As 2023 draws to a close and companies begin to settle on the wages and hikes for the next year, the question of how to create an equitable compensation system might flash in everyone’s mind—if briefly. Despite conversations around pay equity and bias, the economic systems still witness unfair preferences for specific communities while leaving many communities behind. Creating effective pay structures is a serious responsibility however many businesses still hold back from fully committing to the endeavor. Equitable workplace strategies for fair compensation not only reflect a healthy work culture, they also allow employees to commit better to their roles.
The Mercer QuickPulse US Compensation Planning Survey of August 2023 found that employers are planning a 3.9 percent increase in their total compensation budgets for 2024. While the numbers are lower than last year, many employees still stand to gain from these plans. However, it is very likely that unless companies also learn how to create an equitable compensation system, these funds will not be fairly distributed among all, equally skilled, employees.
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Understanding the Basics of How to Create an Equitable Compensation System
We can help create an equitable compensation program guide but unless companies commit to the cause, progress will remain slow and shallow. Building a conscious pay system requires conscious policies and practices that support such an initiative. Building such a structure requires an understanding of why it is necessary.
Why Should Compensation Systems Be Equitable?
The main reason for creating effective pay structures is obvious—employee satisfaction. Employees who believe they are paid fairly are more willing to give back to the organization and retain their position there. Those who feel unfairly compensated move on. Apollo Technical reports that 39 percent of those considering job changes are motivated by higher salaries. But the reality is even more complex than the pursuit of more money.
Forbes Advisor presents alarming gender pay disparity numbers with women earning 82 cents on average for every dollar earned by a man. Add in more diverse identities and the disparity becomes even more apparent. African American women earn 60 cents for every dollar earned by a white, non-Hispanic man, while Latian women earn only 55 cents. According to the International Labor Organization, the global labor force participation rate for women stands at 47 percent. With so many women currently employed, it is evident that a large number of them are walking away unfairly compensated.
Gender is not the only discriminating divide. An equitable compensation program guide and creating fair salary structures is important for the LGBT community as well, who makes up 7.1 percent of the U.S. population according to Gallup, but hold only 1.2 percent of senior managerial and directorial roles, according to McKinsey. There is likely unlimited untapped potential that is wasted due to discrimination. With such stats to back up these reports, it is evident that companies need to do more to safeguard the interests of their employees and build conscious pay systems that benefit them as well.
How to Create an Equitable Compensation System: Equitable Compensation Program Guide
If you’ve decided to learn how to create an equitable compensation system, you are already one step closer to success. The next involves assessing the conditions you work under and reframing your policies and systems to best support your employees.
1. Pay Equity Analysis: How to Create Fair Salary Structures
With the number of tools and data collection resources available to us, it’s impossible for companies to claim ignorance of the pay disparity and the struggles personally encountered by their employees. To design equitable workplace strategies for fair compensation, businesses need to start with an in-depth analysis of their existing offerings.
Data Collection
Companies need to actively collect as much data as possible on their employee compensation plans, including salaries, bonuses, benefits, and other forms of remuneration. This also needs to extend to data categorized by job roles, departments, and any relevant demographic information such as gender, ethnicity, and tenure. Such a rich data set will clearly highlight the gaps in the existing system, which can assist in building a conscious pay system that compensates employees with utmost fairness.
Establish Benchmarks
Make it a point to define industry and market benchmarks to compare your organization’s compensation practices. No company exists in a vacuum and understanding how to create an equitable compensation system depends on what stands as fair. If our equitable compensation program guide is to be trusted, you need to identify relevant external benchmarks to understand prevailing salary ranges for similar roles in the market. A competitive salary would involve exceeding the industry benchmarks but this can be done with additional benefits instead.
Job Role Evaluation
Use a systematic job evaluation process to assess the value and complexity of each role within the organization. Each role might have different requirements for hiring but it also means different compensation structures for their services. Establish a clear and objective job grading system to determine the relative quantifiers for different positions and what is fair for each role.
Demographic Analysis
Building a conscious pay system involves the breakdown of compensation data by demographic factors such as gender, ethnicity, and age. Analyze the distribution of employees across various pay bands to identify any concentration or disparities. Low diversity could be a result of bias in hiring, unfair recruiting criteria, insufficient diversity in recruitment sources, etc. Equitable workplace strategies for fair compensation involve a diverse workforce as well.
Identify Disparities
Utilize statistical analysis to identify any significant pay disparities. The gathered data needs to be reviewed in detail. Dedicate manpower and resources to look for patterns or trends that may indicate inequities, especially within specific job roles or demographic groups. Then develop protocols for making adjustments to address identified pay disparities. Consider both immediate adjustments and long-term strategies for preventing future disparities.
