Tag Archive for: pay equity

7 Best Compensation Management Practices

Uncertainty and volatility have become the norm for organizations after more than two years fighting a global pandemic, supply chain disruptions, societal disorders, and now the highest inflation in 40 years and the possibility of a recession. In addition, a growing gap between job openings and available talent is making hiring more challenging, leaving many companies short-handed.

Each of these issues impact the bottom line and leave companies with difficult choices, often ad hoc, especially where compensation is concerned. By paying large increases to hire and retain quality staff, chances are company pay scales have been thrown out of balance. Without updating an organization’s compensation plan, this results in disparities existing between people in similar roles and job levels, a situation exacerbating turnover.

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To support hiring and retention efforts, conducting a review and analysis of your current compensation strategy should be a priority. Even more so today, workers are drawn to and remain with employers that offer fair, competitive, and equitable pay opportunities. Here are seven compensation management practices to follow when implementing your review:

Define the Compensation Strategy

Compensation strategy is the bedrock to establishing a pay philosophy. When formulating the compensation strategy, consider the following:

  • Company purpose, values, strategy, and culture. These shape the company’s approach to pay, including how employee purpose and values intersect with those of their employer.
  • Where the company recruits its people including industry, geography, and job type.
  • Competitive targets for salary, total cash, and total compensation.
  • Pay for performance, including rewarding team or individual performance.
  • Pay equity, diversity, and inclusion initiatives.
  • Compensation goals and the company’s approach to transparency.
  • Performance metrics that indicate that compensation programs are achieving their goals.

Determine Data Sources and Participate in Surveys

Multiple data sources – typically three or more – provide the necessary information to benchmark compensation in today’s pay environment. Consider location, and type of jobs in the organization, although often smaller organizations rely on one comprehensive survey. Sources of data include:

  • Salary survey data, where HR submits compensation information, it is vetted by the provider and reported by statistical analysis.
  • Free and open data often reported by governmental agencies.
  • Employee reported data submitted anonymously by current or past employees.
  • Pulse or quick surveys, compiled by HR firms and associations.

Additionally, surveys ask for company information including salary increase plans and information describing industry, location, and size. Participants receive statistical analysis by position.

Benchmark Compensation Program Competitiveness

As noted above most companies utilize market compensation data from multiple survey sources since any one survey will not provide an exact, ideal comparison. Hence, many times matches that approximate several survey sources are used for a job and determination is made by the analyst to combine the several data points.

Following market pricing many of the organization’s positions, a trend will emerge that will characterize the competitive position of the company’s pay programs relative to the market. Often this is reported as a percentile. In addition, intended aggregate salary increases are reported by participants.

Understand What Employees Want and Need

Employees are asking for greater reward differentiation, considering performance, age/life stage, gender, race, economic circumstances, and disability. One size does not fit all when defining employee needs and desired benefits. Start by listening to them. One-on-one meetings, focus groups, and surveys provide valuable insights to customize compensation offerings.

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Prepare the Compensation Budget

Each fall compensation develops a pay increase budget for the next year and follow a five-stage process.

First, compare actual competitive results from survey participation to competitive targets. Dig down to analyze competitiveness of superior performers, high-potential employees, and critical positions; compare new employee pay to that of veterans in same positions and to first and second level supervisors. Also look at pay equity issues previously uncovered and not addressed.

Second, look at what peer organizations are planning for compensation increases, both in aggregate and by function.

Third, understand the impact of inflation currently running at 40-year highs. Historically, organizations have not immediately responded to inflation, but to what the market of peers are planning.

Fourth, collaborate with finance who is pulling together an economic outlook for the company.

Finally, when a compensation plan is finalized, including salary increase budget and incentive pay opportunities, communicate it to the organization and educate its managers on administering the program.

Communicate the Compensation Program

Businesses embrace pay communications and transparency benefit in a variety of ways. Companies that are open about compensation earn greater trust from employees. In addition, pay transparency makes it easier to make progress towards achieving equity, diversity, and inclusion goals. Finally, employees who understand what they earn, how and why will be more fully inspired and connected.

Once you outline your communications objectives and key employee takeaways, determine what information will be communicated, how and when. Utilizing existing internal communications channels and creating feedback mechanisms often works best.

Manage Compensation

As pay decisions have become more complex, purpose-built software tools have replaced spreadsheets to support the design and day-to-day operation of a strategic compensation framework. More and more, leaders are leveraging many sources of data to drive more accurate and effective pay decisions. This is imperative as they manage salary increases; payments for short- and long-term incentive programs across business units and geographies; evaluate program performance; and test alternative scenarios solutions.

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Neil Lappley is a leading expert on pay delivery and competitiveness compensation practice issues in the Midwest. He consults with clients on compensation design matters for executives and salaried employees, assessment of pay competitiveness, incentive compensation, conduct of compensation surveys, and salesforce compensation. He authors a widely distributed monthly newsletter and presents at state and local compensation and human resource conferences. Connect with Neil at (847) 921-2812 or nlappley@lappley.com.

