The Modern Comp Manifesto
Pay is not compa-ratios—it’s Karen from accounting, wondering how she will pay her skyrocketing rent—when she just got passed over for an expected raise.
Pay is not merit increases—it’s James from marketing, doing the happy dance–because he just got a raise and can finally enroll his kids in dance class.
Pay not job grades—it’s Amber from customer service’s shocked face—when she finds out how much Rachel (who just started) is making compared to her.
Too many compensation managers and compensation programs gloss over the fact that they exist to serve the business in attracting and retaining people. In this world of knowledge-driven work and innovation, where companies’ competitive advantage is primarily determined by who can win in making their organization a place where the best people want to be, a compensation program that works needs to embrace this idea.
When you stop to think about it, the pay business is really the people business. At PayScale we keep this notion central in all that we do to support companies in doing Modern Compensation. How do you keep people central in your pay plans? Keeping people front and center unpacks to three main notions: be fair, be transparent, and be modern.
Be Fair: Pay them right
Pay Equity laws are on the rise, with California taking the lead in January 2016, and many states following suit. That said, pay equity and pay fairness aren’t the same thing. Fair isn’t necessarily equal. Pay equity means ensuring that you’re not discriminating in your pay practices, especially on the basis of gender. Paying fairly is a much broader concept, one that resonates especially well with the millennial generation. Fair pay differentiates pay based on factors like performance, skills, education, experience, and more.
- Defend your pay decisions with data. One way to both ensure and demonstrate that you’re paying fairly is to base your pay on current and accurate market data. Showing market reports to employees enables productive conversations about the expectations of the role and room for professional development.
- Comp can be a win/win, not a battle, between employee and employer. Employees and employers are in an ongoing relationship where they exchange value. Employers provide total rewards and employees exert effort. This is the “deal.” Both groups are always doing mental math to decide if the deal is still fair and still worth it.
- Be intentional: pay inequity happens when you aren’t looking. Plan to audit your pay practices regularly. At the very least make sure you’re in bounds with the law. Then go beyond that to check for compression, appropriately rewarding those who deliver results, and those roles that contribute most to your organizational priorities.
Be Transparent: Tell them the truth
Perception of pay has a huge impact on employee satisfaction and intent to leave. That said, in a survey PayScale conducted of 71,000 people, we found that most people don’t actually know if they’re paid fairly. Of the people surveyed who were actually paid above market, 80% believed they were either below or at market. This is huge. In another survey of 550,000 respondents, we identified that 82 percent of people were ok with low pay if the rationale is explained to them. The why matters, and it’s up to employers to start sharing that why transparently with their employees.
- It doesn’t have to be all or nothing. Transparency is actually a spectrum from employees knowing only their own pay, to sharing the comp strategy, to sharing pay ranges, to radical transparency at the other end. Organizations need to identify the level of transparency that works best for them, and push the envelope a bit. Employees will thank you.
- Comp is a team sport. Most conversations about compensation happen between managers and employees, not between HR and employees. Comp discussions are carried out across the organization, and it’s up to HR to coach everyone to play well.
- People leave over misinformation, not pay. Assuming that pay is fair, people are more likely to leave organizations when they don’t know what’s going on.
Be Modern: comp for today and tomorrow
A lot of you are doing comp like it’s 1999 (or 1969). Compared to other functions in most organizations, compensation management is behind. Marketing has gone from broadcast advertising with little measurement of impact to a sophisticated connection of programs to revenue using predictive technologies and automation; Finance has gone from a paper ledger to a 5 day close with smart application of technology. Much of the day to day work of compensation management is very much that same as it was two or three or four decades ago. The main constant in today’s workplace is change—and the pace is quickening. The economic landscape remains uncertain, technology alters the nature of work and talent, and our workforces themselves are continuing to evolve. Modern compensation taps the power of data and technology to motivate and engage the workforce we have and the workforce we will have.
- Comp smarter not harder. Technology can help increase HR’s productivity. Beyond that, it improves HR’s ability to be a strategic partner. Not yet ready to embrace technology to build, track, and improve your comp plans? Your competition is.
- Always-on and real-time. Our organizational priorities are always being revised, updated, and improved; always-on data makes it easier to price out that software engineer job with the newest skills. At the same time, employees get information about comp in a whole host of ways, and we don’t always get to decide when they’re going to knock on the door for a comp conversation; in this real-time situation, we need reliable data at our fingertips.
- Comp that supports business strategy. Gone are the days of compensation plans that sit off to the side of the central focus of the organization. Modern compensation professionals must be more than just aware of organizational goals, they need to find ways to drive those goals to fruition by aligning compensation plans and getting creative about variable pay.
Don’t ignore your pay brand. How you pay, how you communicate about pay, and the sophistication you bring to matching pay to your business goals matter to how you are perceived in the market. Being fair, transparent, and modern will help your organization keep your best people, find new best people, and perpetuate an organizational culture that makes you an employer of choice. Once you’re a whole company of rock stars, there will be no stopping you.
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