Posted in:Total Rewards
In any organization, it is important to ensure pay decisions are fair. Many organizations boast about “competitive pay” during their recruitment efforts, but what does that really mean? Here, we look at fair pay and how to ensure equitable compensation for you company.
Internal equity relates to the actual pay rates amongst employees within your organization in comparison to established pay grades or pay ranges. It is essentially a measure of fairness, which does have a subjective and objective component to it. Whereby, similar roles should receive similar levels of compensation (with variances narrowing even further for the exact same role). Larger organizations often handle this by creating pay structures and assigning each role within the company to a certain pay band, pay grade, or pay range.
Internal equity is critical. The truth is that employees often do discuss compensation with their colleagues and wide discrepancies are likely to be discovered. Increasingly, online communities are growing that allow employees to review their employers and indicate their salary level. If an employee discovers that a coworker is making substantially more for similar work, morale is likely to be greatly impacted, and could result in the employee moving on to other opportunities.
You truly do not want to miss the mark when it comes to accurate pay determination. There are negative consequences when you under pay and over pay your employees, which you may not notice until it is too late.
Within the total rewards sphere, external equity refers to the measure of fairness between your set organizational pay structure and pay rates against your peers in the wider market. Again, it can be a point of contention depending upon who you view as your peer market and where you want to target your pay rates to make such comparisons. Similar to the consequences of not achieving internal equity, there are also consequences to under or over paying in comparison to the external market. Paying substantially less for similar work puts a company at risk of employee turnover; even if the culture and work environment are desirable, compensation can be a valuable motivator for job transition. Given the high costs of recruitment, training, and onboarding, retaining existing employees (especially strong performers) can be financially beneficial in the long run. Conversely, substantially overpaying compared to what an employee could reasonably expect to receive elsewhere could result in the labour cost line of the company’s budget being unnecessarily high. Plus, it can give overpaid employees a false sense of their worth, which does not do anyone justice long term.
To find the right balance, companies often turn to market data to assess where their compensation lies in relation to peer companies. This information can prove extremely valuable when it comes to setting and updating pay ranges for any given role. Our team can help you source the appropriate pay reports and perform analysis to build your pay structure, so that you make strong defensible pay decisions for your team.
In December 2018, the Pay Equity Act received royal assent. This new legislation requires federally-regulated employers to create a formal pay equity plan to ensure equal pay. Among other things, employers must assess the various roles within their company (including the gender breakdown of those holding those roles), evaluate the value of the work produced by each employment class, and more. If your organization is subject to this legislation, Honiva can help you to ensure your organization is compliant.
Here to Help
Need help evaluating your internal and external pay equity? We can help. We can be reached for a free confidential consultation at +1-403-470-5350 or [email protected].
For further details on how Honiva can help you prepare you during your recovery and rebuilding, please view our service offerings. We also welcome business owners to attend our next online seminar to learn how to improve employee management practices and strengthen your company long term. Register for the free HR Education session at EventBrite.