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Update: Four Themes Impacting 2022 Compensation

At the start of the year, Lappley & Associates examined four important themes impacting compensation in 2022: competitiveness, pay equity, remote/flexible working arrangements, and Environmental, Social and Governance (ESG). These issues have become integral to compensation planning regardless of how businesses are performing. Despite supply chain disruptions, inflation and persistent labor shortages, CEO confidence remained high. Then a war with Ukraine and roiling stock market added more uncertainty to the picture.

As we near the mid-point of the year, it is clear there is no immediate fix to economic areas of concern. So, we asked industry peers and leaders we work with about how business conditions are affecting their compensation plans and progress in these areas. We also tapped fresh survey data to get a clearer picture. Here is our update:

Compensation Competitiveness

After a decade of salary increases centered at 3%, employers report 2022 salary increase budgets ranging from 3% to 4%, with some at 5% or higher. Recent pulse surveys by Korn Ferry and salary.com confirm increases at 3.5%.

With year-over-year inflation above 8%, employees are experiencing net income loss. However, companies are reluctant to increase salaries further as this would also increase long-term fixed costs. Instead, employers are giving bonuses to cushion inflation effect on their employees. This includes across the board for all employees, sign-on, referral and retention bonuses.

We expect businesses will expand annual and long-term incentive programs, both with number of plans and number of participants. This trend continues as companies focus on linking compensation more closely with organizational performance and lower employee fixed costs.

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Pay Equity

Because of the tight labor market ? the number of job openings are almost double the number of workers seeking employment – employers are offering higher starting salaries to attract qualified talent. Often the result is compression with the newly hired worker making the same or more than experienced, longer-term employees. This creates disparities between subordinates and their supervisors. If compression is not addressed, it will lead to turnover among more senior or high-performing employees.

Pay equity is often the result of pay compression where pay is not related to factors recognized as legitimate reasons for compensation differences. This can result in legal problems, but more importantly affects the organization’s reputation. During recent conversations with consulting contacts, most organizations are addressing potential pay compression and equity problems.

Flexibility and Remote Working

Employees want autonomy to choose when and where they work. Leaders, on the other hand, are more concerned about maintaining morale and a strong culture in a remote or hybrid workspace. Work models are evolving to meet these mutual concerns, according to a recent Chief Executive survey:

  • One third report a mix of remote, hybrid and onsite workers depending on employee role or by department.
  • Another 31% of CEOs say they are fully in the office. Of those, 54% say fully in-office will be long-term and it is working well.
  • An additional 28% are adopting a hybrid model with equal halves setting in-office days/times and the other half opting for scheduling flexibility with no requirements.
  • Only 7% are adopting fully remote.
  • Flexible scheduling is reported to be the most effective method to maintain a strong culture and employee morale regardless of work model.

Approaches to remote working compensation are adapting to address new work models. WorldatWork recently released the results of its Geographic Pay Policies survey, which offers these insights:

  • Fifty-six percent of companies use metro/city location as the basis for determining pay differentials. Cost of labor is overwhelmingly a greater factor than cost of living in determining differentials.
  • Forty-five percent of organizations are applying pay differentials as a premium or discount to baseline pay structure while another 24% create base pay structures for each geographic location.
  • Employees (73%) expect that their pay to differ based on geographic location. Employees are saying (85%) that their organization is moderately to extremely transparent in communicating geographic practices.
  • For those organizations with geographic policies in place, 57% are considering modifying them with the increase of full-time remote work.
  • Remote working is valuable enough for 38% of employees to consider looking for new employment if it were to be discontinued.

Environmental, Social and Governance (ESG) Metrics

Environmental, Social and Governance (ESG) metrics are slowly factoring into executive incentive performance. Analysis of 2022 proxy statements from the 500 largest public companies showed approximately 50% included ESG in their performance measurement, representing 15% to 20% of incentive opportunity, and are most often reflected in annual plans. ESG measurements tended towards Diversity, Equity and Inclusion (DEI), as environmental efforts are often longer term and more difficult to place in a timetable. Medium and smaller companies have not typically used ESG metrics in executive pay evaluations.

In addition, DEI is becoming a factor in evaluating managerial performance. Often a scorecard with a variety of measures is used to fully capture DEI dimensions.

Contact Us

Neil Lappley is a leading expert on pay delivery and competitiveness compensation practice issues in the Midwest. He consults with clients on compensation design matters for executives and salaried employees, assessment of pay competitiveness, incentive compensation, conduct of compensation surveys, and salesforce compensation. He authors a widely distributed monthly newsletter and presents at state and local compensation and human resource conferences. Connect with Neil at (847) 921-2812 or nlappley@lappley.com.

