The reality for all companies is the same—a shortage of labor and an increase in wages. There are other factors that contribute to the dilemma, but in the end, everyone is looking for talent, it is hard to find, and the cost is high.
Simply increasing wages sets off a domino effect that can lead to compliance issues, discrimination claims, and potential audits. There is a balancing act between offering candidates a competitive salary and making sure that salary doesn’t overshadow your current employees’ pay.
How do you find where internal equity, external equity, and compliance meet? We asked Brandon Lafferty, MRA’s Compensation and Affirmative Action Data Analyst, to shed some light on how this can work.
Q: Do you have any tips for maintaining internal equity when striving to be externally competitive?
A: Revisit your pay structure often, especially if the market is volatile when hiring. If you are making larger offers than in the past, it will naturally affect your pay ranges. For example, if you typically offer a salary at the lower end of a range, you may now be offering something closer to the middle or upper end. Make sure the salaries of other employees in similar positions with similar experience (or more experience) are also adjusted.
Also make sure job descriptions are up to date and accurately describe the work. Companies have had to change job duties and if roles have changed as a result, make sure the job description and pay reflect that. Calling someone a manager if the individual is no longer acting as a manager will make it difficult to fill positions because the pay does not reflect the title or responsibilities of the job. Likewise, if someone has taken on more responsibility resulting in a larger role, reevaluate the pay and title.
Q: Many companies have adjusted pay ranges to meet the demand for higher salaries. Does this raise any red flags for internal equity?
A: Making sure you do your due diligence and pay what the market is paying is critical to successful recruiting. Quite often, companies find they are paying a new hire more than someone who has been with the company for a while, which seems unfair to those with several years of experience. If you are not making competitive offers based on established pay ranges, it may be time to assess your internal pay strategy. For example, there is a huge need for workers in the IT field and wages for those positions have gone up faster than others. If you are paying more to attract that talent but not reviewing what you are paying current IT employees, it could be detrimental to retention.
When making a higher-than-normal salary offer, keep good notes during the hiring process to reference why that pay decision was made. Note that you needed to pay more to recruit in a very competitive market and that you needed to hire closer to the midpoint. Then follow up by evaluating the pay range.
Q: How often should companies conduct an internal audit and what should be looked at to determine if there is pay disparity?
A: If you really want to stay on top of pay equity, conduct an internal audit at least once every two to three years, but it could be annually. The best time to administer an audit is just before a pay increase so any adjustments or inequities can be addressed in the final pay recommendation.
Analyze gender, race, veteran status, and disability status. Pull small data sets between those groups but also look at them across work groups, levels of the company, and locations. Be sure to compare wages between affirmative action or EEO reporting groups, taking tenure into consideration to help explain why some positions with lower turnover may appear to be unbalanced. Companies may also decide to set standards based on unique factors. One organization uses LGBTQ status to determine pay disparity. This is not a category for affirmative action or EEO reporting, but it is important to that organization.
Compa ratios also provide an accurate analysis because they use midpoints, not overall pay. Overall compensation can help determine general differences in salary but can be skewed by factors including the number of men versus women in the company or a lack of diversity in certain geographic areas.
Q: How can affirmative action plans play a role in identifying internal equity?
A: The data captured in affirmative action audits includes all protected categories important to a pay equity analysis. There is a very in-depth process to making sure the data provided in affirmative action reporting is clean, so it provides a great start for an internal audit.
The first step to addressing pay equity is to determine the overall compensation strategy—lagging, matching, or leading the market. Lay out what you will focus on, i.e., we lag in our market, but make it up in the benefits. If you focus on that and sell it to employees, there is transparency and they understand why pay may be lower than other companies. Looking at internal and external equity can also help determine if there are poor hiring and pay practices when gaps or inconsistencies are found.
MRA provides pay equity analyses for companies wanting to determine if there are pay inconsistencies.
For more information on those analyses, affirmative action reviews, or other compensation resources, contact Brandon Lafferty at [email protected] or 763.253.9132.
