The 5 W’s of compensation audits
When it comes to compensation, ensuring that all of your employees are paid fairly for their work should be at the top of your priority list. One way to verify that your workers are sufficiently compensated is to conduct an audit. Use these 5 W’s of compensation audits to ensure you offer your employees equitable pay.
What is a compensation audit?
A compensation audit, also called a pay audit, identifies how you compensate your employees and how much pay they receive. These audits can help determine any discrepancies or compensation inequalities among employees that are doing the same or similar work. Pay audits are also helpful in discovering what factors to consider when deciding on compensation, such as experience, performance, or amount of time working at a business.
Compensation audits look at the current state of an organization and how employees are paid. This is done by collecting and analyzing data points that impact compensation, including:
- Job title, function, department, and level
- Employee’s gender and race
- Current Salary
- Additional bonuses or benefits
- Hours and overtime worked
Once data is collected and analyzed, employers can use this information to make decisions on adjustments in compensation and work to correct any pay inequalities in the workplace.
Why are pay audits important?
Besides providing employers with valuable information about how they compensate their workers, these audits can also reap positive benefits for you and your team. Taking proactive steps to review your compensation plan can show your dedication to employees for providing fair and equitable pay. They help reinforce your company’s philosophy on compensation, sending the message to your employees that you not only value their work but also are making an effort to ensure a positive work environment. This effort can improve worker attitudes, productivity, and staff connections.
When is the best time to conduct a compensation audit?
As the end of the year approaches, and you may be considering additional bonuses for your employees, it is an excellent time to perform a compensation audit. Evaluating pay can provide valuable information that may help you determine what kind of compensation you intend to give your employees as a bonus. But in reality, there is never a wrong time to conduct a compensation audit. Whether you just recruited some new hires or you’re thinking about giving out raises to your experienced employees, performing a pay audit can be a tool that’s useful year-round.
Who is involved in the process?
When your business decides to perform a compensation audit, it’s essential to know what key players are taking part in the process. The first people to include are your payroll and human resources departments since they are directly involved in managing employee time, pay, and performance. However, you may also want to include other financial team members since they have an overview of the business’s financial state. It is also essential to get the leadership team involved since they will likely be the ones making executive compensation decisions and communicating any changes to employees.
Compensation audits can also involve third parties outside of your organization. Your company may seek legal counsel if it fears being sued for pay inequity or is unsure what legal grounds to cover. You may also consider bringing in a compensation expert to perform a pay audit since collecting and analyzing data can often be time-consuming, complex, and labor-intensive. At Compensation Works, we specialize in pay equity analysis. We use proprietary tools to review various factors to identify pay gaps and weaknesses in pay practices that may lead to these pay inequities. Our consultants provide recommendations to achieve and maintain pay equality, taking the guesswork and pressure off your leadership team and making compensating your employees much easier.
Where do I begin?
A good compensation audit starts with a good plan. Setting goals and identifying your core purpose for conducting an audit is critical. This step will ensure that you are collecting the correct data and using it to drive decision-making surrounding your employee pay. The next step is to get everyone you intend on having involved, such as leadership and financial teams, on board with performing a pay audit. All of this might be easier said than done, but it is a vital part of conducting a compensation audit that will give you the results you need.
Compensation audits are an extensive but necessary part of ensuring your employees are fairly compensated. They not only ensure legal compliance for your business but can also boost company morale and employee attitude. And who doesn’t want that?
Need help conducting a pay audit? We know someone who can lend a hand. Contact us today to see how we can help you take the next steps in your compensation audit.