Salaries have always been a hot topic. Employees may not readily understand the decision behind their pay rates. As our world strives for fairness, equality, and transparency, we can only expect more and more people to ask about pay equity.
In this blog, we’ll tackle this sensitive issue to help company leaders safely communicate payment structures to employees. We’ll also discuss how you can develop a fair compensation strategy.
How Is Pay Equity Determined?
Most pay structures should be based on the job, industry, and responsibilities. This can also vary greatly per person depending on their experience, relevant skills, and proven performance. However, these are not the only factors affecting salary benchmarking and compensation packages.
While people are more aware of being inclusive, some may still demonstrate unconscious biases in their decisions. According to Pew Research, women only receive 82 percent of what male employees earn for the same role. Regrettably, this only increased by 2 percent over the last two decades.¹
“Economic inequity refers to biases . . . that cause employees to be paid or promoted unfairly because of their gender or age. These are things that can cause the company to lose good employees.” – Wayne Guay, accounting professor at Wharton²
Educational background, geographic location, race, ethnicity, age, and seniority can negatively affect payment structures. As a result, hard-working employees may not receive the right reward for their efforts. This is why companies need a robust compensation strategy to avoid negative influences on salary.
Trends that May Affect Your Compensation Strategy
As we navigate the following evolving trends, it’s crucial to recognize how they can connect and collectively shape the field of compensation. This will help you create a strategy to attract and retain talent in our rapidly changing work landscape.
Trend #1: Remote work and global workforce.
With the rise of remote jobs and a global workforce, salary differences will only grow.
Working remotely means reducing overhead costs. However, companies may argue employees that work remotely spend less as well.
A global workforce also means a varying geographical location. These factors can make it harder to determine the right compensation.
Trend #2: Effect of freelance work on compensation models.
On the other side of the coin, it’s tricky to create compensation models for gig workers. The usual benefits include physical applications. Furthermore, how will you determine health maintenance organization (HMO), insurance, or retirement benefits?
If you want to maintain your expenses within the compensation budget, you must find the common ground that will satisfy all employees, regardless of where they are.
Trend #3: Skill-based pay models.
Generally, salaries are given on a job-based compensation model, which focuses on a person’s job title and responsibilities. A skill-based pay model, on the other hand, depends on an employee’s skills and experience.
With compensation based on skills, employees have more incentive to develop their abilities. This encourages workers to focus on tangible results rather than aiming for a specific job title.
One drawback to the skill-based pay model is a possible pay gap that may occur among employees with different levels of skill and experience.
Trend #4: Evolving job seeker preferences.
Job seeker priorities today have significantly shifted compared to the past few years. While these concerns did surface, the recent pandemic accelerated their prominence. These include:
- Employee well-being
- Growth and development
- Work-life balance
- Flexible work options
- Company culture
- Impact and purpose
More individuals are now prioritizing their health and wellness, which has increased the demand for competitive compensation and benefits.
Read more: Putting People First: Why Prioritizing the Employee Experience Is Key to Long-term Business Success
Trend #5: Rise of technology.
Advancement in technology means that information is readily available to all. Websites like Glassdoor, Indeed, and Payscale highlight salary ranges for many positions in different industries.
For your employees to feel valued and appreciated, it’s best to ensure competitive salary packages or carefully assess the reason behind differences in salary.
Create Your Compensation Strategy
Pay rates will always have variations. Your goal as an employer is to advocate for fair pay and consider only the necessary factors. A good compensation strategy can answer these common questions from employees:
- What is a salary range?
- How does my employer determine my salary?
- Why is my peer of equal level earning more than I am?
- Can I request a pay review/pay raise?
Here are 5 approaches that can improve your compensation strategy:
1. Conduct Internal Equity Audits
First, assess how you currently pay employees through compensation reviews.
Are there any discrepancies for the same roles? If there are, make sure that these are driven by the employee’s overall qualifications, expertise level, and performance. Ensure that these are not affected by race, gender, age, geographical background, or other irrelevant factors.
Evaluating your salary and benefits packages will help determine whether you need to adjust your payment structures and if your employees are paid fairly based on their contributions and efforts.
2. Foster a Transparent Culture
Be transparent with your employees. Let them know how you determine salary rates. What factors did you consider? If they want to achieve a higher rate, let them know the necessary steps they need to take. Aside from being transparent, you’re also encouraging employees to continuously develop their skills, allowing them to be more successful in their careers.
It may be difficult to answer questions on salary and compensation differences. However, avoiding the question will only undermine the asker’s value.³ They are concerned about their salary information and may have learned of pay differences from colleagues, and it is reasonable to respond to these questions.
3. Practice Open Communication
Fostering openness is important not only when your employees ask for compensation structures but in every process you do. This includes indicating compensation in your job postings. According to HRMorning, ten states have already enacted pay transparency laws.⁴ Other states are also considering transparency laws within their jurisdictions.
If you operate within these regions, violating the law can result in fines reaching thousands of dollars. Regardless of transparency laws in your area, most employees prefer to know this information firsthand. Even if the information isn’t found in your job ads, your employees will eventually know and ask. This is one of the compensation practices that you need to adopt.
4. Adopt a New Compensation Philosophy
Starting with guidelines and policies, create procedures for your HR staff and hiring managers to determine compensation. These procedures should include evaluating skills, relevant experience, soft skills, and expertise and assessing performance that will impact promotion.
However, don’t stop with the procedures. Elevate your compensation strategy by encouraging your teams to uphold pay equity. You can do this by openly discussing salary ranges. You don’t have to disclose every detail; knowing the ranges within a department is enough. This way, they won’t feel the need to know how much their peers are making, and they’ll be more satisfied with the compensation they receive.
5. Train Your Staff
Conducting additional training programs, while it costs money and resources, is essential for your business strategy. It will ensure that your decisions are fair to all employees regardless of their color, gender, age, or other factors. It would be good to Include these in your training:
- Identifying unconscious bias
- Promoting diversity, equity, and inclusion (DE&I)
- Legal and compliance workshops
- Providing fair compensation and benefits
Complete your efforts to improve employee engagement with Horizon America Staffing.
It’s challenging to consider all the factors relevant to building your salary compensation strategy. At Horizon America, we understand the difficulties of attracting and retaining top talent. Let us handle your recruitment needs so you can spend more time doing what you do best—growing your business.
We have a large pool of qualified candidates in the light industrial and manufacturing sectors, ready for your staffing needs. Reach out to us today!
References
- Graf, Nikki. “Gender Pay Gap in U.S. Hasn’t Changed Much in Two Decades.” Pew Research Center, 14 Apr. 2024, www.pewresearch.org/short-reads/2023/03/01/gender-pay-gap-facts.
- Staff, Knowledge at Wharton. “The Uncomfortable Questions You Should Be Asking About Pay Equity.” Knowledge at Wharton, 9 June 2015, knowledge.wharton.upenn.edu/article/the-questions-you-should-be-asking-about-pay-equity.
- Matuson, Roberta. “Managers, Are You Prepared to Answer Questions About Pay Equity?” Harvard Business Review, 29 Nov. 2022, hbr.org/2022/11/managers-are-you-prepared-to-answer-questions-about-pay-equity.
- D’Agostino, Tom. “Pay Transparency Laws by State: Here’s Your Definitive Guide.” HRMorning, 27 Aug. 2024, www.hrmorning.com/articles/pay-transparency-laws-by-state-definitive-guide.
