Employees now have instant online access to market-rate salary data, giving them a greater capacity than ever to discover pay inequity and greater opportunity to take legal action to correct it. Even if they aren’t feeling litigious, the fall out in morale and productivity takes a toll.
However, pay inequities are often appropriate. The goal should not be for every employee in the same position to be paid the exact same amount. Rather, the goal is to understand why each employee receives the pay they do and whether or not that compensation decision is supported by the organization’s compensation strategy.
These are the seven most common causes of inequitable pay:
Talents or Skills An employee could be bilingual, have expertise in a specialized area within their field, or be proficient in certain software. These employees are paid more because they offer something that others in the same position do not.
Education and Certificates Graduate level coursework, vocational training, advanced knowledge or certifications that relate both directly or indirectly to the job position can be an asset to the company.
High Achievement It’s possible that this individual creates so much profit and success within the organization that their higher pay is justifiable. This could be the developer of your most successful products or the face of the organization. In these cases, you may want to consider a lump sum payment in lieu of a salary increase. The existence of a lump sum payout should be documented in your salary administration guidelines.
Performance An employee whose work style suits your organization’s goals – whether this person is enthusiastic, works well alone or lead teams effectively – may deserve higher compensation that reflects the quality of their contributions, particularly if you're trying to create a pay-for-performance culture.
Tenure A tenured and well-trained employee knows the company’s culture, values, goals, and people well. Their ability to fill in for other positions and their internal and external relationships are of value and not easily replaced. Their knowledge is often transferred to the rest of their department, making their co-workers more productive as well.
Longevity While they make look the same, Longevity and Tenure are very different. During the employment relationship, several different positions made be held, some promotions, some lateral moves, some demotions. After a number of years at the organization and a series of cost-of-living and merit raises, an employee’s pay can exceed their salary range. This is not typically viewed as an adequate rationale for paying above market wages on its own merit. Time, in and of itself, is not worthy an increase in salary.
Wrong Job Position An employee’s low pay could indicate that they have not been identified in the right job position. They may have additional responsibilities that put them in an unofficial management role. In these cases, it’s best to correct the position to resolve the pay inequity.
There are many justifiable reasons for pay differences. Employees offer a unique combination of skills, experience and deliverables, some of which are going to be more valuable to the market and to your organization than others. Some skills are more difficult to recruit for than others.
The goal is not to create complete conformity in pay across a position. The goal is to make sure that the pay inequities that exist are intentional and support the objectives of the organization.