By Rose Miller
With the frequent changes in wage and hour laws, many companies are struggling with decisions regarding increases in pay. Minimum wage will be increasing again in December. The end of the year is also a time when employers are evaluating performance and employees are evaluating their jobs and their pay.
Although pay dissatisfaction is only a symptom of job unhappiness, it can be the excuse on whether an employee decides to stay or leave. Many companies have advertised their company’s record high in sales and profits yet not have it translate to increases in pay for workers. The new laws passed regarding pay history and pay equity have female and other workers wondering if they are being paid equally and fairly.
We find many organizations have comp structures that have grown organically or through happenstance. Has anyone ever reviewed compensation across the board to check internal equity? Has the company ever performed an adverse impact study on wages to see if inadvertent discrimination has occurred? How do your wages stack up to others in your industry/location? Does the compensation systems follow some sort of business strategy?
Compensation strategy defines how the company values and manages its workforce. It serves as a guide and it clearly articulates the organization’s approach to managing employee compensation. Common strategies include:
If you want to be best in class employer, your comps will need to be higher than market.
Want to be competitive? Your compensation must be at least within market ranges for your geographic area, industry, and size.
A non-profit? Mission is the focus and compensation may fall under market but richer in recognition, benefits and non-cash rewards.
Long tenured employee populations? Strategy must include other ways of compensation other than base rates.
An effective compensation strategy motivates current employees and can also be used as a tool to attract new ones. People often think of compensation as merely salary. However, other factors may resonate with your employee population. Your compensation system can be complimented by perks, events, time off, benefits, bonuses, training, discounts or other non-salary rewards.
Hearing warning signs like these may mean your compensation system is not working:
I worked hard and took on more responsibilities but at the end, I received the same compensation like anyone else,;
I have no idea how to get to the next of pay or level in my career;
The company doesn’t recognize extra effort,;
I don’t have to do extra work, I know I will get an increase each year anyway.
One thing you may want to consider is tying performance with your comp system. High performing employees will be sought after and learn about current wage benchmarks whereas poor performers love the last bullet above. Your base ranges must meet current market conditions by refreshing the data annually.
Is there built-in criteria and direction on how to get to the next level? Increased competency should equate to increases in base range. A license, years of service or mastery of a skill are good examples of competency criteria. The more criteria met, the more base compensation is given. Little or no increase in competency means little or no increase. All criteria met may result in a possible promotion.
A good compensation plan is particularly important in an era of pay equity and non-discrimination. In most states similar to New York state, it is illegal to ask job candidates for their salary history. The theory is that if salaries were repressed for women or people of color, asking salary history will have the employer carry forward discriminatory wages.
Many companies rely on the candidate to negotiate their wages. Surveys prove that while males are more experienced and better at salary negotiations than women or people of color. Instead, we recommend a company create wage ranges for every role. The hiring managers leads with what the company is offering for the position to all candidates to support fair and equitable pay practices.
A proper analysis requires the use of excellent wage benchmarking tools. Before an analysis can be performed, all jobs need analyzing, determine the duties, and establish salary ranges that match all job descriptions. Many companies have hybrid positions and duties may need a blending of data.
Since the economy has experienced large fluctuations, it is important to perform routine compensation audits to ensure salary ranges reflect current compensation trends in your particular industry. Wage and hour changes may create wage compression issues that need to be addressed.
You’ll also want to measure the results to see if compensation still aligns with your strategy. The goal is to determine how competitive particular industry roles are and what the current external market demands.
Paying attention to market changes, staying current with legal requirements and leading with a strategy are good retention tools. Failing to keep up with the competition can lead to loss of valuable employees.
Your company may be ready for a compensation makeover, or at a minimum have it analyzed. The need becomes greater as the labor pool continues to tighten and more regulatory pressures for fairness are enforced.