A survey recently conducted by Salary.com revealed some major red flags regarding employee beliefs about how they are compensated. Among those red flags was the finding that nearly half of employees surveyed don’t believe they are paid fairly and equitably. As Salary.com Vice President of Consulting David Turetsky says, “the pressure is on for organizations to pull back the curtain on pay, educating managers on their prevailing pay philosophy and how to communicate it.”
A Loss of Trust
The survey findings should concern employers because they speak directly to company culture and employee trust. Once employees experience a loss of trust in their employer regarding an important issue like pay, their trust in other areas is eroded. And in the vacuum of information that the employer creates, employees are left to draw their own conclusions, which are likely to be false and will have negative consequences for the employer.
My clients are often hesitant to discuss pay due to traditionally ingrained beliefs that doing so will put them in a position of weakness. At the same time, their employees are increasingly demanding open discussions about pay; indeed, they are already discussing it amongst themselves. Rather than viewing this interest as a threat, employers should embrace the opportunity for an open dialog with their employees about what matters to them—and pay matters to employees—as evidenced by the survey’s finding that 81% of employees said compensation is their top consideration when considering a company for employment.
The survey also demonstrated that pay issues are directly connected to employees’ perception of organizational culture. Of those surveyed, 43% said they don’t believe their current employer’s pay practices are consistent with stated organizational values, nor do they trust their current employer to administer pay according to those values.
Adhering to the archaic practice of discouraging discussion about pay deprives employers of a perfect opportunity to strengthen, or even regain, employee trust. Employee compensation, along with workforce training and development, comprises one of the single most significant investments an employer will make. At the same time, employee recruitment and retention are more challenging than ever, with employees able to exercise much more freedom of choice than in the past. With compensation and employee perceptions of company culture so closely tied to one another, it simply makes no sense for an employer to risk losing employees when it’s possible to foster trust and loyalty.
Instead of losing control, employers experience greater control when they build transparency and clarity into discussions about pay—employees who understand a company’s overarching compensation philosophy are empowered to directly influence their pay outcomes. This keeps all parties’ energy focused on working as a team to build organizational success.
How employers approach pay is the foundation for making good business decisions on how to invest in employees. In order for any discussions with employees about organizational pay structure to succeed, employers need to first establish a clear understanding of competitive market pay for each of the roles in their organizations. Without doing so, it will be impossible to make good decisions about pay.
First, employers should recognize that they are dealing with a tech-savvy group of prospective and current employees who conduct their own research by logging onto Glassdoor or Indeed to get compensation information. But the data published on these platforms is self-reported and doesn’t account for the complexity of a single job title. Hiring managers and supervisors should be prepared for people who won’t hesitate to demand what they believe they are worth based on information that has little context in terms of company size and prominence, market, scope of responsibilities, and a host of other dynamics that impact pay rates.
Managers and supervisors who don’t understand organizational pay structure are going to flounder during these discussions. The consequences will be job candidates lost to organizations that discuss pay structure more transparently (or simply offer higher wages) and current employees left feeling that they aren’t valued and can’t trust their employers. When I counsel my clients, I encourage them to welcome these opportunities to discuss pay, to put things into a broader context, and to build understanding with employees about why they are paid the way they are.
Make a Plan
The next step is to build a strategy for how to handle pay and how it affects the organization’s ability to attract, retain, and motivate employees. The plan doesn’t need to be complicated, but it does need to ensure that pay rates are appropriate for the role, the company size, region, for-profit/nonprofit status, and any other contributing factors. Through proprietary access to Salary.com, supplemented by other compensation survey data, OMNI consultants can explore a vast data set that isn’t available to individuals, allowing us to provide keen insight on determining appropriate pay rates. While an individual can do a query on Salary.com, they don’t have the ability to drill down to the necessary detail, nor do they have the training and expertise to tailor recommendations to an individual employer. The art of compensation benchmarking is knowing how to accurately match client jobs with those represented in compensation surveys. I have honed this skill through more than 20 years’ experience in compensation market studies.
The plan doesn’t need to be complicated; it simply needs to be a structured model that instills confidence in all supervisory and management level employees regarding their ability to discuss pay with employees and promote transparency and understanding within the workforce. The plan should include how pay raises are determined—whether it’s based on performance, COLAS, or variable pay—and how often the pay structure will be examined. Employees don’t have to wholeheartedly agree, but they should be able to develop an understanding and feel able to trust their employers.