Communicate Findings
Keeping employees in the loop extends the feeling of unity and the potential for change, even if the balanced compensation takes some time to fully scale up. Communicate the results of the pay equity analysis to employees and provide transparency about the methodology used, the outcomes, and the steps being taken to rectify any identified issues.
External Audit
Consider engaging external consultants or auditors to conduct an independent review of your pay equity analysis as internal resources for a complete evaluation might be insufficient. External audits can provide an objective perspective and enhance credibility.
2. Transparent Salary Bands: Building a Conscious Pay System
New pay transparency laws are slowly leading the shift to transparency in the pay companies are willing to provide for new roles but this should be a voluntary choice as well. Having to provide transparency adds the additional responsibility of being open about pay, eliminating any possibility of deniability at later stages.
Purpose
There are many reasons to look into enforcing transparent salary bands:
- Equitable Compensation: Transparent salary bands promote fairness by ensuring that employees in similar roles with similar qualifications and experience receive comparable compensation.
- Employee Trust: Providing visibility into salary bands builds trust among employees, as they can understand how their compensation aligns with organizational standards.
- Recruitment and Retention: Transparent salary information enhances recruitment efforts by attracting candidates who can see a clear and fair compensation structure. It also aids in retaining talent by demonstrating a commitment to equitable pay.
Components of Transparent Salary Bands
There are a few different elements that make up transparent salary bands:
- Salary Ranges: Clearly defined minimum, midpoint, and maximum salary levels for each job role.
- Criteria for Progression: Outline the factors, such as skills development, experience, or performance metrics, that contribute to an employee moving within the salary band.
- Market Adjustments: Incorporate mechanisms for periodic reviews and adjustments to salary bands based on market trends and industry benchmarks.
Additional Considerations
While structuring a transparent salary band, there are some considerations to keep in mind:
- Ensure that salary bands comply with labor laws and regulations in the regions where the organization operates
- Address any potential legal implications and confidentiality concerns
- Utilize HR software or compensation management tools to efficiently manage and communicate transparent salary bands
- Automation can streamline the process of updates and adjustments
3. Market Intelligence in Compensation Design: How to Create Fair Salary Structures
The market sets the standards of course, but it also allows for additional research data into the kind of talent that is available, what they’re asking for, what industries provide the best hiring opportunities, etc. Be an active market player to plan out how to create an equitable compensation system.
Industry-Specific Trends
Building a conscious pay system requires that you stay informed about industry-specific compensation trends. Different sectors may experience variations in pay practices, and understanding these trends helps in making informed decisions. Factor in geographical variations when analyzing market data as salaries can differ significantly based on regional cost of living and labor market conditions.
Skill-Specific Insights
For designing compensation system tips, drill down into market intelligence to gather insights on the specific skills and qualifications in demand. Identify any skill gaps within the organization and adjust compensation accordingly. This can also be a great way to plan out training and support for your employees to ensure they are able to match up to the market. This adds to the compensation that employees can look forward to in addition to fair wages.
Emerging Roles and Technologies
Stay attuned to emerging roles and technologies within the industry. Market intelligence helps in recognizing new skill sets that may command higher compensation due to increased demand. Adapt to these changing trends and standards accordingly. For organizations with a global workforce, incorporate global compensation standards into market intelligence. Consider currency fluctuations and regional economic conditions while creating effective pay structures
Predictive Analysis
Use predictive analytics to anticipate future trends in compensation and decide how to create an equitable compensation system that can work in the long run. This forward-looking approach enables proactive adjustments to stay ahead of market shifts and helps skip microtrends that may not aid in creating effective pay structures that last.
4. Inclusive Decision Making: Equitable Workplace Strategies for Fair Compensation
Similar to how we prefer to have a say in what careers we choose or who governs us, most employees also appreciate having a voice in setting up an equitable compensation program guide that can be used company-wide. Designing compensation systems based on tips right from the source can cut down on the work to deduce what is needed. Instead, energies can be focused on figuring out the logistics and viability of what the company needs.
Diverse Compensation Committee
Ensure that the compensation committee or team responsible for making decisions about compensation includes individuals from diverse backgrounds and perspectives. Aim for representation across gender, ethnicity, age, and other relevant demographics to minimize biases in decision-making. Diversity can begin with the acknowledgment of diverse voices. To build a conscious pay system, acknowledge and account for intersectionality when designing compensation structures. Intersectional analysis helps identify potential disparities that might be overlooked with a single-axis focus.
Employee Input Mechanisms
You would do well to establish mechanisms for gathering input from employees when making decisions about compensation structures. Conduct regular surveys, focus groups, or town hall meetings to understand employee perspectives on fairness and equity in compensation. Survey questions can include a variety of angles such as:
- How satisfied are you with your current compensation package?
- Do you believe your compensation reflects your skills, experience, and contributions?