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Six Steps to Pay Transparency

In recent years widespread social-justice movements are demanding pay equality. And in today’s war for talent, pay transparency is critical for employee acquisition and retention. While President Biden has made closing gender and racial pay gaps a priority, so far progress has been mostly limited to the federal workforce. Instead, states and municipalities are passing laws requiring disclosure of pay ranges to job applicants, a trend that is accelerating. Colorado, California, and most recently New York City have enacted pay transparency laws.

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Although regulatory action is certainly driving more pay transparency, there is growing evidence that employers adopting their own pay transparency programs have a competitive advantage. How? Job seekers gain a clearer idea that the employer values pay equity and has inclusive hiring practices. In addition, being upfront about compensation saves time during the hiring process by eliminating candidates who do not match salary expectations.

In fact, 6 out of 10 job candidates say they are more likely to apply to a job when salary information is shared, according to the 2021 Employee Expectations in Hiring survey by compensation software firm beqom. Millennial and Gen X workers have a higher expectation than do Gen Z or older Boomers.

Perception Meets Reality

Despite the apparent advantages businesses accrue from pay transparency practices, many are reluctant to act. Some fear that when salary ranges are posted all employees will expect to be paid at the high end of the scale. Others are concerned they will lose their best talent to competitors.

A recent salary.com survey of over 1,000 participants, representing companies large and small from across the U.S, finds that just over one-third (34.3%) of respondents share salary ranges with job applicants or employees. In sharp contrast, 73% of employees say it is important for them to know they are paid fairly in comparison to their colleagues in similar roles.

Putting Pay Transparency into Practice

Wherever employers land on the pay transparency issue, they may find that the goodwill generated with workers and job candidates far outweighs the potential risks. Following are six recommended steps to achieve pay transparency:

  1. Understand Pay Transparency Perceptions – An employee survey or in-depth conversations with managers and staff provides a benchmark for future planning. Make sure to address what employees know about current pay practices, whether they believe they are paid fairly, and how they view opportunities for advancement. Asking the right questions will also reveal where there are gaps in understanding. These research findings set the stage for organizational compensation plans, newly enacted pay transparency initiatives, and communications effectiveness.
  2. Define Pay Transparency Goals – In addition to improved hiring and retention success, there are other considerations impacting transparency goals. First, linking transparency objectives to the company mission and purpose helps employees understand their role in the workplace and how they contribute to the greater good. Second, a better understanding of compensation programs leads to improved productivity and performance. Employee engagement and support for DEI implementation can also be achieved. At least initially, establish only one or two goals. Then devise specific measures to determine if goals are attained.
  3. Decide What to Communicate – Once the compensation philosophy and plan are defined, outline specific information to communicate to prospects and employees. Getting the balance right between transparency and privacy is key. In that respect, give people information on how pay is determined (both salary and incentive programs); sources of competitive information and pay opportunity relative to market; the salary range for each person’s position and job level; and where and why they are paid within the range. Should a company decide to go deeper, full transparency may include publishing all company salary ranges by group (gender, national origin, etc.) relative to CEO compensation or average employee pay. Communication around DEI implementation can also be developed.
  4. Have HR Take the Lead – The company’s human resources (HR) team will be tasked with rolling out and communicating the compensation program. Most organizations thoughtfully develop communications materials that align with company policies. They also use the full scope of communications channels and tools at their disposal: the company intranet, Town Hall meetings, in-person or virtual presentations, leadership videos, tool kits, newsletters and more to ensure that every employee understands the pay philosophy and program.
  5. Support Managers with Training – Since employees rely on their managers to answer questions or address issues on a day-to-day basis, they are essential to pay transparency success. Historically, having conversations about compensation has not been easy for them. Coaching or training will help managers integrate pay discussions with guidance on each employee’s development plan. In addition, role playing can prepare managers on how to answer tough questions or deal with confrontational situations.
  6. Set Metrics to Evaluate Program Effectiveness – At least annually, a company needs to determine its employees understanding of their compensation programs using measures established in Step 2.

Final Thoughts

Legal requirements to better communicate to job candidates and employees about pay and future compensation are mounting. Still, there are many more compelling reasons to proactively address pay transparency.

First, organizations that openly communicate compensation enjoy higher trust leading to higher retention. Second, pay transparency promotes pay equity and equal opportunity. Finally, it leads to better employee engagement and job satisfaction. These are all practices that Top Workplaces have in common, and they are increasingly important to employees navigating the workplace in a post-pandemic world.

Contact Us

Neil Lappley is a leading expert on pay delivery and competitiveness compensation practice issues in the Midwest. He consults with clients on compensation design matters for executives and salaried employees, assessment of pay competitiveness, incentive compensation, conduct of compensation surveys, and salesforce compensation. He authors a widely distributed monthly newsletter and presents at state and local compensation and human resource conferences. Connect with Neil at (847) 921-2812 or nlappley@lappley.com.

