This is an excerpt from our budgeting how-to whitepaper. Download the full version here.
Today we’re continuing our discussion on identifying compensation inequities, this time at the position and individual levels.
At the position level, there is one primary question for investigation: Have some of our positions moved faster in the market than others?
What we know about today’s market is that it is first and foremost volatile and inconsistent. From year to year, some positions may move as much as 10 percent or more, while others may stay still and yet others may decline. Consider, for example, the medical records associate. The value for that position has consistently declined as EMRs have become the primary way of storing medical information. As such, pay for EMR specialists is on the incline while pay for paper medical records associates continues to decline.
Today’s market is inconsistent. From year to year, compensation for some positions may increase and some may decline.
The primary way to identify position-level inequities is a comparison between the range midpoints and the market values for each position. Additionally, compensation management systems such as PayScale will provide a market trends analysis, showing you how much each of your positions has moved each quarter over the past year.
Your critical positions may move faster than others in the market. Be sure to review these positions on a quarterly basis. Listen to your employees and be aware of any flight risks. You could consider adjusting the grade level and perhaps employee pay in those roles. Or, you may offer a market premium bonus for the roles until your annual comp review time. Be prepared to adjust pay between cycles for your critical roles. And, as always, when you make adjustments to grade assignments, watch the ripple effect that it will make as you strive to maintain that optimal balance of both external and internal equity within your organization.
At the individual level, investigate: Are we paying employees fairly based on our compensation strategy and their Equal Employment Opportunity status?
There are essentially two types of individual level inequities that we need to regularly test for. Have we somehow lost track of our pay strategy? In this case, you may have managers being paid less than those they supervise. (Note: This is not always inappropriate in more technical positions.) Newer incumbents may be getting paid at or near the same wages as longer tenured employees. In compensation terms, these are called compression issues. Proficient incumbents in new roles may not have been brought fully within range of their new roles.
Examine both your compa-ratios and your outliers. Compa-ratios, the ratio between employee pay and the range midpoint, provide a way of checking that you’re paying appropriately to your range midpoints. Ideally, you’d keep these between .8 and 1.2. Your outliers are those that fall below range (green-circled) or above range (red-circled). If you find that you have a number of outliers, determine your plan to bring people within range — or, have a clear policy about why it may be okay not to have people in range.
The other thing to examine on a regular basis is whether there are any compliance (and potential discrimination) issues. Are you paying fairly across gender, race and ethnicity? Checking the disparity in pay between the lowest and highest paid incumbents is one way to begin to identify inequities. Also, checking the disparity between the average pay for incumbents in each of the protected classes will ensure you are compliant with EEO regulations.
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