It happens to every organization and is hard to avoid: you hire for a position you need to fill and the market pay is higher than what you pay your current staff in a similar position. It puts you and your employees in a tough spot and seems completely unfair–and it is!
What is an employer to do?
In this special video podcast of Transform Your Workplace, Lacey Partipilo and Brandon Laws of Xenium discuss why the misalignment of pay is damaging to organizations and what employers can do about it.
Total video run-time – 4 minutes, 53 seconds
Read the full transcript
Brandon Laws: The environment right now for hiring talent is ultra-competitive. It’s hard to find the right people. I’m going to describe a situation for you and I want you to illustrate this for me.
So let’s say as a team of engineers, we’re having the hardest time finding somebody. But we finally found somebody and they’re coming in at such a high pay rate compared to what we’re paying the rest of the people on the team. What is that?
Lacey Partipilo: That is pay compression.
Brandon Laws: OK. And are there risks associated with pay compression?
Lacey Partipilo: Absolutely and we are seeing this across the board in lots of different jobs in all industries. The market for talent is tight. It’s demanding that employers pay higher wages. So as the market increases and you’ve got these folks that are here working for your company, loyal, doing a great job. Maybe people that have grown up within an organization. Their pay has not increased at the rate that the market has. So to bring talent in, it’s more expensive than to keep paying the people that you have doing the same or similar jobs.
Brandon Laws: Now I could see that there are two sides to this with risk. One is morale and culture. So you’re going to basically irritate your people because they’re not getting paid as much.
Lacey Partipilo: It’s an understatement.
Brandon Laws: And people will talk, and we know that for a fact.
Lacey Partipilo: Yes, they do, they do.
Brandon Laws: And then the other side of it is now with this pay equity stuff in Oregon specifically, there’s a legal risk, right? So talk about those two things.
Lacey Partipilo: Yeah. I mean it’s important to pay people fairly even before this pay equity law came into effect and that law requires the employers pay equitable wages for same or similar work and there are bona fide factors that an employer can use to determine. Maybe there’s two of the same jobs and we’re going to pay a little different because of experience or a degree or certification. But if you’ve got people that are doing the same job and they’ve got very similar characteristics and skill sets and backgrounds and you’re paying a different wage, they are talking about it. That’s just the way things are. It’s not like it was 30 years ago where people were quiet about their wages.
So they’re talking about it. It’s going to impact morale and we know that morale has an impact on productivity. So that’s a huge risk to employers and then you throw in this legal implications and those claims are expensive and just the claim in and of itself has an impact on morale.
Brandon Laws: It seems like you would have to fix it like right away too.
Lacey Partipilo: Absolutely.
Brandon Laws: So I don’t know what the timeframe is on fixing the pay equity issues. But I imagine if you, as an employer, have any sort of hint that you have pay compression going on and inequity as far as pay goes, you need to probably fix it. What are the steps involved in that?
Lacey Partipilo: I mean it does need to be addressed immediately. There are a lot of organizations though that can’t afford to do that. There are budget restrictions. So creating a plan, being really transparent with employees I think is important. You know, maybe we want to get you to this point. But right now, the budget only allows here. So we’re going to do some incremental increases.
There’s also those folks that are maybe above market. So we want to have conversations about that and those are employees that we could call “red circle” and they’re at the top of the range for their position and we may consider freezing pay for those employees. We may consider lump-sum bonuses instead of incremental pay increases that sometimes will phase out. That’s an approach. But it’s sort of looking at it all around.
You may bring somebody in at a wage that’s maybe outside of your range for a variety of reasons. Communicating that to that person when they’re coming in is important, right? I would want to know if I’m coming in to an organization if there’s not going to be a lot of potential in the current position that I’m in for increases.
Brandon Laws: If employers aren’t doing any of this analysis that we’re talking about, what are the steps they can take if they realize there are some inequities? Is there some sort of analysis they can do to uncover those issues and then build a strategy going forward? What have you seen?
Lacey Partipilo: I typically see employers start with compensation philosophy. So really uncovering like how do we think about compensation. What is – what are the things that we lump into compensation? So starting there, doing some benchmarking for your key positions or for the whole organization is best practice
So what’s the market saying? And you use data sources for that and then you also can look at what are people saying that are applying for your jobs. So talking to your HR department and your recruiters. You know, what’s the market saying the wage should be? Then looking at that pay structure that we’ve created and the people in the jobs and doing some analysis in terms of equity would be the last step.
Disclaimer
Please note that the content in this video and post is intended to provide general information about the subject matter covered and is provided with the understanding that Xenium is not rendering legal or tax advice. You should consult with the appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements. For more information on this subject, watch a webinar we did with an attorney on equal pay: http://bit.ly/2lMKQ5Z