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Post-Pandemic Compensation Considerations

How will your organization meet employee demands in a post-pandemic economy? Despite an expanding jobs market and growing optimism about the recovery, employers are finding that in many ways employees are in the driver’s seat as competition for workers tightens. This seeming paradox comes as unemployment levels remain high.

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Agile companies are responding with compensation and benefits programs that address employees’ shifting priorities. Yes, making a fair and competitive wage or salary is important. But so is workplace flexibility and a focus on employee health, wealth, and well-being.

Here are four of the most relevant post-pandemic workforce challenges and opportunities to consider when revising your compensation plan in 2021:

1) Hiring & Retaining Key Employees

The biggest human resource challenge facing companies as the economy recovers is hiring and retaining employees. In the latest jobs report for March 2021, openings in the U.S. rose to 8.123 million, the highest on record. This is 5 million above pre-pandemic levels, based on data tracked by the Bureau of Labor Statistics.

While many of these job opportunities are in industries virtually shut down during the pandemic, other sectors including manufacturing are expanding. Unlike prior recessions, the laws of supply and demand are not the only trends impacting hiring and employee turnover. Concerns about workplace safety, issues with childcare, and other factors such as generous unemployment benefits may be keeping some workers on the sidelines.

Still, paying a competitive salary is key to bringing on new talent and rewarding key employees, especially your top performers and those in positions in high demand.

Finding real-time wage and salary information will help you determine how competitive your current compensation plan is and whether adjustments should be made.

2) Targeting Pay Equity

Organizations are targeting pay equity to ensure employees doing similar work under similar working conditions are paid fairly. Employees are demanding it; laws require it; and employers must address it to recruit and retain top talent.

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The current federal administration will likely apply more stringent enforcement of equal pay regulations. Already employers who run afoul of the Equal Pay Act (EPA) can face penalties from the Equal Employment Opportunity Commission (EEOC). However, the reputation damage can be much worse, affecting the ability to attract and retain talent.

3) Enhancing Benefit Programs

As workers’ needs evolved during the pandemic, the value of benefits to all employees has become increasingly apparent.

Flexible work arrangements have been evolving and have been accelerated during the pandemic as employees had to care for children being schooled at home or for other family members. Accommodating flexible employment arrangements has become central to being an employer of choice. This means working outside of the historic 8 am to 5 pm workday and balancing employer and employee needs.

Some employees are subsidizing childcare, recognizing that difficulties finding reliable care during working hours may affect productivity. Others provide care on-site.

In any case, taking a fresh look at benefit strategies goes together with pay to support a competitive total compensation package.

4) Compensating Remote Work

During the pandemic, most organizations implemented employee work-from-home programs. Many employees would prefer to continue working remotely, at least part of the time. In exchange for reduced commuting time and more flexibility, many found these new arrangements to be more productive and family friendly.

Employers also found remote work arrangements helped them save on real estate and other overhead, such as travel and meeting expenses. Making these types of arrangements permanent or long-term will require changes to management style to integrate remote and in-office workers.

In addition, companies who can hire from any location must decide how they will pay their remote workforce. On the one hand this is a desirable workplace perk, while on the other salaries vary drastically depending on competitive practice cost of living and other factors from region to region.

We believe that most companies will approach the issue by referencing cost of labor and not cost of living data. Whether they use specific location or broad geographic information to determine a compensation structure has yet to be determined. But companies will most likely base remote compensation on competitive practice to avoid paying under market and allowing employees to be poached away because of pay.

Summary

Shifting attitudes about work and the workplace developed during the pandemic will carry over longer term and will impact compensation, hiring and retention in 2021 and beyond. What you pay employees and how you reward them with benefits and services will either help or hinder employee management plans in an increasingly competitive job market. Be sure to make the right choices based on what’s competitive for your industry and market.

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For help or information on this topic, you can email me nlappley@lappley.com or call (847) 921-2812.

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Pay Transparency Approaches

Pay transparency is a hot topic for employers navigating how best to meet growing demands to close gender and race-related pay gaps, as well as satisfy loyal employees. It can be a difficult needle to thread. How much pay transparency is too much? Should an organization adopt a pay transparency standard?

A new study by compensation software provider Beqom reveals employee perceptions about pay equality have eroded further in 2020-21 as many businesses adapted to the pandemic with work-from-home strategies, reduced work hours, and even temporary furloughs. In its survey just one year earlier, Beqom reported one-third of employees believed their companies had a pay gap, a view that negatively impacts employee retention.

During the latest economic downturn, many pay equity programs had to be put on hold as companies faced growing financial constraints.

Businesses that embrace pay transparency benefit in a variety of ways, not the least of which is by establishing a higher level of trust with employers and co-workers. Trust promotes respect and improves employee retention and loyalty. Top performers know their accomplishments are being recognized.

