Your employees may not be as happy about their pay as you think. In a recent report from Pew Research, only 30% of U.S. workers said they were satisfied with their compensation in 2024, down from 34% the previous year. That decline reflects the frustrations that push people to update their resumes and the tension many leaders feel when they're trying to keep great employees while staying on budget.

For HR and compensation leaders, this trend presents a clear challenge. You can’t control inflation or market volatility, but you can reduce dissatisfaction by making sure your pay practices are fair, competitive, and transparent. 

That’s where compensation analysis comes in. Done well, a compensation analysis will show you exactly where you stand and help you take the right steps to ensure you're paying your employees what they're worth.

What Is Compensation Analysis?

A compensation analysis is a review of how an organization is paying its employees, with reference to internal standards and external benchmarks. In other words, it’s a way of checking whether the philosophy your leadership has for compensation is actually working in practice.

A full analysis will take every element of pay into account, including:

• Base salary
• Variable compensation, such as commissions, bonuses, and incentives
• Non-cash elements like benefits, stock options, or equity grants 

Each component influences how employees feel about their pay, your compliance with regulations, and how well your pay structures align with the broader talent market.

There are three ways to do a compensation analysis: 

Internal equity analysis compares employees within the same company. Are people in the same role, with similar tenure and performance, paid similarly? If not, why? Internal equity checks ensure that your team members are being compensated fairly and equitably based on the work they do.

Market competitiveness analysis involves reviewing your pay against external sources like benchmark reports, industry surveys, regional cost of living data, and self-reported platforms. If your compensation packages are far below market, you’ll have trouble recruiting and retaining talent.

Pay equity analysis digs into potential disparities across demographics like gender, race, or age. Using statistical methods like regression analysis and compa-ratios, companies can test whether employees are being compensated fairly relative to their peers. With pay transparency laws on the rise, this analysis is increasingly becoming a legal requirement.

When combined for your annual or biannual reviews, these reviews provide a holistic view of your company's compensation health, uncovering any gaps that may need addressing. Companies that take action based on their compensation analyses are better positioned to enhance retention and incentivize their workforce to reach business objectives.

Legal and Compliance Considerations

Beyond improving employee satisfaction and retention, compensation analysis protects against legal and reputational risk. Pay equity lawsuits or failed audits can damage a company's reputation. A rigorous, well-documented analysis process helps organizations move from being reactive to taking preventative action.

Pay Transparency Law Requirements

The regulatory landscape around pay is changing fast. From California to New York, states are enacting pay transparency laws that require salary ranges in job postings or internal pay reporting. Failing to comply can result in fines and undermine recruiting efforts. A compensation analysis provides the data and documentation you need to comply with these laws and to show regulators, employees, and prospective hires that your pay practices are fair.

EEOC Guidelines and Best Practices

The Equal Employment Opportunity Commission (EEOC) states that compensation practices must be free of discrimination. But proving fairness requires evidence. Documenting pay equity analyses shows you've identified and addressed disparities before they become legal liabilities. This proactive stance not only reduces the risk of litigation but also strengthens your reputation as an employer.

Documentation and Audit Trail Requirements

Audits are only as strong as the paper trail behind them. A compensation analysis should produce a reliable record of data sources, statistical methods, findings, and remediation decisions. This documentation can be invaluable for compliance checks and other audits. Beyond legal protection, it signals to employees and stakeholders that your organization treats fairness as a measurable, verifiable standard.

When to Conduct Compensation Analysis

A compensation analysis isn't a one-and-done project. Many teams make it a part of their annual or biannual planning cycles so that compensation decisions are based on fresh, relevant data. A regular cadence for reviews makes it easier to stay resilient to any big changes in the market, such as a new well-funded competitor or a sudden increase in the cost of living. Scheduled reviews keep compensation aligned with strategy, while still leaving room for ad-hoc analyses when unexpected changes happen. The following scenarios are the most common triggers for a mid-cycle review.

Organizational Triggers

Sometimes, internal events will require a fresh look at your compensation. Mergers, acquisitions, and restructurings, for example, often lead to pay disparities as different workforces with different pay structures come together. Meanwhile, high turnover can be a signal that your pay isn’t keeping pace with employee expectations. Running a compensation analysis during these moments helps keep your pay structures consistent and equitable while also reducing expensive employee churn.

Market Changes and Competitive Pressures

Markets don't stand still, and neither do your competitors. If other companies in your industry start raising base salaries or offering more aggressive commission structures, your ability to retain top performers could be at risk. A regular compensation analysis helps you stay aware of these changes and respond before losing ground. However, your team should also be monitoring competitor job postings, tracking where your departing employees are going, and setting up compensation analyses when any red flags are raised.

Shifts in Cost of Living

Among workers dissatisfied with their pay, the Pew Research report found that the number-one reason for that dissatisfaction was wages failing to keep pace with increases in the cost of living. Reports of rising inflation should prompt a compensation analysis so you can test whether your raises are actually covering those costs or whether employees are effectively earning less each year.

Step-by-Step Compensation Analysis Process

A thorough compensation analysis follows a clear sequence from start to finish. Below, you'll find a templated structure of each stage of the process so you can see exactly how to run one in your organization.

Define Analysis Scope and Objectives

Start by clarifying what you want to learn. Are you:

• Checking for any demographic pay gaps to comply with pay equity laws?
• Assessing market competitiveness ahead of a hiring push? 
• Evaluating whether incentive structures are driving the right outcomes? 

