Using a GIS for Compensation

Problem

Organizations with a workforce across a large geography are faced with the challenge of maintaining competitive job rates in local markets.  For companies with a large operational workforce, even slight changes in pay rates can result in significant payroll expenses.  Leveraging a Geographic Information System (GIS) helps the Compensation Administrator better understand the local market and remain competitive.  This paper intended for organizations with a large geographic presence that market price jobs at a local level.

Geographic Information Systems

A Geographic Information System (GIS) is software that allows users to analyze and manipulate data spatially.  Information such as databases and spreadsheets can be associated with spatial data and projected visually. 

Presenting geographic data and company data visually, GIS software offers the Compensation Administrator a holistic view of the market data, which is not possible with spreadsheets.  The figure, above, provides an example of an organization with multiple locations, overlaid on top of market data for a particular job at the zip code level. 

Data Populating a Geographic Information System

There are two types of data that a Compensation Administrator should utilize to effectively leverage GIS software.  Those data elements include company data and geographic/socio-economic data.  Company data may include store locations and employee information such as average salaries, tenure, employee counts at stores, and financial information such as operating income and revenue.  External data may include: survey data, socio-economic data, political boundaries and other factors that may impact the local labor market, such as colleges or regional competitors in the area, if known.

Challenges in Understanding the Local Market

An organization may utilize the most granular survey data available to establish compensation rates at the local level.  Many surveys provide data at the city-level and/or zip code level, which may be the most geographically specific data available.  However, survey data at these granular levels may not provide a holistic picture nor include key information to accurately determine a truly competitive rate for a location.  GIS allows users to view survey data holistically by presenting the data visually.  As survey data becomes more granular, the survey sample size decreases and a greater susceptibility to fluctuation across geographies exists.  There are a number of factors that could result in two bordering zip codes having significantly different market rates for the same job.  GIS can be used to identify and explain factors impacting the market.

Understanding the Market

The image, below, provides an example, where market data for a relatively small zip code is significantly higher than the neighboring zip codes.

In this instance, aligning the job rates to the market rate of $9.00 may create an internal inequity if other stores in neighboring zip codes are tied to lower job rates.  A holistic look at the local market to allows the Compensation Administrator a better understanding of what is happening in the local market.  Another advantage to leveraging GIS is that it allows for the manager to make better decisions regarding the local market when no specific market data is available.  By referencing the data surrounding region without market data, the Compensation Administrator can make reasonable assumptions about rates that will be competitive within the local market.

Using GIS to Ensure Internal Equity within a Region

Organization’s experiencing growth may utilize GIS to evaluate internal equity within a region and to establish compensation rates for new stores.  This process can be facilitated with GIS by evaluating compensation rates of stores within a specified area.

The map, above, provides an example of how utilizing GIS may provide a valuable tool for determining appropriate compensation rates for a new location.  Information provided by the GIS tool allows the Compensation Administrator to quickly identify what the local compensation rates are for its retail locations in a specific area.  In this example, the new store, indicated by the question mark, is more closely grouped with the stores with a compensation rate of $8.75 (green).  This type of analysis would not be possible without the use of a GIS system.

Implementation of a GIS

Companies with a large geographic presence are likely to already utilize a geographic information system for other business purposes (marketing, supply chain, distribution, etc…), so there may be little or no software cost involved.  Successful implementation of a GIS requires a partnership with a GIS subject matter expert and includes the following steps:

Determining how GIS can assist compensation efforts

The first step in implementing a GIS for the purposes of compensation is to identify the problem(s) that a GIS may solve.  As mentioned previously, one objective of GIS software might be to explain market variations at a local level, or to interpolate market data for areas where no data exists.  Additionally, an organization with expansive growth may use a GIS to evaluate compensation rates at new locations, in relation to the organization’s other locations in the region.

Developing data requirements

After determining the problems GIS will assist in solving, the next step is for the Compensation Administrator to develop the data requirements.  Partnering with the GIS subject matter expert is critical in this step so that alignment on the data to be used can be achieved.  Additionally, if the information might be shared across the organization, the audience(s) for whom the data will be shared with should be reviewed.  Information utilized within the confines of the Compensation team might be considerably different than information that is shared with users outside of Compensation.

Validate the data meets the business objectives

After the data requirements have been established, a review is necessary to ensure the objectives of the software are being achieved and that the initial goals established in the first step are being met.  If the objectives are not being met, a review of the data should be completed to determine how the information might be presented differently.

Determining which GIS tool to use for various audiences

A number of GIS tools are available and range significantly in price, user friendliness and analytical robustness.  Factors to consider when determining which tool to utilize include: amount and type of data being analyzed, audience, cost, and ease of use.  Dependent on the tool that is implemented, implementation and training will vary.  Where deep analysis is required, a robust GIS tool, such as ESRI’s ArcGIS® might be appropriate.  ArcGIS® is the industry standard GIS software and allows users to perform significant data analysis; however, there is a considerable learning curve.  If the business objectives only require reviewing data spatially, rather than analysis, tools such as Google Earth® may suffice.  Google Earth® is a free GIS tool with a familiar user interface and a shallow learning curve.  The free version of Google Earth®, however, does not allow for a significant level of data analysis.  However, Google Earth® would need to be coupled with a robust GIS system, such as ESRIs ArcGIS, to create the files Google Earth® would rely upon.  Regardless of the tool(s) selected, users should receive appropriate training from the subject matter expert to ensure that they are able to properly interpret the results.

Assess and adjust

As the business continues to utilize the GIS tool, additional requirements may become evident, such as data elements, additional users, data refreshes.  Regular feedback, especially following the implementation, should be provided the GIS subject matter expert so that evolving needs may be evaluated.

Limitations

Although GIS offers the Compensation Administrator an additional means to interpret and understand market data, establishing job rates within a region must take into consideration subjective points that might not be addressed with a GIS.  As is the case with Compensation, there is a portion that is objective and there is a portion that is subjective.  A geographic information system simply improves the subjective decision making process with objective and empirically based data.