Fixing Compensation Issues

Shawnee Love   •   March 5, 2024

Knowing what increases are predicted is a good place for compensation planning to start, as long as you are already confident in your compensation practices and outcomes.

However, if you are like many small organizations, compensation planning is done off the side of the leader’s desk, if at all. Many organizations we work with have approached compensation via the peanut butter approach (the same percentage increase spread across the organization) or the squeaky wheel approach (increases for those who ask at the right time or enough times).

These practices have likely resulted in unfortunate pay outcomes such as:

  • Pay compression: Employers hire new employees close to or at the same rate as longer tenured, trained, competent employees.
  • Erratic individualized pay: Employers have not considered internal fairness nor market demands when hiring or giving raises in the past, resulting in compensation that is all over the place between jobs and even within job classes. Factors like merit, seniority, level, etc. (even if they were factors in some of the past decisions) are no longer evident.
  • Low pay: Employers have simply not kept pace with increases over the last few years.

If you have a bad case of pay compression, your loyal employees will be expecting a big pay boost if they find out that the newbie they have to handhold through the week is making almost the same as them. Same with erratic pay increases or low increases in past years. Your experienced, competent, low maintenance individuals are in high demand and can find other work. Even if you have a great culture and show your people you care about them, it is hard for most people who want to build their careers and plan for retirement to turn down a $10K or $15K increase for the same kind of work.

If your jobs are such that they can’t be done remotely (think equipment operator, carpenter, retailer, cook, etc.) you are not safe, because people are moving for better jobs (and lower costs of living). Or worse, if your employees discover you aren’t paying them fairly (in comparison to what other companies are paying or in comparison to what their coworkers are making), they may stay with you but feeling underpaid, they will just work less hard. As the adage says, “You get what you pay for”.

Before you start thinking about offering basic increases, ensure you are paying in market range and fairly within your organization for everyone. If your organization has not kept pace with increases over the last few years, and/or you only kept pace for new hires (i.e., the employees that were already working for you are noticing pay compression) and/or you have been guilty of random increases based on who asked, make 2024 the year to catch up and ensure your pay practices are easy to explain and uphold.

With legal and social trends pushing for pay transparency and diversity, equity, and inclusion  as well as a tighter labour market exacerbated by global organizations who have systems, people, and money to hire people (even yours) to work remotely for them, there is no better time to get your pay practices in order.

We are here to help with research, tools, models, and training that fit small organizations and grow with you.