Almost everything about business has had to change in 2020. Everything from the products and services you offer to where your employees are working may have changed radically.
That’s why you’ve needed to examine almost every aspect of your business, including your compensation plan. You’ve reviewed your policies and you know you must update your compensation policy. The question is how can you ensure the compensation plan you’re working on is fair?
This guide to developing a fair compensation plan will help you get started, so you can make the right updates and create a better plan for your orgnization and your employees.
What Is Fair Compensation Anyway?
Before you can develop a fair compensation plan, it’s important to understand what “fair” compensation actually looks like.
Older models of compensation were based on skillsets and experience. Employees who had more training would earn more, as their jobs were deemed to be more demanding. Employees who had been in the field for a long time would also earn more, as it was “fair” to reward experience.
Both of these dimensions can still factor into the development of a fair compensation plan. A long-term employee likely does have plenty institutional knowledge and expertise to contribute.
Fair compensation also values other dimensions, such as employee contributions. Instead of just starting someone at a particular benchmark salary, examine their contributions and work. In turn, employees can earn increases based less on “length of service” and more on “merit of service.”
This model allows you to reward and encourage your top performers to keep performing. It can even motivate underperforming employees to step up their game. Older models of compensation may demoralize people, because they know no matter how hard they work, they’ll only achieve the same raise as others who don’t work as hard. A fair compensation plan acknowledges differences to ensure people get the recognition they deserve.
Developing a Fair Compensation Plan
So, how do you develop a fair compensation plan for your team? Obviously, some people will always outperform others; not everyone can be “the best.”
The first step in ensuring fairness is to look at market data. What are your competitors paying people in similar positions? What seems to be the going rate for certain skillsets and experience?
In most cases, there’s a range of salaries for any given position. You can use this to help develop pay ranges. Use data from within your own company as well. You may be able to find this information using your human resources information system.
Once you’ve developed a pay range, you’ve determined the top and bottom ends of the pay scale for this position.
Next, you’ll want to develop a measurement system. How do you measure productivity and performance? How much does that count towards determining any increase an employee receives? Don’t forget to factor in skillset, education, and experience as well. These factors may count for less, but they are still important to consider.
Work to ensure your measurements are free of bias. You want to measure employees on the merit of their work. Productivity, work ethic, and even quality of work can sometimes be seen through the lens of bias, introducing inequity into the pay scale.
By developing objective measures, you can work toward pay equity between your employees.
Why Is Fair Compensation So Important?
You may wonder why fair compensation is so important to businesses today. After all, the length of service or skill model has long been used.
That doesn’t necessarily mean it’s the most effective option. As we’ve seen, length-of-service compensation can actually demoralize your top performers or convince employees to work less. If employees feel they’re not being fairly compensated when they work hard, they may not give it their all. They might even look elsewhere.
Fair compensation can inspire employees to give their very best, keeping your top performers engaged and encouraging others to engage more. It also improves happiness and job satisfaction, which can lead to lower turnover and higher retention. In turn, your bottom line will see a boost—happy employees are productive employees, and lower turnover costs you less.
If you want to make sure your employees are giving it their all, then it’s time to develop a fair compensation plan.