February 17, 2023
It’s a critical question for any company to answer: Does your organization view employees as an investment or an expense? If you regard your employees as an expense, you probably don’t need to read the rest of this article. However, if you see them as an investment, does your organization truly have its heart in employee pay? Does it regularly monitor and develop programs that will attract, engage, and motivate your talent? Should you be doing more?
If you view your employees as an investment, here are 5 from-the-heart employee compensation programs to review and implement:
Market Benchmarking and Base Pay
Every organization needs to understand the market value of their employee roles based on their industry, the size of their employee base, their revenue/budget/asset size, and their geographical location. But before you start searching for free data on the internet, it’s important to recognize this: generic online data is not tailored to your organization’s unique company, market, and industry characteristics. For example, this type of data is not typically broken down by job levels such as data for a Software Engineer with 3 years’ experience vs. data for a Software Engineer with 10 years’ experience. Truly beneficial and relevant market benchmarking is strategically designed and nuanced to reflect your operating environments.
Once you obtain key data tailored to your organization, you should then make sure you have designed, communicated, and are using appropriate pay ranges within a pay structure that rewards employees based on their previous relative experience, time in job, and performance. Keep in mind that your pay ranges must be geographically appropriate. In other words, what you pay employees in the Midwest should almost certainly be different than pay rates in California or New York.
What About Those Executives?
Typically, your executives are key employees you cannot afford to lose, so it is critical to understand their market value. By conducting executive benchmarking on a regular basis, you’ll know where your organization stands compared with your competitors. Then, armed with that knowledge, you can assign appropriate executive pay ranges as well as the mix between base and bonus pay. Typically, executive pay ranges are broader than lower level staff positions because the executive roles can vary more widely. Again, the geographic locations of executive positions will impact salary levels to be competitive in these markets.
Many compensation committees, audit committees, executive committees, etc., engage an outside firm to benchmark their executive compensation and to recommend the levels at which their executives should be paid.
Bonus/Incentive Plans
What are you doing to motivate employees to accomplish organization-wide goals or stretch goals for their responsibility areas? Do you utilize a bonus/incentive plan? If so, is it driving the right results or could it use some tweaking? Does market benchmarking indicate you might need bonus/incentive plans for certain levels of employees to be competitive? These are becoming increasingly important, especially if you want to attract and motivate top talent. Otherwise, employees will move on to other employers if they can earn additional compensation beyond the annual merit increase for accomplishing goals.
When was the last time you looked at your bonus plans? With market forces constantly in motion, you should do an annual program review to ensure your plans are still driving the right goals and behaviors.
Pay Transparency
Every organization has their own views regarding pay transparency. However, it is increasingly being recognized as the right thing to do. In fact, although they vary in form, at least 14 states and 5 major cities now have pay transparency laws. Some may require salary ranges in job postings while others only require employers to provide a salary range to applicants or existing employees on request. In a prevailing employer market, both employers and applicants find that the posting of the salary range is a time saver for both. How? With pay transparency in place, a job applicant does not get deep into the process before they understand the position’s salary and the employer does not expend time on applicants who are not aligned with the position’s pay range. Recent studies show that many employees would move to another company that has more pay transparency.
Simply put, pay transparency increases trust with employees. If you believe your organization’s heart is in pay, can you be more pay transparent?
Pay Equity
Other proactive initiatives companies take when their heart is in employee pay are Pay Discrimination Analyses and Pay Equity Reviews. In fact, many organizations now have Diversity, Equity, Belonging, and Inclusion goals. Accordingly, organizations should regularly conduct discrimination analyses to ensure that pay discrimination is not occurring and pay equity reviews to ensure all employees are appropriately placed in their pay range. Naturally, conducting either or both of these initiatives depends on having good market benchmarking data and pay ranges.
It is also helpful to train your managers to understand the pay range levels and be able to explain and show their employees where they are paid within the ranges. Managers should also be trained to explain why workers are paid what they are per your organization’s compensation philosophy and benchmarking practices.
The Bottom Line:
Your organization probably views employees as an investment rather than an expense and has its heart in employee pay if it:
- Regularly conducts market benchmarking
- Updates pay ranges when appropriate
- Ensures key executives are paid competitively in the market
- Designs and executes bonus and incentive plans to motivate staff
- Embraces an appropriate level of pay transparency
- Regularly reviews pay equity
If your organization needs help with any of these programs or other employee compensation challenges, contact us today at 317.589.8529. We’re here to help you prove your organization’s heart is in the right place – in fair and equitable employee pay.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees, and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.