Playing Fair
The Unexpected Compensation Ramifications of The Great Resignation
"For every action, there is an equal and opposite reaction," states Newton's third law of physics, and every HR leader knows this to be true.
Pay Equity — paying two people performing the same job comparable wages — has always been important, but the past three years have made the concept of pay equity a whole lot more complex. As we all know, compensation rose significantly in the late spring of 2021, causing a scramble for talent. But while inflation has simmered down (although my grocery bill would argue otherwise!), wages have stayed high.
So how does this spike in outgoing wages for new hires impact the employees “left behind”? The ones who have been with the company from before the Great Resignation?
While inequities related to gender and race are certainly important topics, the concept of internal equity has continued to cause indigestion for many HR leaders. What happens when you have two employees (same gender, same race) performing the same job, at two widely different pay rates?
It may be legal, but it’s certainly not wise!
People talk. Everyone talks. And the last thing you want to do is lose a loyal employee because she finds out Sally is making 30% more than her, even though she has 5 additional years of experience and tenure. (Yes, this will happen)
A compensation strategy to move the needle on internal equity will ultimately do more to attract and retain talent than hiding the issues under the rug and hoping no one notices. Here are three steps to get started.
1. Conduct Regular Market Benchmarking.
Regularly benchmark your compensation packages against industry standards. This helps ensure that your salaries are competitive and align with current market rates. Use reliable compensation surveys and data analytics to understand trends and adjust your pay scales accordingly. For our clients’ hiring needs, we utilize the Economic Research Institute to create salary bands for the roles we are working on. No salary benchmarking tool is perfect, but it does give you a place to start.
2. Teach Managers to Give Honest Performance Feedback.
Review internal pay equity to ensure that employees with similar roles and performance levels are compensated equitably. However, achieving true pay equity goes hand in hand with honest performance feedback—easier said than done.
Many managers shy away from difficult conversations about performance, having never been trained in the art of feedback. Genuine, honest feedback helps employees understand their strengths and opportunities for improvement—and why they’re not getting the same raise as Sally. Training managers to provide constructive, transparent feedback will help bridge the gap between performance and pay.
3. Create a Sustainable Strategy for Success.
Practically speaking, you may not be able to make broad, sweeping changes to all employees’ compensation at the same time. So where to start?
Prioritize Critical Roles and High Performers. Focus on ensuring competitive compensation for critical roles and high performers first, maximizing the impact of your compensation budget. Equip managers with performance metrics and evaluation tools to identify and reward top performers effectively. Communication is key!
Utilize Non-Monetary Rewards. Traditional compensation can always be supplemented with non-monetary rewards. Flexible working arrangements, professional development opportunities, and recognition programs can enhance overall job satisfaction and retention without significant financial outlay. Train managers to utilize these rewards effectively and discuss them with their teams as part of performance conversations.
Implement a Phased Approach. If immediate adjustments are not financially feasible, gradually adjust compensation over time, starting with the most significant discrepancies. Communicate your plan clearly to employees and train managers on how to discuss the phased approach and its timeline with their team members.
You eat an elephant one bite at a time. Compensation discrepancies don’t get fixed over time, but you do have to start somewhere.
And as you move forward with hiring new talent, talk to your strategic advisors to make sure you are paying competitive market wages . . . and not overpaying. The truth is in the middle.