4 Steps to Developing a Market-Value Employee Salary Structure

July 7, 2021
Author: ThinkWhy Staff

Part of building a successful business is having a high-performance culture with productive employees who are engaged in the company and their roles and who understand how they contribute to the organization. One method for ensuring employee engagement and satisfaction is to regularly assess whether employees’ salaries reflect their performance and the fair market value of their role.

Market-value pay includes salary benchmarking and analyzing pay equity of all employees.

Besides offering competitive pay to keep employees engaged and productive, employers must also be aware of how they compensate employees in similar roles for similar work. Most companies are aware that federal regulations, set by the U.S. Equal Employment Opportunity Commission (EEOC), The Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964, mandate that employers cannot create pay differentials based on gender, sex, race, religion or national origin. Individual states and localities also have laws expanding on federal legislation to prevent pay discrimination.

There are some situations, however, where workers may have similar job titles or roles, but differences in salaries can be justified. If accused of pay discrimination, employers have four defenses: an employee’s seniority, merit, earnings by quantity or quality of production, or another factor other than sex.

Ensuring you pay employees fairly for their work means you must first know how much their work is worth. This worth of a position varies across locations and job titles. Using a software tool, like LaborIQ® by ThinkWhy, delivers instant access to salary ranges and recommendations by education, experience, skills, location, industry and company size. With accurate salary answers, it’s not difficult to prevent pay disparities.

Assessing Salary Grades and Offers

Here are four steps any organization can take to create a fair compensation structure that is both competitive and based on skills and experience.

  1. Establish a company-wide salary review. Many factors affect an employee’s pay. While individual performance, culture fit and in-demand skills will impact salary, location, industry and company size must also be evaluated. For instance, employers in locations with a high cost of living will typically pay more for an in-person role than if they were recruiting from a less expensive location. A regularly scheduled review of a company-wide salary analysis for every role helps prevent underpaying or overpaying for talent and ensuring your compensation is competitive enough to retain top talent. Further, compensation benchmarking allows for unique insight into what others in similar markets and industries pay. Comparisons, most importantly, enable supervisors and hiring managers to feel confident that they’re not creating disparities among employees when giving raises or hiring new employees.

  2. Implement a pay equity analysis as part of your overall compensation review process. Analyzing pay equity builds on the foundation set by the salary analysis in step one. In addition to job type, skills, experience, education and location, pay equity also considers the race, gender, age and any other pertinent demographic details. By conducting this analysis, companies can evaluate if any unfair pay gaps exist and take steps to correct them before a pay discrimination issue arises. Before beginning this process, HR teams should consult with their legal teams. This way, if there are any compliance issues, a lawyer can help remedy them before an accusation of pay discrimination arises.

  3. Assess an employee’s salary based on skills and experience. The typical annual raise given during performance evaluations is between 3% and 5%. However, this process often ignores whether an employee has been in a role for a long time or gained useful new skills that positively impact their role, department and/or the good of the organization.

  4. Clearly communicate with employees when not able to meet salary expectations. If you’ve done steps one through three, then you’ve created a salary structure based on fair pay and market value. There may be times when a company is not able to offer pay raises or bonuses, or employees may ask for a salary increase that is not in line with their skills and experience. Being honest and transparent and having access to hard data to support decisions can go a long way toward building trust and morale.

Salary Structure Can Impact Credibility

Although fair pay isn’t the only thing that matters in attracting and retaining top talent, being perceived as an underpaying or unfair organization can limit a company’s growth and credibility. Conducting salary reviews at regular intervals, performing salary comparisons and being transparent with employees will all create an equitable salary structure.

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