Fair Compensation Isn’t a Thing
Not All Employees are Created Equal
Over the years, “fair” and “equitable” have been applied to compensation. Unfortunately, these words are subjective and lend themselves to interpretation. What a company believes is fair might be viewed as unfair by an employee.
So what is a good term to describe a logical compensation approach that effectively supports getting and keeping people? I like to use “consistent” compensation, a phrase co-opted from Shannon Schiltz at Andreessen Horowitz. It describes a rational, homogeneous way of paying people and lends itself to transparency. A company compensating its employees consistently is able to explain pay differences as part of a compensation strategy backed by data and rationale.
Consistent compensation is comprised of three main ingredients: Competitive pay, Contribution Recognition and Peer Parity Review.
Competitive Pay
Understanding competitive market data is critical to establishing the basis of a pay program. However, many people think that competitive market data is synonymous with competitive pay and that is simply NOT the case. Competitive pay requires a labor market strategy based on company-specific needs. Also required is the right mix of cash and equity affordable to the company. Competitive pay delivers a set of cash and equity ranges that support the company’s business goals.
Contribution Recognition
An employee should be evaluated within the framework of competitive pay based on their experience and performance. Within the range established for a particular job, employees will have varying pay packages based on their value to the company. Establishing a staff-level retention plan by developing a tiered cash and equity strategy is an important step in keeping key talent.
Peer Parity Review
The final filter in consistent compensation is a peer review. While this may not change a person’s compensation package, it will provide the final reality check needed to eliminate possible subjectivity.
Consistent pay delivers a system that works for virtually every compensation decision. It supports a rational approach where not every decision becomes an exception and where any exception exists for the right business reasons.
Why is Consistent Compensation Important?
The added benefit of consistent compensation is that it supports transparency in communicating pay decisions. Employees want to know that their compensation is competitive. They want to trust that their employer is not taking advantage of them and that the person sitting next to them is not getting paid considerably more for doing the same job. Consistent compensation allows for greater transparency with the information exchange expected in today’s workplace. Well-informed employees should be confident in a company’s business decisions and understand that compensation is in an investment in them.
Advanced-HR specializes in startup compensation and has been setting compensation trends for the past two decades. Thousands of companies have utilized our data over the years and our current database boasts more than 1500 active participants. See how our tools can help you pay consistently.
