Many of you are getting pay raises this time of year. You are hoping it will be high enough to cover what inflation did to your budget last year. Here in the U.S. we are paying higher prices for things like housing and food.

But smart employers do not match merit increase budgets to the inflation rate. They know the difference between the Cost of Living and the Cost of Labor.

Cost of Living and Cost of Labor can often cause confusion when referencing compensation and total rewards.

What do employees want from their employer?

·        Financial stability

·        To be paid competitively and equitably (fairly)

·        To know how to increase their earnings and how pay decisions are made

·        To be recognized for the value and results they create

·        Growth and learning opportunities for career progression

Job evaluation is a systematic process of assessing the value of jobs to determine the compensation to be paid to employees performing those jobs.

The purpose of a job evaluation is to ensure that employees are paid fairly, equitably, and competitively. And a key aspect of any employee pay decision is to also consider the employer’s budget.

The job evaluation is based on the job description and the organization chart that provides details on the reporting relationships as well as the number and type of direct reports and their jobs. 

When I am working with an employer, one of the outcomes in most compensation projects is a communication plan and the supporting presentations, training materials, guidelines, and other resources.

That means we are planning the audience, key messages, owner, delivery method, and delivery date. 

Communication Frequency:

·       The Marketing Rule of 7 states that a prospect needs to “hear” the advertiser’s message at least 7 times before they will take action to buy that product or service. This rule was developed by the movie industry in the 1930s.   

What should be included in a Job Architecture project?

1 – written and approved compensation philosophy

2 - updated job descriptions

3 – career level definitions and assignment of career levels to jobs (internal equity categories)

Pay compression happens when the pay of an employee is very close to the pay of more experienced and higher performing employees in the same job or those in higher-level jobs like manager jobs.

How do you solve it?

1) You look for it. You do a pay compression analysis at least once a year and look for these scenarios. (Do not forget to consider overtime earnings in your analysis of the direct reports to managers.)

2) You budget for it. Recognize this happens when you have a short-term focus on getting candidates to say “yes” to job offers without also looking at current employees and their pay with an internal equity lens.

When I work with employers that have a few unique jobs, I don’t typically recommend a pay grade structure.

Why?

It is easy to market price each job and then calculate a competitive base pay range around the “market” number.  That base pay range is then used in the pay decision making process for new hires and current employees performing the job. 

I’ve been doing compensation work for more than 30 years.  And in that time, I have noticed that some compensation professionals make the shift to business partner/consultant, and some don’t. 

What do I mean?

When you start doing compensation work, you typically learn how to do the technical stuff.

One of the most frustrating aspects of being a new employee is the software and technology problems that occur during the onboarding process.

I have a friend who had to wait a month to start a new job. His new employer was not able to get the laptop and other software logins ready for him to start sooner.

And when he did start, there was a lot of software and file sharing tools that did not work well.  It took more than 2 months after his start date to get most of this fixed.

Here are the general guidelines I reference when developing a pay grade structure. 

Range spread is the percentage difference from minimum to maximum.

-            Nonexempt jobs – 25 to 30%

-            Exempt jobs – 40 to 50%

When people ask me how to earn more money, I typically share these tips.

1.      Become an expert in something not a lot of other people know how to do.  Make sure that expertise is solving a pain point that the buyer is willing to pay a lot for. 

3.      Surround yourself with others who are consistently exceeding expectations. You become like those people you spend the most time with. 

The Dewey Decimal System is used by libraries to organize items in their collections by subject. You can see the alpha and number coding on the spines of books as you look for the item you want on the shelves in the library.

What does this have to do with pay grades? 

Often, I work with employers who have pay grade labels that are “smart.” 

Pay transparency or communication is a major focus for many employers these days. 

Pay transparency is meant to shine a light on pay inequities and cause employers to fix them or not cause them in the first place.

One trend I see is the sole focus on base pay when employers are doing pay equity audits. 

There are often big differences in other rewards that may or may not be caused by discriminatory factors.

When it comes to making pay decisions, you can oversimplify and create black and white rules and policies. 

It sounds like this.

·        “The maximum promotional increase we can provide is 10%.”

·        “Yes, Sheri is getting more responsibilities and an opportunity to prove she can successfully perform higher-level work. No, there is no promotion with this right now because of our focus on expense control as a company.”  (Hello, dry promotion.)

There are a lot of things that employers don’t do or do that cause problems.

Dumb is not benchmarking jobs to competitive market data. You’re going to over and underpay your employees. It is going to hurt (be expensive) when the good employees leave.

Dumb is not allocating enough budget for merit increases, promotions, equity adjustments, and market adjustments each year.  The good employees have choices and the war for talent is ongoing. People help you achieve business goals. Pay them competitively, equitably, and fairly.

Pay transparency means sharing a little or a lot about how much you pay your employees.

Partial Pay Transparency:

• You share an open job’s pay range when it is posted. (And it is not a super wide range that means nothing.)

• You share pay ranges with managers for only the jobs their team members perform.

• You share a job’s pay range with the employee that is performing that job.

• You share the results of your pay equity audit with key stakeholders.

I’ve been using ChatGPT as an assistant in my work over the last year. 

Here is a list of how I have used it:

1.      To write job descriptions

2.      To write competencies and an associated proficiency rating scale

3.      To shorten performance rating definitions after writing the first draft for each rating

I was talking to a client today who needs to give an executive leader some feedback. We anticipate that this feedback is going to cause this leader to be defensive. 

So, I leaned on my training in nonviolent communication or NVC and shared this acronym: OFNR

Here is what that sounds like as an expression:

·        Observation: “When I see/hear…”

Pay transparency is another way of saying pay communications. 

·        Employee’s Question: What is my pay based on?

·        HR’s Answer: We base your pay on the competitive total compensation our competitors for talent are paying for a similar job.  And we also consider your performance as well as your relevant work experience, education, skills, tenure, and work location. What we are paying other employees doing substantially similar work is also used in the pay decision-making process.

I am working with an employer that has about 200 employees in the U.S. and Canada.  We are market pricing their jobs and developing pay grade structures.

One set of pay grades will be aligned to the 50th percentile of the external market.

The other set of pay grades will be aligned to the 75th percentile of the external market for their mission critical (competitive advantage, business imperative) jobs.