It’s one thing to strive for an equitable compensation system, but it’s quite another to really understand whether employees are being paid fairly and what to do if they’re not. With employees having instant access to salary data through the Internet—data that may or may not be relevant to their situations—and the debate becoming a hot topic in legislative circles, the subject of pay equity can be bewildering. 
But just because determining equity and remedying inequity seems so daunting doesn’t give employers an excuse to throw up their hands. No one needs to “boil the ocean,” Frank Kyler, the founder and a consultant for Kyler HR, LLC, says. Instead, smaller, doable steps can get a compensation program on track.
Kyler recently conducted a webinar on the subject for Business and Legal Resources titled “Internal and External Pay Equity: How to Create a Fair and Effective Compensation System.” In his program, he pointed out that pay equity is important not just because it’s the right thing to do, but it also is vital to attracting, keeping, and motivating employees.
Despite all the focus on equity, employers need to keep in mind that inequity sometimes is justified, Kyler says. Seniority and the scope of a job can be valid reasons for people with the same job title receiving different pay. The employer’s main goal should be to understand why employees receive the pay they do and whether compensation decisions support organizational objectives.
Kyler points to two kinds of equity—internal and external. Internal equity exists when employees are paid fairly compared to others in the organization. External equity refers to pay that is consistent with what other companies pay for similar work. Maintaining external equity requires employers staying aware of market conditions and keeping up with what will motivate and retain employees.
With both types of pay equity, Kyler says employers face a dilemma with what is perceived versus what is real when employees find salary information on the Internet. “They may see inflated numbers that don’t quite tell the story of what they should be compensated,” he says. “And so their perception is that equity doesn’t exist, but in reality it certainly may.”
But as employers gather and share pay data, they’re “able to lose a lot of the perception and make the discussion quite real,” Kyler says.
Determining if equity exists
To determine if pay equity exists, Kyler says employers should begin by analyzing jobs and creating or updating job descriptions or summaries. He suggests checking job descriptions every 12 to 24 months. Then employers should consider pay for performance and not be afraid to have inequity caused by high performers earning more than those who don’t perform as well. Equity gaps need to be explainable, though.
Next comes benchmarking jobs according to market data, Kyler says. That’s a large task, “but it’s a task that if done correctly, in steps, starting with areas that you’ve identified as gaps through either an audit or through employee concerns, you can really wrap your arms around the internal side of this in a phased-in approach. And then as you’re phasing in the internal analysis, you have a huge opportunity to marry all of that internal work to what you’re seeing on the outside of the four walls of your company,” he says.
Not all jobs will benchmark well, Kyler points out. Positions that are unique to an organization need to be slotted rather than matched to a particular benchmark. Employers can compare and evaluate those unique positions to determine their value by looking at different factors included in the job description.
Once data has been gathered, employers can set up and follow pay ranges. Ranges should be refreshed every year or two, but once set, an employer has a foundation.
Addressing gaps
If data reveals big gaps in equity, the first step is to ward off panic, Kyler says, adding that “the roadmap to implementing equity really starts with defining the gaps, creating the project plan, and recognizing that explainable inequity may exist.” But it’s important to notice if gaps correlate with age, gender, race, or any other protected categories.
“Certainly if you find that there’s an identified and known issue of inequity and it has to do with protected class, the answer is you want to fix it sooner rather than later,” Kyler says.
When planning the project to resolve equity issues, Kyler says upper management needs to be involved along with supervisors. Leveraging supervisors is important because they’re the ones who are likely having pay conversations with employees.
“So you need to educate them so that they not only help build the system … but they can answer how pay was determined, they can help communicate with impact, and they don’t need to rely on HR to send the message because they understand the message and they can champion that message as well,” Kyler says.
Need to learn more? Listen to Internal and External Pay Equity: How to Create a Fair and Effective Compensation System on demand. For more information, click here. Or tune in to one of the the upcoming BLR compensation webinars:
- Managing Pay for Performance: Tips to Strengthen the Link and Improve Results: Often the link between pay and performance is lost in translation, both for employees and management. But the effort to fix it can be well worth it, both for employee morale and your bottom line. The trick is to know the hurdles facing pay for performance structures, and then develop strategies to overcome them. Join us on February 2 to learn the pay for performance trends that are working, and those that derail it. You’ll learn how pay for performance can be applied to a compensation program to generate a stronger, more productive, and more aligned staff working toward a common goal.
- Total Reward Statement Secrets: Retain Your Best Employees by Communicating Real Value: Total reward statements are a “turnover killer” that can help you explain employee perks and pay, providing a vibrant and complete picture of your comprehensive rewards program in a way that really resonates with your workforce. When your best employees see what they are really getting, they are much less likely to look elsewhere. Join us on February 3 to learn how to design total reward statements that accurately convey the true value employees get through their salary and benefits. By the end of this enlightening program, you’ll be in a better position to strike a chord with employees regarding the value of the investment you’re making in them, with a positive effect on engagement and productivity!
- Compensation Benchmarking: Key Steps to Developing a Competitive, Fair Pay Strategy: By creating clear job descriptions and determining factors that affect pay, you can determine a pay rate that’s fair and competitive. This process will help minimize headaches from discrimination or other types of complaints, and ensure that your organization has a fair compensation policy. Benchmarking, when done right, can also help to minimize salary negotiation hassles, ease the hiring process, and motivate employees. Join us on April 27 for an in-depth webinar on best practices for salary benchmarking in order to achieve a reasonable and competitive pay structure.