Reward & Compensation Analysis

Reward & Compensation Analysis

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Using Gapsquare for Reward & Compensation Analysis


Why should you look at reward and compensation structures?

According to the Equality and Human Rights Commission, the term Equal Pay actually does not just refer to pay; it refers to all contractual terms that an employer provides their employees. On top of basic pay, this also includes allowances, pension and benefits. Therefore, looking at just your overall mean pay gap is not enough. You could have a very low mean unadjusted pay gap, yet have large compensation gaps for certain reward elements.

An example of this happening is with the pension gap. This occurs when employees in the upper quartiles, who receive higher basic pay, contribute a higher percentage of their salary towards pensions. Once these employees’ total incomes are calculated, it paints a misleading picture as they seemingly have a lower income and thus appear in a lower quartile. In reality, this “missing” income has been put towards pensions. Other employees in the lower quartiles may not have the privilege to contribute a large percentage of their salary towards pensions.

How do compensation components differ from contribution to my unadjusted gap?

Compensation components refer to the total compensation for all employees and the proportion of each reward element relative to the total compensation your workforce receives. Therefore, the compensation components do not yet measure how each reward element impacts your unadjusted pay gap.

The contribution to the unadjusted gap graph shows how each reward element contributes to your overall unadjusted pay gap. For example, if there is a positive contribution from allowance towards your unadjusted gender pay gap, it means that on average, women receive less allowance than men.

What does the compensation gap show?

Each compensation gap is the average difference in earnings between your reference and comparator groups. A special case is salary sacrifice, where it represents the difference in how much monetary compensation is given up for other benefits between your reference and comparator groups.

Every company will have different processes when it comes to different reward elements, therefore, the compensation gap is best used when you look at individual reward elements.

What do I need to map to see my reward analysis?

We require at least basic pay and one other reward component (i.e. salary sacrifice or allowance) to be mapped. The app is most useful when you map as many reward elements as possible.

How is the compensation gap calculated?

The compensation gap is calculated by averaging the differences between reward elements of your reference group and comparator group. Taking the gender pay gap for example, the compensation gap for allowances would be the average difference of allowances received by men compared to women.

Not all employees receive an allowance, receive benefits or take salary sacrifice, but all your relevant employees receive basic pay. This means that some reward elements will not be averaged out over your entire workforce, but rather it is averaged for the subset of your employees who do receive these specific reward elements. For example, if you have 10 employees but only 3 have received an allowance, that allowance will be averaged between the 3 employees.

Your unadjusted pay gap is averaged out over your entire workforce (who are eligible to be included in equal pay reporting). This means that it would be inaccurate to assume that adding up different compensation gaps would equate to your exact unadjusted pay gap.

What does a negative compensation gap mean?

A negative compensation gap means that your comparator group receives more of a specific reward element than the reference group. For example, if you have a negative allowance gap for gender, then women earn more allowance than men on average. However, if you were looking at a negative salary sacrifice gap, then this means women sacrifice more of their salary than men. This is a common trend, as women often take salary sacrifice for benefits like childcare vouchers.

What happens if I’ve mapped negative values as Included Pay?

Some clients do this when they’re trying to map Salary Sacrifice, but have the values written as negative numbers in the data. However, by default we treat Included Pay and Deducted Pay differently when calculating the compensation gap. To get the most accurate results for your compensation gap, we recommend multiplying your columns with negative values with -1 to make them all positive, then mapping it as Deducted Pay instead.

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