Clear objectives keep the analysis focused and actionable. In your regularly scheduled compensation analyses, you will likely have the same scope and objectives each round. Meanwhile, for ad-hoc reviews, your analysis can be more narrow to focus on the events or situations that led to the review.

At this stage, you should also identify relevant stakeholders who can help set goals and provide insight. These can include department heads, regional HR reps, finance managers, and members of your executive team.

Gather Internal Compensation Data

Pull together all relevant internal data. This includes:

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

Context, like job titles, tenure, and performance ratings, will also help account for any legitimate differences in pay.

Collect Market Benchmarking Data

Internal data is only half the story. To know if your pay is competitive, you need external benchmarks. 

CaptivateIQ’s Sales Compensation Benchmarks report, for example, shows average base pay and commission rates for sales reps across industries. Data from this year's report shows that monetary compensation — like cash bonuses and other tangible incentives — is more motivating than non-tangible compensation. Monetary incentives increase performance by an average of 22% for individuals and 44% for teams. This is data that teams can account for as part of their compensation analysis.

Other sources for external input include:

• Salary surveys from similarly sized companies in similar industries
• Industry reports 
• Online databases such as Salary.com, Glassdoor, and Payscale
• Conversations with connections who work in other organizations
• Government agency reports (e.g., from the U.S. Bureau of Labor Statistics)
• 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.  

Clean and Standardize Data

When you pull data from a number of different sources, job titles may vary, currencies may need conversion, and incentive structures might be recorded inconsistently. Take the time to align your data so that you can make apples-to-apples analyses and derive clear insights as part of your review.

Conduct Statistical Analysis

Do a thorough review of the data you've collected to pinpoint relevant trends and gaps. You can automate this process with a modern sales performance management system like CaptivateIQ. As an example, the platform uses machine learning to review payment processes, track commission trends for potential issues, and generate alerts for payouts that fall outside normal ranges based on historical data. 

Identify Pay Gaps and Disparities

The statistical results will reveal if and where issues exist, so that you can act on them. You'll be able to see whether you have disparities of more than 5% between comparable employees, or significant demographic gaps, for example. It will also show if you're significantly lagging behind your competitors with your compensation packages, putting you at risk of losing your high performers. At this stage, your role is to interpret the data and call out the gaps. You should also be asking whether the gaps are justified or whether they point to issues that need addressing in the short, medium, or long term. 

Develop Remediation Recommendations

Once the issues are identified, put together a plan to address them. This might involve adjusting specific salaries, revising pay bands, mapping out a new plan for bonuses, or redesigning incentive structures. Importantly, your remediation steps should balance fairness with financial feasibility. Closing these gaps shouldn't completely derail your budget or organizational goals. 

Create an Implementation Plan

Next, build a phased plan to roll out your remediation recommendations. An effective plan will summarize your objectives, have a clear timeline, and sensibly allocate resources and budget. It will also include a communication strategy to inform employees of any changes. The framing will be important here. Introducing adjustments as part of a broader commitment to fairness and competitiveness will go a long way to enhancing employee buy-in.

Free Compensation Analysis Template

To make this process easier for you, we’ve developed a customizable Excel-based template that includes space for role hierarchies and territory assignments, quota and commission structures, pay mix ratios, performance correlation analysis, and cost of sales calculations. It comes with built-in formulas, data validation, and clear instructions so you can focus on insights rather than formatting.

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Turn Compensation Analysis Into a Strategic Advantage

Compensation analysis is a strategic tool for retention, motivation, and financial health. While starting out with a manual spreadsheet makes sense, you'll soon find that it won't keep up with the complexity of your scaling organization. You'll need to evolve with a much more robust system that reduces errors, speeds up analysis, and unlocks deeper insights into how compensation drives performance.

CaptivateIQ streamlines the process by automating the collection and analysis of compensation data from across your platforms. It centralizes compensation planning, aligning decisions with your internal rules and policies so you can scale without losing control. The platform also builds transparency into the process. Automated documentation and audit-ready reporting provide a clear record of how pay decisions are made. And with real-time data visualization and analytics, you and your stakeholders gain actionable insights that help you model scenarios, spot risks, and optimize outcomes before issues arise.

Book a demo today to see how CaptivateIQ can streamline your compensation analysis and planning.

FAQs

How often should compensation analysis be conducted?

At a minimum, organizations should conduct a full compensation analysis once a year. Many companies, especially those in competitive industries or fast-moving markets, benefit from conducting reviews biannually or supplementing annual reviews with quarterly reporting. The key is to align the cadence with both regulatory requirements and business needs, ensuring that pay practices stay current and competitive.

What statistical methods are best for pay equity analysis?

Regression analysis is widely considered the gold standard for pay equity studies because it isolates the impact of demographic factors by controlling for legitimate pay drivers like role, tenure, and performance. Compa-ratios, which compare an employee’s pay to the midpoint of their salary range, are also a useful tool for identifying outliers. Many organizations use a combination of methods to validate results and create a robust case for decision-making.

How do you address identified pay gaps?

Closing gaps often requires a mix of short-term fixes and long-term adjustments. Short-term actions might include one-time salary increases for underpaid employees, while longer-term strategies involve updating pay bands, refining job levels, or adjusting incentive structures. 

What data sources are most reliable for benchmarking?

Reliable benchmarking comes from combining multiple sources. Internal systems like HRIS and payroll provide accurate data on what employees are currently earning. External surveys and benchmark reports, such as CaptivateIQ’s Sales Compensation Benchmarks, give context for how your practices stack up against those of your peers.