Compensation strategies and transparency - do they go hand in hand?

Some jobs have always made me wonder how to define and structure their compensation strategies appropriately, like a Graphic Designer or a Content Writer, or a Marketing Strategist.

And then, some roles evolve within minutes. Rohan was hired as a Product Analyst. But three months into the company, he is also leading the frontlines. However, his CTC remains the same until the next appraisal cycle. What if he leaves the organization before the process? Who and what is to blame for that!

Designing a fair compensation strategy is a hell of a ride, but not trying to build one is way more exhausting. However, that’s not it.

The even bigger dilemma is how and how much to communicate when it comes to compensation transparency.

In one of my previous organizations, I realized that we were spending a lot of time on grievance handling. There were questions like ‘why my compensation is lower than my peer,’ ‘why am I being paid low w.r.t. industry benchmarks’. That time could have been used in creating an equitable compensation strategy. 

It took me an enormous amount of time convincing people of the same.

Let’s first address how one should design a compensation structure because that will answer our follow-up question.

More than most of the time, organizations go by gut-feeling. They extend a salary because it feels right. Many factors play a role, including favoritism, perception of work, previous compensation, lack of attention, or criticality of the role. Ever heard statements like – Let’s keep a pipeline of interns and pay a minimal amount of money? Well, there you go.

I vividly remember an intern who joined the organization and left within three days saying that she was disappointed by the misalignment between work and compensation. She said, “I am working as much as the person higher up in the hierarchy, but paid only 10% of what she is being paid.” 

Compensation is not just a tangible outcome; it’s a value that organizations extend to individuals. It’s more than just a necessity, and it’s a reflection of the employer's perception of the significance of the individual’s contribution to the company. 

With that being said, it is a tangible outcome, and it is a necessity. People join an organization based on trust. They come with the mindset that they will be paid fairly. But I have experienced HRs undervaluing compensation with the culture and exposure that the company will offer to the potential employee. Not fair! 

So how must one go about it?

Referring to the above-mentioned example of one of my previous organizations, once everyone was on the same page, it took us 3-4 cycles to determine and establish a fair and reasonable compensation strategy that factored in relevant variables.

Some of the critical steps we followed there to induce transparency and encourage healthy conversations -

• We devised a formula to determine compensation ranges and increments aligned to the job bands and suited for the financial and emotional needs of the organization
• We published and shared this data with every individual across the organization. We sent out a deck annually that hashed out the whole science behind compensation strategy, including the steps followed to arrive at compensation increments
• Once that was sorted, it was all about practising integrity. We ensured that every single individual’s salary increment, including CXOs’,  was arrived at using the same steps. 

Over a period of 3 cycles (1.5 years) grievances/queries/concerns related to compensation came to naught. One of the most terrific experiences, with better than desired outcomes, for me at work. 

Devising a compensation strategy is a work of science.

A rather simple one at that. One needs to work backward. Imagine you earn 1000 Rs and you have 4 kids. How will you distribute the 1000 Rs minus other expenses? There are so many factors at play including each kid’s needs and expectations. 

Arriving at a fair compensation strategy is as simple and as complicated as that. We need to build scientific frameworks to reach the right one. 

It’s actually a 3-step plan -

1. Discover the science that fits your company’s profile. There is no one-size-fits-all here. Nada! Creating a science-based compensation strategy, customized to your organization would include –

• Identification of all prevailing and potential roles in the company
• Identification and assessment of job bands and grades system being exercised in the organization 
• Understanding an organization’s financial and cultural standing and have a clear understanding of the company’s vision and goals

2. Share the science with all concerned stakeholders. There is no point in building a formula if you can’t share it with people operating on both sides of the equation. To tap the maximum potential of this science, it must be shared with the entire organization, every single individual.

Because trust cannot be half-cooked and served to a limited few. 

P.S. - If you have doubts about sharing this science, it isn’t science in the first place.

3. Practise the science with all your heart and soul. All the investment is worth nothing if planning doesn’t lead to implementation/execution. It requires a lot of discipline and conviction to be able to implement science-to-pay structures that eliminate any scope of bias and oversight. It requires intent and action. 

The follow-up question – How transparent should one be with compensation strategy?

Let’s begin with what happens when we are not transparent –

1. Morale of the team goes down exponentially. We are living in a world where 5 generations are working under one roof. Millennials and Gen Z are redefining cultures and discussing pay scale is one of them. Most of them do not shy away from asking questions related to compensation with their peers and seniors. If an individual comes to face the fact that there is no thought to their pay structure, the whole team’s morale is compromised.
2. Leads to unproductivity. If people are more concerned why the pay disparity than work deadlines, productivity struggles. Not healthy for the individual, the team, or the organization
3. Destabilizes and damages organizational culture. People are the living asset of any organization. If their morale is affected, the culture invariably suffers.

Higher transparency and communication with respect to pay structure, pay process and pay outcome, higher the social capital of the enterprise.

For all of that, companies need to decode the formula that works for them, because there is no standard formula out there. It depends on company size, nature of work, hiring needs, revenue streams, hierarchy, experience, and many other factors.

It takes huge investments especially in terms of time but trust me it’s worth it.

And it’s not just me saying it. It’s science speaking through me and my experiences.

If you want to discuss more on this more, I will be happy to connect with you.