Pay transparency also helps employers make meaningful progress toward achieving Diversity, Equity, and Inclusion (DEI) goals. And when employers are more open about pay ranges for roles and job levels within their companies, employees can shift their focus to career growth and how to support organizational success.

Arguments against pay transparency include concerns that employees may have resentments if co-workers make more than they do or that failings in the company’s compensation, hiring and development systems may be exposed. Furthermore, pay communications can make employees vulnerable to being hired away. As a result, many organizations have rules against discussing pay. It is the author’s experience, however, that even with company restrictions, many employees continue to discuss pay among themselves.

Pay Transparency in Focus

When your company decides to proceed with a pay transparency program, organizations have three key decisions to make. The first decision is Why or determining the results to be achieved when communicating compensation. The second decision is What information will be communicated. Finally, the organization must determine the How, which focuses on the ways that pay information will be disseminated to employees.

Why options that define goals of your transparency program range from describing compensation strategy to linking company purpose with employee purpose. Other goals include improving understanding of compensation programs, increasing compensation ROI, enhancing employee engagement, and reducing turnover.

Initially, establish only one or two why goals to make your transparency approach straightforward. Be sure to put specific measures in place to determine if goals are met.

Next, determine What will be communicated, which depends on the degree of pay transparency planned. Some organizations only communicate the salary range and position in range for specific roles. Others seeking complete pay transparency reveal all salaries for every employee in the organization.

Additional choices include pay opportunity relative to market, sources of competitiveness information, how pay is determined, your overall compensation budget, specific groups’ pay relative to company average pay, and employee pay communication restrictions.

Finally, the How depends on the way the organization typically communicates. Options include one-on-one meetings, group presentations, manager training to enhance ability to explain programs, leadership videos, intranet, email, employee handbooks, and the annual total rewards report.

Summary

Although there can be challenges to successfully implementing pay transparency programs, the dangers of standing pat are even greater. Organizations need to have their compensation programs in order and pay transparency is a growing priority. In fact, the Beqom survey finds 51% of employees would consider switching companies with more pay transparency than their current employer.

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If you found value in this article, please share it with anyone you think may also find it of interest. For help or information on this topic, you can email me nlappley@lappley.com or call (847) 921-2812.

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New 2020 Compensation Planning Priorities

When we look back, 2020 will long be remembered as a year of massive change for business and industry on a scale not seen before.

The COVID-19 pandemic has plunged our economy into a global recession and put health and wellness at the center of workplace conversations. Worldwide protests supporting the #BlackLivesMatter movement have joined #MeToo voices urging meaningful community action on discrimination, pay equity, and inclusion.

In response, organizations are making significant changes to their business models and accelerating the adoption of Environmental, Social and Governess (ESG) criteria to guide business investment and decision-making. They recognize that their organizations’ stakeholders are motivated by more than a goal for increased revenues and profits; other success metrics include environmental, social responsibility, gender, and racial diversity measures to track progress on social and economic purpose. Some are calling this new integrated approach to corporate governance stakeholder capitalism.

In tandem with these changes, proactive CEOs and HR professionals are taking a step back to reassess their compensation programs, so they align with a more purpose-driven business model. This is an opportunity to transform massive challenges into meaningful change, but it will require a thoughtful and strategic compensation approach that looks at the following:

1) Assess critical job skills. Quite likely, as the result of an updated business model, critical skill jobs have changed. They should be identified and monitored for pay competitiveness. These employees are most susceptible to being recruited away.

For instance, purchasing professionals are dealing with disruptions in their supply chains, especially in manufacturing. Sourcing from India and China has become problematic during the pandemic. Employees that can fill supply chain gaps are highly valued and in great demand. Employers may need to prioritize their investments in these job skills even when resources are scarce.

2) Revisit your compensation strategy. This flows from the company’s purpose and business strategy and is part of the organization’s overall HR strategy. To the extent that your business model has changed, compensation strategy must also follow the organization’s purpose or why it exists. A recent Compensation Alert here takes you through the elements of establishing your strategy. A critical part of your updated strategy will be to reestablish your benchmark of competitive and comparable organizations, update your current competitiveness levels and determine your targeted level of competitiveness.

3) Take a fresh look at pay equity. Many employers have implemented pay equity analyses to identify whether they have gender or race-based compensation gaps. They have done this to promote fairness, retain talent, and mitigate risk. If you have not done a pay equity analysis already, you should begin the effort soon. If you have, dig deep into the data to determine what is driving pay disparity: the actions of certain managers or decision-makers; out-of-date policies or business practices; or unconscious biases within a division or department. You can learn more about Pay Equity and The Rules of Engagement here.

