Update on October 21, 2022: This article has been published in HR.com.
We’re entering an annual compensation cycle like no other. Compensation survey data are showing the effects of the many job changes and resulting salary changes, including the highest estimated merit budgets we’ve seen in decades. In fact, September may not be the first time you’re administering increases this year, which is also new territory for comp pros.
In the midst of it all, you’re now being asked to be transparent about pay and show you pay employees fairly. What used to be a nice-to-have is quickly becoming table stakes as a result of new and emerging pay scale disclosure legislation, higher demand for pay transparency from employees, and shareholder pressure for greater disclosures.
That’s a lot. On top of an already turbulent business environment, comp pros are having to plan for these changes in new ways. Here’s what you need to know going into this year’s comp cycle to make sure you can prepare for the long-term, while also meeting shorter-term needs.
Focus on pay transparency
Compensation season can be overwhelming. I know, because I’ve been there — managing the annual comp cycle at my first job nearly 30 years ago, and for many years before joining Syndio, helping companies around the world design and implement effective compensation programs. And if I were a Compensation Manager in today’s market, I would direct my focus to one major priority: preparing for pay transparency — because it’s coming, and quickly.
Employees are sharing salaries, have access to information like never before, and are demanding more visibility into pay policies. In fact, our internal analysis shows that by 2023, one-third of all U.S. workers will be under some form of pay transparency legislation. With the rise of legislation (including California’s groundbreaking law) requiring pay range disclosure for applicants and employees, your employees, applicants, and competitors for talent will soon know what you pay for your roles.
The external pressures are real. But there’s another compelling way to look at this: at its core, pay transparency is about how you tell your employees that you value what they do. And at a time when finding the right people for your company continues to be a challenge, this is foundational to how you engage with both prospective and current employees — and gain a competitive edge.
If pay transparency is the target, how do you get there? Knowing time and resources are limited, here are three steps to take – starting this comp cycle.
1. Evaluate and set pay ranges with more robust analytics
You’re probably already analyzing your pay ranges from an external market perspective. Starting this year, you should also conduct both a pay equity analysis and a position-in-range analysis by individual employee and by job. Bringing these analyses together will help you more quickly understand the patterns of how employees are paid so you can prioritize jobs and employees for adjustments.
This will also help you evaluate and refine your ranges in anticipation of job postings. If what you’re paying current employees doesn’t match the ranges you’re posting publicly, you’ll have a major communications problem on your hands.
With insight from these analyses, you’ll also be in a better position to balance external market competitiveness with internal pay equity for your pay ranges. For example, you’ll be able to judge whether bringing on a new hire at an external range could potentially exacerbate or create a pay gap if it differs significantly from internal pay for a similar position.
Done manually, this level of analysis can feel daunting. But technology is your friend and can help you conduct analyses quickly — even in time for the annual review so you can embed adjustments into your merit increase budget. Doing this now will put you in a better position to share more precise ranges with the Talent Acquisition team to operationalize effective compensation decisions moving forward
2. Get more specific in what you say about pay
You probably have some established communication around how pay is determined, such as “We pay competitively based on the market, your skills, experience, and performance.” But, is that accurate? Now is the time to assess whether your pay policies are working as intended and if you’re truly paying employees fairly and consistently. A pay equity analysis can help you do this: You will be able to test whether the things you say you pay for — performance, experience, etc. — are actually impacting what you pay employees.
Starting this comp cycle, be prepared to answer the following questions to help people managers and employees alike understand how you determine pay and develop ranges:
- If you say you pay competitively, what does “competitive” mean?
- What market data are used to determine ranges?
- What is the pay range for each employee? Where does each employee sit in that range? Are you paying someone the same as another employee with the same skills, experience, and performance?
3. For the board and leadership, prepare metrics covering both pay equity and pay gap (opportunity)
In anticipation of increasing shareholder and regulatory pressure on disclosing Human Capital Metrics, coupled with commitments to ESG, leaders are becoming deeply interested in metrics related not only to pay, but to opportunity and financial wellbeing. Be prepared to share the following metrics with executives and your board:
- Representation by function and level
- Adjusted pay gap (pay equity) and unadjusted pay gap (mean/median pay gap) — both overall and by various demographic groups
In the longer term, you’ll need to unpack what those metrics — including representation and the mean/median pay gap — are telling you about opportunity. Here again, technology will simplify and streamline the analysis and also make it easier to work with your colleagues in DEI and Talent Management to understand:
- How are employees leveled? Are there hidden biases in how we level, and if so, what can we do to correct them?
- How quickly do employees progress through levels over time? Is it at the same rate across demographic groups, and if not, why? What can we do to correct?
- Where do we observe imbalances in representation across functions and in job families?
- What opportunities exist to open career pathways? Where are there available talent and opportunities for building skills, mentoring, and development?
The stakes are high
Recent lawsuits, like the one against Google for systemic under-leveling, indicate that the stakes are high for companies to better understand what’s driving opportunity inequity and take steps to change it.
And everyone is watching — employees, leadership, boards, and the public all want to know that you’re engaged in a process for improving metrics over time. Comp leaders will play an important role in clearly articulating the process — the methodology you are using and how you are scaling it over time — and helping them understand that this is a thoughtful and well-planned journey that will continue to drive improvements.
We know this is a comp cycle like no other. That’s why you have to be prepared to think about it differently. Taking these actions now will help you build out the analytics and processes you will need to manage what’s ahead. Download our guide below to learn more strategies for mastering pay equity in a changing world.
The information provided herein does not, and is not intended to, constitute legal advice. All information, content, and materials are provided for general informational purposes only. The links to third-party or government websites are offered for the convenience of the reader; Syndio is not responsible for the contents on linked pages.