In our recent post, “Compensation Strategies, Part One: Balancing a Market-Based Approach for Better Organizational Outcomes,” we talked about the challenges of fully relying on market-based compensation approaches and introduced some alternative compensation strategies that could be paired with this popular approach to bring better balance to your organization’s pay practices.
In my experience helping organizations put more strategically aligned compensation strategies in place, I’ve come across a number of scenarios where alternative job evaluation methodologies could provide clarity and equity.
Study 1: Clarity in Classification
A manufacturing company is in the process of recruiting for the position of Maintenance Technician II. Within this company, there are three distinct levels of maintenance technicians, classified according to their experience. However, the company’s market data sources only offer a general salary range for maintenance technicians without differentiating between the levels. Consequently, the company exercises its judgment to set the pay ranges for each level.
Recently, a new state law mandates that job salary ranges must be disclosed in job advertisements. In complying with this law for the Maintenance Tech II role, the company unintentionally stirred confusion among existing employees. Upon seeing the advertised salary range, both the Technician I and III approached their managers with questions. The Technician I questioned whether they were effectively performing at the level II role due to their pay being at the bottom of the range for Maintenance Tech II, while the Technician III, whose pay was near the top of the same range, queried if they were entitled to a raise.
An alternative job evaluation technique would have allowed the organization to distinguish between roles more clearly and set distinct salary ranges for each level.
Case Study 2: Budget Constraints and Role Merging
A small business is experiencing a downturn in their growth cycle, with revenues declining steadily. While they figure out a way to pivot, the business leaders decide they need to find ways to tighten their belt. The business believes their employees are the key to their success and, as such, typically conduct an annual compensation analysis to evaluate the external competitiveness of their roles.
Due to financial constraints, they are unable to afford this analysis for the current and following years. In response, they attempt to increase efficiency by merging roles or creating new positions. However, they soon encounter a challenge: without market data, they struggle to assign appropriate compensation to newly created roles that have no precedent within the organization.
Utilizing an alternative job evaluation approach would enable the business to assign a fair salary to these new roles based on the job’s inherent requirements and compensable factors.
Case Study 3: Addressing Pay Equity Concerns
During a routine pay equity review, a public utility company identifies a potential issue. They find that one department, consisting entirely of men, has an average pay that is $10 higher than another department, which is entirely female. Both departments are crucial to the company and have similar employee tenure.
The HR department is troubled by the possibility that discrepancies in market data may be contributing to this wage gap, causing concern over potential unjustified disparities. To address this, the HR department might explore different job evaluation methods that assess roles based on compensable factors and job requirements, allowing for a more nuanced comparison and validation of any pay differences.
Conclusion: The Goal of Equitable and Competitive Compensation
The art of designing a compensation structure that promotes organizational harmony and stays competitive in the market is a delicate balancing act. It requires a holistic approach that considers not only market forces but also the internal dynamics and values of an organization. While market-based compensation structures offer a strong foundation for external competitiveness, they are not without limitations. Employers must be vigilant about the accuracy of market data and the potential for internal equity disruption.
Ultimately, the goal is to ensure that employees feel valued and fairly compensated, which in turn drives engagement, retention, and performance. By thoughtfully considering both external benchmarks and internal job value, organizations can craft compensation structures that support a thriving workforce and a successful business model.
With budget season approaching, it’s the ideal time to consider your compensation strategies. The Workforce Strategies team at RKL Virtual Management Solutions is here to help you design a compensation approach that’s fully integrated with your organization’s overarching objectives, values and dynamics. Contact me or visit our Compensation Services page to learn more.
