Compensation Professionals Have a Competitive Advantage in Human Capital Analytics


Last week I made a presentation to technology industry compensation and benefits leaders in the Boston area on “Getting Started in Human Capital Analytics.” I had been invited to speak by Joe Duggan, one of the co-founders of Comptryx, a startup that is developing a high-tech compensation survey that also includes industry-specific organizational metrics and a labor cost modeling tool.

The thesis of my presentation was that compensation professionals have a competitive advantage in the field of human capital analytics and that given companies’ burgeoning interest in analytics, they ought to seize the day by deepening the use of analytics within compensation as well as broadening their impact on the HR function by being a catalyst for the adoption of analytics in other parts of HR.

I shared with the group a broad definition of human capital analytics as “the use of data, analysis and systematic reasoning to make human capital decisions” and then asked them whether this resonated with the view of their own roles as compensation professionals.

The recognition was unanimous – the use of data, analysis and systematic reasoning was essentially a high level definition of their role and described what they used (data) and did (analysis) on a day-to-day basis as well as a paradigm for their approach (systematic reasoning).

Data are one of the foundational elements required for a successful human capital analytics capability. Compensation professionals are intimately familiar with data issues in terms of access, completeness, integration across the enterprises and quality. They are also attuned to the need for a governance model that outlines ownership, access and privacy parameters.

Compensation professionals’ reputations are staked on the quality of the analyses they perform. These include “internal” analyses such as pay-for-performance and pay program coverage and effectiveness as well as “external” analyses such as competitive benchmarking and peer group analyses. The analyses have been growing in complexity, with some compensation leaders using sophisticated regression analyses to examine what drives pay in the company or explore the extent of gender bias in pay outcomes, for example.

Beyond data mastery, compensation professionals are also adept at manipulating various systems within the enterprise to both wrestle data out of them, tame and aggregate the data, and in many cases run analyses (e.g., via on-line analytical programs or OLAPs and other business intelligence tools). For even their standard analyses, compensation professionals need to interact with performance management system, equity systems, the HRIS and often the finance and marketing systems, too.

With the data resources and system tools, compensation professionals are able to undertake various forms of statistical modeling. This ranges from forecasting, leveraging correlations to predict outcomes and examining the distributions underlying pay allocations to developing more sophisticated statistical models (e.g., logistic regressions) and conducting Monte Carlo simulations.

Compensation professionals are careful to balance internal and external views of their compensation programs. Internally, they are focused on compliance, fairness and performance-oriented outcomes. Externally, they are focused on market competitiveness of pay levels and mix as well as quality of program design.

Last but not the least, compensation leaders have the ear of business leaders, given the tremendous business impact of compensation policies and decisions as well as personal impact in terms of executive compensation. These leaders expect analytical rigor from their compensation professionals and are typically comfortable delving into details of analyses.  For the most part, compensation leaders have the business leaders’ confidence and trust.

All these elements combine to give compensation professionals an edge over other HR professionals in getting involved with human capital analytics and also developing an internal human capital analytical capability within the company.  Historically, many companies’ analytical functions have grown out of their compensation departments. Google’s experience is emblematic of this trend.

Compensation professionals – If you haven’t already started to connect data from your world with data from other parts of HR to help improve the quality of human capital decisions and to maximize the company’s return on human capital, you may be losing ground to colleagues and competitors.  You have the resources and fundamental capabilities to play and thrive in this space. Seize the day!

 

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About thenelsontouch

Amit is the founder and managing director of Nelson Touch Consulting, a management consultancy that specializes in maximizing the return on human capital through strategy, incentives and analytics.
This entry was posted in Analytics, Incentives, Leadership. Bookmark the permalink.

5 Responses to Compensation Professionals Have a Competitive Advantage in Human Capital Analytics

  1. Tricia Burke says:

    Amit – I absolutely LOVE this article. Very well done!

    Tricia

  2. Pingback: Value Proposition for an Early Investment in Human Capital Analytics Capability | The Nelson Touch Blog

  3. Pingback: The Nelson Touch Blog

  4. Christene says:

    Amit,

    While I agree that the skills of the typical compensation analyst overlap with those required for HR Analytics, I disagree that their competencies will meet the strategic demands. HR Analytics is more than the ability to run a mulit-variate regression model. A superior analyst must: understand the business problem/context, specify the information needed to make the business decisions, and perhaps most importantly, be able to simply communicate the information in a way that resonates with their leadership.

    Here’s where a comp analyst falls short. 1) Often their lens on the business is limited to HR programatic anual touch points (such as comp increase/perf reviews). 2) Generally, compensation provides ALL the data instead of the relevant points. 3) Comp analysts have limited access to the business line leaders and often have a hard time synthesizing big complex ideas, in simple ways that are relevant to the business.

    While I agree that a solid understanding of statistics are foundational (both for the work itself and creating trust with the client), more is required. Either the comp analyst needs to bone up on consulting skills or an HR Generalist with a strategic outlook, needs to enlist the help of their comp analyst.

  5. Christene,

    Thanks for your comments. You make some excellent points and I think we agree that Comp professionals’ analytical skills are necessary but not sufficient conditions for success in the human capital analytics field. Partnering with HR generalists is a good strategy to create a well-rounded analytics capability. I would say, however, that more senior compensation leaders, such as those leading the reward area for a company or divisions of a large company often meet your criteria #2 and #3. That being said, being able to provide relevant insights and having the ear and trust of senior management is not universal among this group either.

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