Reevaluating pay structure: New Year guidance for businesses
Recent pay transparency regulations across the United States highlight the value and impact of creating pay scales that define the hourly or annual salary range an employer reasonably expects to offer to pay for a position. Together, various ranges are typically organized to create a formal pay structure that includes grades and integrated ranges of pay that include minimums, midpoints and maximums. As organizations evaluate the need to create pay scales to ensure compliance with current and emerging state and local regulations, it is important to understand there is no one-size-fits-all solution to creating a compensation structure. Here are a few approaches to consider as you determine the best path forward when reevaluating pay structure:
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Single U.S. pay structure. This approach seeks to define ranges and assign positions based on a single or very narrowly defined criteria, such as:
• National geography
• Defined industry category
• Job value, impact or relative internal equity
Market adjusted pay structures. This approach typically involves identifying a primary anchor structure based on a defined market factor (e.g., National geography or General Industry), and then creating a select number of additional structures based on unique attributes:
• High cost of living or labor locations
• Urban versus rural geographies
• General industry versus industry specialty
• Customer-facing versus shared service functions
• Remote, hybrid, or on-site workplace location
Multiple, local pay structures. This approach typically puts a greater emphasis on the impact of location on the cost of labor, and therefore reflects a closer tie to published market data versus internal equity or other unique factors of the role or organization. The number of structures is a function of the number of locations by city, state, region, or otherwise defined as relevant to the talent market.
Back to the Basics. As you work to determine the best possible pay scale approach for your organization, it’s crucial to take a step back and identify how you define yourself as an employer. This could be determined by looking at your goals, budget and overall growth strategy.
Not every employer is equipped with the right tools to manage employee expectations and questions – this is where compensation and total rewards consultants can be successful. Through proactive management, total rewards consultants can create talking points, best practices, training resources and even draft internal communication when rolling out a new pay scale structure.
Once you identify what type of structure (or structures) support your organization’s talent strategy, be sure to leverage reputable, employer-reported compensation survey data to inform the ranges and enable pay practices that align with your intended compensation philosophy and the market for talent.
Author: Julie Bingham is MJ Insurance vice president of total rewards consulting.