Equity & Inclusion (DE&I). But compensation touches more aspects of business than you might immediately think. It influences:

  • Team productivity
  • Employee morale
  • Retention of high-performers
  • Cash runway
  • Stock option dilution
  • The company’s reputation — with candidates, employees, partners, investors, and board

Sophisticated compensation strategies include collecting, analyzing, and acting on market-leading compensation data. How do you do it right? By acquiring reliable and accurate compensation data and benchmarks. 

 

Compensation data and benchmarks are reliable when they are specific to your company stage, industry, funding size and employee count — and when they can be parsed for individual roles, years of experience, and location.

 

Why Does Compensation Intelligence Matter?

The world’s fastest-growing companies rely on compensation intelligence to confidently produce reliable outcomes, such as:

  • Delivering transparent offers
  • Inspiring candidates to confidently say yes
  • Clearly communicating career pathways, as well as salary and equity bands
  • Empowering high-performers to thrive at the company for a long time
  • Cultivating cultures of trust and transparency
  • Measuring diversity, equity, and inclusion (DE&I)
  • Quantifying all of the above.

Compensation intelligence can also enhance accountability and governance, helping business leaders answer the following questions:

  • Do we have gender parity?
  • Do we pay different genders and ethnicities equally?
  • Where are our blindspots?
  • Where might bias be at play?
  • What actionable steps can we take to address issues?
  • How does our performance rank against our peers?
  • Are we making progress over time?

With compensation strategies, business leaders move past intentions to data-driven actions and outcomes. Instead of just talking, they make things happen. 

 

What Compensation Intelligence Is Not

While things like interactive offer letters and automated recruiting processes help efficiency and transparency, they are no substitute for the clarity of compensation intelligence. 

  • Compensation intelligence is not like most benchmark data. It is not stale by quarters or years.
  • Compensation intelligence is not a traditional compensation survey. It is not manually reported by employees. Compensation intelligence can be verified. 
  • Compensation intelligence is not one-size-fits-all. Most comp data compares public companies’ compensation information to salaries and equity at startups of any size. Apples are not oranges.
  • Compensation intelligence does not equate roles that shouldn’t be compared. While most compensation surveys level a senior manager at a public company with an individual contributor with the same title at an early-stage startup, compensation intelligence is intelligent. It identifies the difference.
  • Compensation intelligence is not a best guess. It does not involve asking your peers for help or relying on your past experience. Compensation intelligence doesn’t involve simply offering candidates more than they currently make.

Compensation intelligence offers benchmarks that are built on data that’s fresh and relevant for your company—down to the size, funding stage, and industry, and location. It offers you the ability to parse information by role, years of experience, location, gender, and ethnicity.

 

The Benefits of Compensation Intelligence

When companies use these compensation strategies, they produce three primary benefits.

  • Make data-driven operating decisions.

Compensation intelligence allows company leaders to act as responsible stewards of capital invested in their businesses. What’s the best way to build your team? What do potential promotions cycles or acquisitions mean for cash burn and your option pool? What about new fundraising rounds? Compensation intelligence answers these questions.

  • Bring clarity and precision to the entire employee experience.

Attracting and retaining exceptional employees is a complex process. Compensation intelligence can help you:

    • Increase offer acceptance
    • Deliver transparent offers
    • Communicate career pathways 
    • Share salary and equity ranges 
    • Simplify promotions 
    • Streamline performance management

Compensation strategies don’t just simplify initial offers; it clarifies development opportunities. And when you use it to communicate salary and equity bands for unique roles, employees trust the future value of potential promotions.

  • Enhance accountability and governance 

Intentions are meaningless without action and outcomes. With compensation intelligence, employers eliminate information asymmetry and more effectively bridge the pay disparity that plagues today’s workforce. It also helps to institutionalize fairness and transparency in their organizations, so the future is built on equality.

 

The stakes are too high for high-growth companies to operate in the dark when it comes to compensation, but the rewards of getting it right are even greater. Intelligently managing this aspect of your business will help you scale faster, stay competitive, and level the playing field. 


 

You can also start using compensation intelligence for free!

 

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Caitlin Allen is VP Marketing at OpenComp and has served in similar roles at Happy Returns, Lyft, and Andreessen Horowitz. She also writes about topics including marketing, sales compensation, and happiness. Connect with her on LinkedIn here.