By Calvin Gower, Trüpp.
An organization’s compensation program is only effective when it maintains alignment with the needs of the business, supports talent management objectives, and adheres to legal requirements. Unfortunately, this requires ongoing attention to ensure the company’s compensation philosophy—along with the program components such as compensation structures, practices, and policies—are keeping pace. Below are three reasons why your compensation program may need some attention.
Internal pay comparisons
As the trend of pay equity continues to sweep the nation, employees have become more informed of their rights and how their earnings compare with their coworkers. Because pay decisions are often decentralized or applied differently across the company, employers may not realize the degree of pay inconsistencies until employees bring it to their attention. Whether driven by pay equity laws or a fundamental commitment to pay employees equitably, employers should have pay practices that support consistency and fairness in pay decisions—particularly for those employees who are performing similar work.
A shift in pay negotiations
Salary history bans are changing the way pay negotiations take place in the hiring process. The conversation is shifting from “what were you paid before?” to “the salary range for this is position is $X-$X, is that acceptable to you?” In this new landscape, employers are advised to have an established compensation structure in place. When this is the case, salary ranges are clearly defined by the position and where someone is placed in the salary range can be consistently applied. You are then equipped to proactively communicate salary expectations and avoid paying employees based on their historical earnings. As a result, you are able to defend pay decisions and maintain equity within your organization.
Pay compression occurs when the pay gap between an employee (or job) and another employee in a position above that employee (often the employee’s direct supervisor) shrinks or is diminished. This frequently occurs when new minimum wage thresholds are introduced or demand for labor/skills pushes wages up in the market. While adjusting lower salary ranges may be required, it is important to maintain a compensation structure that considers overall wage distribution and job levels. Once a compensation structure has been established, the structure should be reviewed and updated every one to two years to reflect changes in the organization, jobs, market conditions, wages, compression, and pay equity laws.