4) Review base salary and incentive plans. Many companies have taken salary actions in the wake of the COVID-19 health crisis. These include pay cuts, cancelled salary increases or freezes, delayed or deferred annual salary increases, and adjusted planned average salary increases. In addition, organizations have suspended promotional increases or added additional pay for essential work (often called hazard or hero pay), while others have reduced or suspended benefit programs. As the economy improves, business leaders must determine when and under what conditions salary actions taken during the health crisis will be lifted or withdrawn.

It is too early to forecast levels of average merit increases for 2021. It is more likely, however, that more companies will not be giving salary increases next year. Even more, this will vary by industry and region, so it is prudent to develop a good idea of what your competitors will be targeting.

Incentive plans have also taken a hit from the pandemic, as organizations have modified their short-term and annual incentive programs by reducing opportunity, deferring or delaying payments, and adjusting performance targets. Changes to long-term plans have been less prevalent. Consider the following actions:

  • Short-term plans: As you plan for the second half of the year and revenue and profit expectations crystalize, consider: increasing the use of management discretion in determining 2020 incentive/bonuses; changing performance measures consistent with repurposing of the company; and lowering performance targets, maximums and thresholds. Additionally, revisit base payouts on second half performance against second half goals.
  • Long-term plans: Take no actions for the next several months. Consider adjusting performance targets if goals become unattainable.

5) Do not overlook your sales force. The COVID-19 pandemic had a great effect on sales organizations. Orders for commercial and industrial goods were curtailed. Falling orders meant less revenue for sellers for sales compensation credit. Our work with clients indicates that most companies have implemented pay protection methods to replace some or all lost sales incentives for sellers. The most popular methods include pay guarantees, quota reductions and formula changes.

It is time to reset for the balance of the year. Sellers need to be reengaged to reactivate suspended opportunities and find new revenue. A good time to start fresh is July 1st, the start of the last half of the fiscal year for many organizations. But at the same time, discontinue pay protection programs. The sooner you are beyond pay protection programs the better. Consider the following actions to fast-track sales revenue:

  1. Redo quotas: Continued uncertainty will make it difficult to project expected revenue for the second half of the year. However, take into account new avenues for revenue based on your adapted business model as well as revenue purchasing customer patterns. Develop stretch goals.
  2. Review payout formulas: Thresholds, incentive rates, accelerators and caps should be reviewed.
  3. Jump start incentives: As an add on, use a combination of contests and spiffs to add excitement, and motivation. Provide both cash and non-cash awards. Keep the jump start short – a maximum of three months.

In Conclusion

Uncertainty and change will be the hallmarks for organizations during the remainder of 2020 and into 2021. Short of a crystal ball, prudent planning to address the workplace issues of our time is your best bet to make your culture stronger and better equipped for future growth.

Despite current economic hardships, visionary business leaders who understand where and how to prioritize investments in talent will seize the opportunity to recruit the best and the brightest for the road ahead.

Contact Us

To discuss how to adjust your organization’s compensation strategy and develop more meaningful benchmarks and metrics to make your workplace stronger, please contact Neil Lappley at (847) 921-2812 or nlappley@lappleiy.com.

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Pay Equity and The Rules of Engagement

From Wall Street to Main Street, the issue of pay equity and demands for a fair living wage are making headlines across the country. Despite the growing furor, the idea that employees performing substantially equal work should be paid equally is not new. The Pay Equity Act was passed in 1963, followed by the Civil Rights Act of 1964 and the Lily Ledbetter Fair Pay Act of 2009.

However, laws alone have not closed the gap in pay disparity in many industries, a trend that also impacts small and mid-sized businesses. One reason may be that most companies are reluctant to share in-depth salary information about their employees based on race and gender data.

Recently, chip maker Intel made the unprecedented move to publicly release this data for 51,000 U.S. workers. The report was sent to the U.S. Equal Employment Opportunity Commission (EEOC). This is the first year that the EEOC is requiring the same kind of pay data from all companies with more than 100 employees, though companies aren’t required to publicly disclose that data. Previously, the EEOC asked for race and gender data, but not pay information. Intel released its data after settling a pay discrimination lawsuit for $5 million in October.

As this example illustrates, organizations can face significant financial and legal ramifications if they are viewed as paying employees unfairly. And while most employers are motivated to do the right thing, what may be well intended with good workplace policies sometimes falls apart in actual practice.

Pay Equity Trends

Increased scrutiny of employer pay equity has made this a hot topic for companies of all sizes. For this reason, total rewards association WorldatWork conducted a Pay Equity Practices and Priorities Survey to assess the current state of pay equity related work. Key findings include:

Gender pay gap and broad pay equity analysis is becoming standard practice for organizations (79% and 71% respectively).

  • Additionally, 55% reported remediation strategy execution and remedial option evaluation (52%) are not far behind.
  • Interestingly, 32% of respondents are not looking at performance management practices. This is surprising since performance management programs tend to be subjective.
  • While employers are looking for potential biases that may influence pay disparities, benefits programs are not receiving the same attention.
  • Only 9% of organizations said gender pay gap analysis is not on their radar.