- Are you satisfied with the benefits and perks offered by the organization?
- Which specific benefits or perks do you value the most?
- How transparent do you find the organization’s communication about its compensation philosophy?
- Do you feel well-informed about how your compensation is determined?
- How effective do you think the performance evaluation process is in determining your compensation?
- Do you perceive the organization’s compensation practices as fair and equitable?
- How would you rate the fairness of compensation distribution within the team/organization?
- Have you negotiated your salary during the hiring process or at any point?
- How satisfied were you with the negotiation process and outcome?
- Would you prefer a higher base salary or a more variable component tied to performance?
- What non-monetary benefits or perks would you like to see introduced or enhanced?
- How satisfied are you with the communication channels used to convey changes or updates related to compensation?
- Provide any additional comments or suggestions related to compensation that you believe would benefit the organization.
Cross-Functional Collaboration
Encourage collaboration between HR, finance, and departmental leaders to collectively design and review the compensation system. Cross-functional teams can bring varied insights to ensure a comprehensive and well-rounded approach. With diverse perspectives, multiple previously unexplored angles can come to light more easily. This can also help with the logistics as all major decision makers will be able to provide insight in the planning stage.
Accessibility Initiatives
Implement initiatives that enhance accessibility, particularly for individuals with disabilities. Ensure that employees with diverse abilities can access compensation information and participate in relevant discussions. Disabilities should not pose a barrier to work or access information concerning it.
Employee Resource Groups (ERGs)
Leverage ERGs to gain insights into the unique needs and expectations of different employee segments. ERGs can serve as valuable sounding boards for proposed compensation changes and help plan how to create fair salary structures.
5. Flexible Benefits: Designing Compensation System Tips
If you are trying to figure out how to create an equitable compensation system but do not have unlimited reserves to pull from, then alternate compensation plans can be beneficial for you.
Assess What Your Workforce Needs: Indirect Compensation
Some benefits might appear to be the obvious focal points but they might not be the best fit for your company. For a company with young workers and freshers, parental leave might not be as much of a priority as student loan assistance—providing it might be great but it might not assist your existing employees in any particular way. Weigh out the benefits that are best for you and your employees.
Equitable Compensation Program Guide: Equalize the Workforce
If you’re looking for compensation system design tips then treat this one with utmost care—do what you can do to equalize the workforce. Most employees come with different backgrounds and starting positions and more than providing equal opportunity for everyone, it is crucial to help level the playing field.
Employees without dependent family members might be able to make the most of on-job hours but those who have a family to care for may not function as well. Providing flexible work hours for them might help them care for their family as well as become more productive employees. Providing language and conversational assistance is another service that might help employees gain equal ground.
Customizable Packages
Design benefits packages that are modular and customizable. Allow employees to choose from a menu of benefits based on their individual preferences and priorities. Provide flexibility in allocating benefit dollars across different components, such as healthcare, retirement savings, and wellness programs. Recognize that employees from different cultural backgrounds may have unique preferences and needs. Create a benefits program that respects and accommodates diverse cultural perspectives.
Health and Wellness Options
Offer a range of health and wellness benefits, including medical, dental, vision, and mental health coverage. Consider adding wellness programs, gym memberships, or other initiatives that promote physical and mental well-being. These can be tailored to suit diverse health needs and preferences.
Family-Friendly Policies
Recognize and support diverse family structures. Provide benefits that cater to the needs of employees with dependents, such as parental leave, childcare support, or flexible work arrangements. Consider offering family-friendly scheduling options, remote work opportunities, and assistance programs for work-life balance.
Financial Support
Include benefits that address employees’ financial well-being. This may involve offering retirement savings plans, financial counseling services, or student loan assistance programs. Provide educational resources to help employees make informed decisions about their financial benefits.
Equitable workplace strategies for fair compensation acknowledge the importance of continuous learning and skill development. Offer education and training stipends that employees can use to invest in professional development opportunities. Allow employees to choose courses, workshops, or certifications that align with their career goals and personal interests.
Flexible Work Arrangements
Extend flexibility in work arrangements, such as remote work options, flexible hours, or compressed workweeks. Recognize that employees have diverse preferences when it comes to where and when they work. Tailor benefits to support a healthy work-life balance.
Overall, while working out how to create an equitable compensation system and establishing how to create fair salary structures suited to your company, make sure to be realistic. Multiple benefits are great options but if they need to be withdrawn suddenly because they are not sustainable, then the effort can cause more harm than good. Prioritize equitable workplace strategies for fair compensation and allow the additional benefits to act as support. Also consider being clear and transparent about policies and if necessary, execute compensation plans on a trial basis to see what works for your team. With no single strategy available to establish the best practices for an equitable compensation system, it is up to the company as a whole to determine what works best.