5 Pay Strategies that Are Equitable and Motivate Employees

Talking about pay, whether you are an employee or a manager, is uncomfortable for many people. Buy why?

Lack of pay transparency, poorly communicated policies, inconsistencies in implementing pay policies, and fear of negative consequences (Research from CareerBuilder indicates that 48% of job seekers say they are afraid the employer will decide not to hire them if they attempt to negotiate their pay) can all play a role in how employees and managers approach pay conversations.

As leaders, how can we ensure a more equitable and less awkward process for considering, making, and implementing pay decisions that value the skills, experience, and contributions that our employees bring to the table in a financially responsible way?

Here are five pay strategies that work in establishing and maintaining transparent and equitable pay practices in your organization.

1) Communicate the organization’s pay philosophy.?

It is important that your company defines and regularly communicates your pay philosophy to your employees. A pay, or compensation, philosophy outlines the organization’s approach and commitments related to pay strategy (both compensation and benefits, commonly referred to as “total rewards) and its pay practices.?

Informed by and aligned to the mission, vision, values, and culture of the company, it provides a framework for making decisions about salary, benefits, equity, and other compensation-related topics.??

The philosophy takes into account the market position that the company has adopted (for example: “We are committed to providing a living wage for all of our employees.” or “Our total rewards package is one of the most comprehensive and competitive in our industry, with our employees earning in the top 25%, as compared to our competitors.”)?

2) Design your organizational pay structure.?

Informed by your pay philosophy and market research, identify the levels within your organization and the pay bands/levels associated with each. It is possible that some organizations may have distinct pay structures for different departments (for example: sales vs operations). It is important to document and clearly define those differences.

Overall, by documenting your pay structure, it provides transparency and creates trust with your employees. With 82% of employees citing that they are more likely to trust their employer if they feel their pay is transparent, it makes a lot of sense to invest time and energy in making explicit the pay levels and process for pay increase decisions that your organization utilizes. (Source: 2021 PayScale report)

3) Regularly review market trends.

One major reason for employee turnover is related to compensation and an individual leaving your company for a bigger paycheck somewhere else. To avoid this being an issue in your organization, regularly do market analysis to see how your compensation and benefits packages relate to competitors in your region and industry. There are several free or low cost resources, like Payscale.com, the US Bureau of Labor and Statistics, and Salary.com that can help you benchmark pay and determine where you sit in the market. Based upon what you learn, you may want to adjust your pay to be more competitive.

As you are reviewing market trends, also do an internal audit to ensure you are paying your employees equitably. If you note disparities, it is important to quickly and decisively address them and ensure your pay policies and practices are updated to ensure disparities don’t arise again in the future.

4) Develop a performance-based pay process.

Many employees are motivated to perform well when it is linked to pay decisions (but remember this is only one of many drivers for employee motivation and engagement). When the manager and employee collaboratively set clear, measurable goals from the onset and engage in regular performance reviews, ongoing check-ins, and establish effective feedback channels individuals can feel greater buy-in and ownership of the process.

For this to be most effective, it is important to provide training and coaching to managers, establish and maintain criteria that are consistently implemented and adhered to, and eliminate bias and/or favoritism in the process.

5) Maintain a comprehensive total rewards package.?

The salary that an individual earns is only a piece of the package that you provide as an employer. Benefits packages (medical, dental, vision, 401k contributions, PTO, supplemental and/or lifestyle benefits, etc) can account for 30-40% of the total amount that a company pays an employee. It is often eye-opening for employees to see a total breakdown of wages, bonuses, equity, and benefits.

There are many service providers that can help you calculate, clearly communicate, and visually represent the value of your total rewards through an annual total compensation statement.

Why is it important?

Although pay isn’t the only factor that helps you retain and engage great talent, it can be an important determinant of being able to attract and keep employees on your team. By establishing a thoughtful and disciplined approach to how you make pay decisions for your people and making the implementation of it transparent and smooth can positively impact an individual’s perception of your company as a fair and respected employer of choice.

What strategy are you going to put into place or relook as a result? Share your thoughts in the comments below.