In another survey conducted by WorldatWork earlier this year in partnership with pay consultancy Korn Ferry, larger companies reportedly were more likely to take action on pay equity than smaller businesses. In fact, regulatory compliance and culture initiatives are key drivers behind pay equity management programs. So is the desire to improve employee engagement and build trust in organizations.

Still, the ultimate test of faith depends largely upon how pay equity is managed within the organization and how well pay equity initiatives are communicated to employees.

Changing Laws and Uncertain Politics

Employers navigating complex pay equity issues are just as likely to encounter a changing morass of state and municipal laws, some which assign rewards for liability and damages. According to some legislation, potential new hires are entitled to know what the pay range is during recruitment.

In addition, with national elections looming in 2020, public policies to address pay inequities could further expand. As a result, how organizations justify differences in employee pay based upon merit, seniority, or other factors may also need adjustment.

To land safely on pay equity issues in an uncertain political climate, companies are advised to:

Conduct comprehensive pay equity and pay gap analyses;

  • Identify diversity and inclusion priorities, then follow through;
  • Look into biases that may be discouraging promotions within the company; and
  • Define clear metrics for good performance, then ensure that unconscious biases don’t have an unwanted influence on performance evaluations.

Pay Transparency Pays Back

In today’s digital world, savvy employees have easy access to compensation information from online sources like Indeed, LinkedIn and GlassDoor. Therefore, they know what to expect to earn at a job. And The result is that companies can no longer avoid transparency when it comes to pay.

Being transparent about pay, at the same time, allows employees to understand their pay, how it relates to company values and how it compares to public information. The result is to strengthen the employee/employer relationship.

There are three reasons why compensation transparency matters:

  1. It’s important to employees. According to a recent survey by Mercer, reportedly only 19% of employees gave their employer an “A” for equity and promotion. In addition, data shows that in the past five years employee perception of pay has declined.
  2. Lack of transparency hinders organizations from achieving diversity in the workforce. It has been shown diversity in the workforce leads to higher performing organizations. Transparency supports holding companies accountable for compensation decisions made.
  3. Democratization of pay has made it easy for employees to have access to competitiveness information, taking compensation information out of employers’ control.

In Conclusion

Pay equity and equal pay for equal work seem like no brainers. But it’s not easy to change perceptions that are heavily entrenched in our society. Pay equity, however, is having an outsized impact on employer’s ability to hire and retain top talent in today’s highly competitive labor markets.

To discuss how pay equity and transparency can be addressed to attract and keep top talent at your organization, please contact Neil Lappley at (847) 921-2812 or nlappley@lappleiy.com.

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Addressing Pay Equity

Pay equity is a topic that isn’t going away. Rather, the spotlight is only getting brighter.

This makes understanding possible pay gaps between the men and women in your workplace and adopting proactive approaches to remedy pay inequities more important than ever. For instance, according to the American Association of University Women, 42 states as well as Puerto Rico and Washington D.C. proposed new pay equity legislation last year. Not all the measures passed, but enough did making it challenging for organizations operating in multiple markets to address the issue of pay equity in a comprehensive way.

A growing number of states and local governments have made it illegal for employers to ask candidates for their salary history. The rationale for the law is this: since females have historically been paid less than males, platforming a new salary over a low salary only perpetuates the difference. In response to this trend, a recent WorldatWork survey finds that 37% of companies have a nationwide ban on asking potential candidates about their past pay.

Additional legislative approaches to tackling pay equity include new laws promoting more pay transparency; others give employers protections for making “reasonable progress” toward pay equity. Clearly, the shifting landscape and impact of gender wage gap laws raise compliance and performance concerns for companies and their compensation policies.

What is Gender Pay Equity?

When we talk about gender pay equity, this often is confused with equal pay or these terms are treated interchangeably. However, there is a difference.

The gender pay gap is a broad measure between the aggregate pay for women and men across the organization. It is expressed as a percentage of men’s earnings.

Equal pay requires women and men doing the same or a substantially similar job to receive the same compensation and benefits. In other words, equal pay for equal work.

It is important for businesses to understand the distinction. Why? Both areas should be examined to better understand pay differentials within your organization and the factors at play impacting your talent management programs.

Understanding Gender Pay Equity

Several studies in recent years have looked at pay gaps to better understand the causes and impacts.

In a new article, “More Than a Pay Gap,” management consulting firm Korn Ferry examined its compensation data base for organization-wide pay differences within 110 countries. What they found is that the gap in the United States narrows considerably the more specific the comparison becomes. While women on average earn almost 18% less than men, the gap between a man and woman working in the same job level for the same organization in the same function is typically only .9%.

Korn Ferry researchers have concluded the reason women are paid less than men is not necessarily the result of unfair pay practices. Indeed, this may be the case in some organizations (after all, averages mask actual comparisons). Rather, the gap in pay is deduced to be the result of fewer women working in higher paying industries or leadership functions.

