Maintaining Competitive and Equitable Compensation Programs
Importance of Reviewing Compensation Programs
Routine compensation reviews, particularly for a whole company population, aid in assuring the organization is offering competitive compensation packages that can attract and retain top talent. By regularly reviewing compensation, employers can identify areas where their compensation packages may be falling behind those of their competitors or where they may need to adjust salaries to keep up with changes in the labor market.
Routine employee compensation reviews can assist in promoting fair and equitable compensation practices within the organization and assist employers in reducing turnover, improving morale, and fostering a positive work culture.
There are several factors that employers consider when designing a compensation package. These factors include industry, financial metrics such as revenue and assets, job location, and the experience and qualifications of the employee. A well-designed employee compensation package can help to attract and retain top talent, promote employee satisfaction, and contribute to the overall success of an organization. It is important for employers to regularly review and update their compensation packages to ensure that they remain competitive and in line with industry standards.
All-employee compensation reviews can be used to evaluate the compensation structures within an organization on both an individual and unique position basis. A thorough all-employee analysis allows for regular review and updating of job descriptions, evaluating the organizational structure, assessing the current market compensation for the jobs within the organization, and identifying potential areas of under and overcompensation.
Salary Grade Structure
A salary grade structure is a tool that organizations utilize to review and slot individuals and positions within the organization’s internal hierarchy to determine compensation and benefits based on factors such as experience, education, and job duties and responsibilities. The number of salary bands can vary with organizational and population size, but these bands typically correspond to different levels or classifications of employees within the organization.
A salary grade structure review or design serves as an effective tool when combined with an all-employee analysis. Whether an organization has salary grade bands for their population or not, it is good practice to evaluate potential ranges and bands based on current market data and additional considerations such as cost of living or cost of labor in areas where the company and employees operate.
Pay Equity Analysis
Pay equity refers to the principle of giving equal compensation to employees who perform the same job regardless of their gender race or any other personal characteristic. This principle can ensure employees are compensated fairly and discrimination is avoided in the workplace. Unequal pay practices can result in pay disparities between employees performing the same job, causing the potential for resentment, demotivation, and legal action against the organization. On the other hand, fair and equitable pay practices can provide an inclusive, productive, and motivating workplace.
Routine compensation review can help to identify disparities in pay that may be a result of discrimination or unconscious bias. By analyzing compensation data, employers can identify and address any area where certain groups of employees may be receiving lower pay for the same work.
In February, NFPCC dove into current pay transparency laws in the United States and their impact on future compensation planning considerations for management teams and board members within an organization. With the Equal Pay Act of 1963 protecting against gender discrimination at the federal level and more states adopting laws on pay transparency, it is more important than ever for organizations to reevaluate and document sound and equitable compensation philosophies and practices.
NFPCC can conduct a pay equity analysis highlighting specific points of information (“POIs”) for the organization’s employee population. Focusing on age, gender, and ethnicity, the analysis identifies potential areas of discrimination between employees within the same role or function area. However, qualifications and individual characteristics such as educational background, tenure within the organization and the current role, certifications, industry experience, and certifications are also good POIs to consider. These are deemed as legitimate factors for having pay disparities by the Equal Employment Opportunity Commission and should be an important part of the compensation-setting process.
NFPCC notes not all differences in pay have unfair or discriminatory intentions. Differences in compensation between two individuals within the same role in an organization are not always cause for concern. Some employees hold extensive qualifications and experience crucial to the success of the organization. These factors should be taken into account to ensure compensation is competitive and fair. A pay equity analysis allows for an organization to review any potential areas of concern to avoid or rectify any undocumented problem areas between inequitable and unfair pay practices.
There are many practices that can assist employers in setting sound and justified compensation plans to improve productivity, retention, and a positive work environment. Routine compensation reviews are an important best practice to ensure compensation packages are competitive, fair, and legally compliant with federal and local laws. NFPCC specialists are ready to assist with your pay equity analysis or compensation review, contact us to get started.