THE BLOG
07/01/2014 02:19 pm ET | Updated Aug 31, 2014

Pay Up or Lose Out

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Fair compensation and gender salary gaps are much-talked-about topics. For employers, paying employees fairly is a tough topic to handle. How do employers treat employees fairly, while still creating a culture of pay for performance? There are many reasons why an employer may not pay employees in the same role the same amount -- it is rare that two individuals come to a position with the exact same set of qualifications: years of experience, education, relevant industry experience, certifications. Once someone holds a position, many factors including achieving goals, tenure, and continued education can lead to differences in pay. Don't get me wrong: I am not at all advocating for discriminatory pay practices. Instead, any differences in salary among employees in the same role should have legitimate and independently verifiable business reasons (i.e., performance, experience, education, etc.) and must be free from bias based on gender, race, age, religion, or any other protected characteristic. Here are a few ways to help you stay the course on paying employees.

  1. Have a compensation philosophy. Does your company want to lag the market, lead the market or be at market? "Market" is defined as the midpoint of salary range, or the 50th percentile. Have a plan and stick too it. Many times I have seen companies pay their new hires more than what they made in their last job without checking market data or sticking to an established compensation plan. This is not a sustainable philosophy and quickly leads to pay disparity.
  2. Do your research. What are comparable companies in your industry and geography paying for similar roles? These companies are your competitors and if not directly, they are implicitly competing for top talent. You can do a simple search using online salary providers or you can use a more formal survey service that can help you evaluate your jobs in relation to the market. If you cannot compete with the market on salary - what other benefits or perks can you offer your employees to incentivize them to work for you, rather than for the global competitor down the street?
  3. Have salary ranges for each position and stick to them. Paying at market is very typical -- it allows for a competitive salary while maintaining room for growth. Do not be afraid to discuss salary requirements early on in the interview process. I like to ask candidates for their current salary (or what were they making in their last position) AND what they are looking for -- these are two different questions. Someone may be making $200,000, but their range may start at $150,000 depending on the opportunity. Do not assume someone needs to be making more money. I also like to ask if the dollar amount they gave me was just base salary. I have found that sometimes candidates include their potential bonus. When asked how often they realized that bonus, their salary expectation then changes. If the candidate is outside of your salary range, do not be afraid to tell them. It may end the interview early, but it may save you a lot of time throughout the interview process.
  4. Review your current employees' salaries compared to current market. Has the market outpaced your available budget to increase salaries? If someone is within five percent (plus or minus) of the midpoint, then they are considered at market. If someone is over five percent of market -- there may be justifications (stellar performance or long tenure being the most frequent). But if they are less than five percent to market -- is there justification to move them ahead more aggressively come review time (as long as they are performing at or above expectations)?
  5. Compare the wages of new hires to those of current employees. There is nothing more disheartening than hearing your new colleague is making more than you. When an employee (who for the sake of argument is performing at or above goal) finds out that a brand new employee is making more money, it can be very demotivating and could cause them to look elsewhere since the company is inadvertently sending the message that they are not valued as much as the new hire.

These guidelines can help businesses focus on paying equitably. If you plan on paying one employee with like skills and experience more money than another employee, it is best to have documentation as to why they are being paid more. This documentation can be in the form of a resume, reference checks, performance reviews, 360-assessments, customer feedback, performance against goals, training, education, etc. -- all of which can support your business case.