As the Korn Ferry study reveals, the solution to the organization-wide gender pay gap represents a complex and systematic challenge. We will focus on how to meet the challenge in a future issue of Compensation Alert. Meanwhile, companies have immediate opportunities to evaluate whether your organization is complying with equal pay statutes.

Conducting a Pay Equity Analysis

Inequitable pay practices can pose immediate risks to your business – including reputational risk. To help uncover possible issues driving any pay differentials within your organization, conducting a pay equity analysis is recommended. Following is a step-by-step process overview:

It may be prudent to consult with a lawyer, as audits of this type are often protected by lawyer-client privilege.

  • Identify the equal pay practices you want to investigate.
  • Gather data on employees grouped by comparable worth. Jobs should be examined regardless of job title, with the focus on work performed, the manner in which the work is performed, and the skills required for the job.
  • Determine what drives pay most, whether desirable factors such as performance and/or level or undesirable factors such as race, gender or age are involved.
  • Beyond the job-based analysis, the study should look function-by-function, manager-by-manager, and location-by-location to see if any equity trends emerge. Any pay gaps can then be closed.
  • Following the job-based analysis, it is important to dig into the causes of those gaps. For instance, salary structure and other compensation tools need examining.
  • Finally, leaders must be committed to change if undesirable factors influencing pay have been discovered. Change can only happen if commitment exists at all levels to ensure fairness, consistent communications, and organization-wide management practices.

Conclusion

The type of pay analysis described above will need to use comprehensive compensation market data, review and likely overhaul compensation administration guidelines, and update job grading systems. But smart organizations can turn it into an advantage. How? By looking beyond current law to build proactive policies and practices promoting gender equality (and diversity of employees) and embedding these values into the company culture.

Further, experts say that organizations that manage pay equity well and have diverse, inclusive cultures post higher returns and have more trust in leadership, greater employee engagement, and less turnover. Organizations that fail to manage pay equity well are subject to the inverse consequences, plus increased risk of litigation.

Let’s Connect

If you enjoyed this or other articles I have written, please share it with anyone you think may also find it of interest. For help or information on this topic, you can email me or call.

Contact me at (847) 921-2812 or nlappley@lappley.com.

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[April 2017 Comp Alert] Why Pay Equity Matters

Pay equity is an important consideration for employers today. Unfortunately, it’s not something that happens easily. In fact in a recent study we came across, just over a third of respondents had in place a process to address pay equity issues. Addressing this important concern requires a well-considered process to ensure that individuals doing the same job, with the same skills, and level of proficiency within those skills, are paid equally. And pay equity is not only good for the individuals impacted, but has been shown to have a positive link to overall engagement, turnover, and customer service metrics.

Pay equity isn’t just about fairness. It’s about creating an environment that fosters employees to focus on customers, rather than comparing salaries with coworkers. It’s also indicative of a culture that values its employees and is committed to giving them visibility into the process that impacts compensation. This visibility leads to an excellent employee experience, which in turn leads to an excellent customer experience.

Hiring

The marketplace for talent is increasingly transparent. Between the wealth of information online and the ease with which people can connect and share information on social media, bad employers have nowhere to hide. Taking a strong position on pay equity can help a company’s brand in the marketplace.

The equity focus is also indicative of a culture that embraces diversity of all skills, competency and performance, taking an active role ensuring multiple perspectives are given equal credence.

Turnover

Turnover is costly, disruptive and potentially damaging to the employer’s brand. Although turnover will vary by industry, all organizations want to keep their good employees longer. Compensation, and in particular, equitable compensation, according to all surveys, is a significant factor in retention.

Organizations unable to retain talent face a number of challenges, from impact on productivity and morale, to eroding levels of customer service. Obviously, a formal focus on pay equity is not the only factor to impact turnover. But when organizations focus on things that matter to employees, they reap the benefits of employees that stay with the organization.

Engagement

Engagement has become a critical business metric, linked to everything from revenue to customer experience to organizational alignment. And there is no question that compensation matters to engagement. For instance, a recent study showed that the number one component of engagement and retention was compensation.

Performance

Of course, the goal of HR strategy, including compensation, pay equity, and engagement is to drive business performance. It has been shown that organizations that achieve above average engagement levels for their industry were twice as likely to also achieve above average levels of productivity. In addition, they are two and one-half times as likely to have achieved or exceeded revenue goals.

Conclusion

Pay equity is an important mindset for organizations and the workforce as a whole. When employees are treated fairly and equitably, it builds trust, which leads to engagement, retention and performance. It removes difficult conversations between managers and employees, and it allows focus on the work at hand.

Contact Us
Please contact me at nlappley@lapppley.com or (847) 864-8979 to discuss any questions you may have from this eNewsletter. Feel free to forward this email to anyone else who may be interested.

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