Description
A relative measure of employees’ satisfaction with compensation.
Formula
Survey results
Interpretation
Compensation Satisfaction Index is a subjective measure of employees’ satisfaction with wage packages, usually including base, variable and overtime compensation, as well as other cash compensation such as sign-on bonuses and relocation allowances.
Employees typically place the highest importance on base pay among compensation types, followed by external compensation equity, bonuses and internal compensation equity.
Among employee survey results, many organisations find that employees report low satisfaction with compensation. These survey results can help employers understand and target specific employee populations by division, location, job family, age group, etc., that are most and least satisfied with wages.
Also, though employers may not expect high results, the measure can be tracked over time to monitor in which populations, divisions or geographies employees’ satisfaction is increasing or decreasing.
For employee groups that are especially satisfied or dissatisfied, breaking the index into individual component questions can help determine whether satisfaction levels stem from base salary, bonus eligibility, merit raises, pay frequency, etc.
Incorporating such analysis, interventions can more accurately target the drivers of dissatisfaction.
Data Sourcing
Compensation Satisfaction Index is most often based on survey results. However, organisations that do not conduct employee surveys related to compensation might create an index similar to Compensation Satisfaction Index based on data such as Market Compensation Ratio and exit interview results.
Analysis
Organisations may analyse Compensation Satisfaction Index by various personal and job characteristics to gauge how well compensation suits various employee groups. Dimensions for such analysis may include age, gender, tenure, pay grade, employment type and employment level.
Additionally, organisations may analyse results by compensation type or by location, business unit, union agreement or any other structural dimension for which wage structures are designed separately.
Limitations
As a subjective measure of satisfaction, Compensation Satisfaction Index will only be as accurate as the perceptions of surveyed employees as elicited by the survey. This measure does not provide information regarding the nature or cost of compensation programs or their effectiveness in driving the achievement of organisational goals.
Targets
Targets for Compensation Satisfaction Index will depend on the indexing method used and the underlying survey questions that compose the index. Targets based on benchmark groups will only apply if other organisations use sufficiently comparable survey questions and survey methodology.
Most organisations target their compensation levels to be slightly below, equal to or slightly above market comparable compensation. Depending on compensation strategies, targets for Compensation Satisfaction Index often follow these general compensation targets.
Organisations generally aim f or as high a level of employee satisfaction with wages as is reasonably achievable given the organisational context and compensation strategies.