Companies that decide to reward employees through their pay structure for their success must also be willing to share information about the company’s financial success. Employees benefit from a “scoreboard” in order to have confidence that their efforts are making a difference. If employers are not comfortable sharing specific financial information, they can create context for employees by providing information about how the company is successfully achieving goals. The greater the mystery surrounding pay and company financial success, the harder it is for employees to buy into promoting that success.
Traditionally, employers tended to play their cards close to the chest in discussions about pay, and this has been a difficult dynamic to change. When our clients come to us for help in the area of compensation, it’s often because they are experiencing some other pain in their environment, e.g., they are having difficulty recruiting because candidates are accepting higher salaries elsewhere, or they are getting a high number of requests for pay raises. It’s rarely a proactive decision to seek help in the area of compensation, but by listening to the client, I’m able to determine when a perceived pain is symptomatic of the need to address compensation philosophy and structure.
I help my clients, a balanced mix of for-profit and nonprofit organizations, to gain an understanding of market pay and what can help them to establish or fine-tune an existing pay structure. Small organizations with fewer than 25 or 30 employees, will often have many unique roles; in cases where few internal comparisons exist, OMNI provides information about competitive rates of pay. I can also provide advice and counsel about bringing supervisors and managers into the fold regarding a company’s pay philosophy, empowering them to engage in meaningful conversations with employees and strengthen their trust in the leadership of the organization.
Larger organizations with numerous employees in a similar role will need more structure. Our larger clients often already have a pay structure that allows them to manage pay fairly equitably. However, the structure might not be fully utilized, or it might not facilitate the desired outcomes. I can help streamline any potential burdens in such cases.
I caution my clients to avoid comparing themselves with Fortune 500 companies if they can’t offer the same pay rates. But they should be certain to talk about what they can offer that those larger corporate entities might not be able to. This is where employers who have a well-structured compensation program can begin to highlight company culture. The dialog is not all about pay; employers can offer intangible value such as flexible work schedules, the ability to work remotely, training and development opportunities, strong workplace relationships, and so much more. And this dialog should be ongoing; be prepared to both recruit and re-recruit. All employers should build an ongoing “employer branding” plan into their compensation plan to ensure that employers are continuously receiving messaging about the benefits of working for a particular organization.
It’s Good for Everyone
There are numerous advantages to creating a pay structure:
- Employers have the ability to control the narrative, rather than leaving employees to come up with their own (often incorrect) conclusions.
- Managers and supervisors can align pay with desired business outcomes and instill confidence in employees regarding the overall health and well-being of an organization.
- With a clear strategy in place, employers will have built a foundation of trust that will allow them to focus on motivating their employees through other non-pay-related elements of culture.
- Employees can understand there’s a market rate of pay, but that they may receive less or more based on how many of the required attributes they bring to the table, opening the door to conversation about how to develop those traits to promote organizational success.
- If employers have a strategic plan on how to manage pay, follow it consistently, and are able to communicate it to employees in a transparent way, employees are less likely to conclude that their concerns about pay are rooted in discrimination.
- A plan also allows the employer to conduct regular pay audits to determine whether all people with the same role, regardless of gender, ethnicity, race, or location are being paid equitably and make appropriate adjustments.
As David Turetsky says in the survey report, “compensation is intrinsically tied to an organization’s culture. If you don’t establish fair and transparent pay practices that support DE&I, and clearly communicate those practices, you’ll have a hard time convincing employees your DE&I efforts are more than just window dressing.”
For most clients, the positive impact on company culture may not be immediately apparent; shifting to a mindset around pay structure transparency may take some time and continued engagement with the client. But in the end, clients that build a successful compensation strategy—and understand why it matters—build stronger trust with employees regarding pay equity and begin to establish the kind of culture they really want to have.
Jon Binder, Senior Consultant and Compensation Practice Leader at OMNI Human Resource Management, has over 25 years of human resources experience, including more than 15 years of compensation design and consulting experience. Prior to joining OMNI, Jon enjoyed a successful career in finance and as a human resources executive with Sprint.
Jennifer Gross-Statler, Consulting Services Administrator, comes to OMNI with 20 years’ experience as a nonprofit executive and brings valuable expertise in community and media relations, marketing and branding, project management, and strategic planning.