The following is an excerpt from Get Pay Right: How to Achieve Pay Equity That Works by Kent Plunkett and Heather Bussing. The book discusses how pay equity fosters an inclusive workplace culture while boosting engagement, performance and ROI.
Some people love talking about money. Most people don’t. At best, it often feels impolite. At worst, you may have legal or privacy issues. If any of these issues come up for you, you’re not alone. Here are some reasons why:
- Stigma: Money is often seen as a taboo topic, and people may feel ashamed or embarrassed to talk about their financial situation. To overcome this issue, it’s important to recognize that financial struggles are common, and that seeking help is a sign of strength. Talking to a trusted friend, family member, or financial professional can help alleviate feelings of shame or embarrassment.
- Anxiety and Stress: Financial stress can lead to anxiety and stress, which can make it difficult to have productive conversations about money. To overcome this issue, it’s important to address the underlying causes of financial stress and develop a plan to manage it. This can involve creating a budget, seeking financial counseling, or finding ways to increase income.
- Different Values and Priorities: People may have different values and priorities when it comes to money, which can lead to disagreements and conflict. To overcome this issue, it’s important to have open and honest conversations about financial goals and priorities. This can involve setting shared financial goals, creating a budget together, and finding ways to compromise.
- Lack of Knowledge: Many people lack knowledge about personal finance, which can make it difficult to have informed conversations about money. To overcome this issue, it’s important to educate oneself about personal finance. This can involve reading books or articles, attending financial workshops, or seeking advice from a financial professional.
- Mental Health Issues: Mental health issues, such as depression or anxiety, can make it difficult to manage money and have productive conversations about finances. To overcome this issue, it’s important to seek professional help for mental health issues. This can involve talking to a therapist or counselor, joining a support group, or seeking medication if necessary.
- Power Dynamics: Power dynamics can make it difficult to have productive conversations about money, especially in relationships where one partner has more financial control than the other. To overcome this issue, it’s important to have open and honest conversations about financial decision-making and to find ways to share financial control. This can involve creating a joint bank account, setting shared financial goals, and finding ways to compromise.
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How to Start Talking about Money
Organizations see compensation as a budgeting and business decision. Employees see it differently. For employees, pay is far deeper and more com- plex than just money for their work. Pay is personal.
When you think about pay, you may have a sense of satisfaction that you are paid what you feel is fair for the time and effort that you provide through your work. If you feel like you are not being paid fairly, it’s normal to feel angry, sad, or unappreciated. The feeling of being underpaid can also lead to a high degree of stress.
Emotions around pay can also be incredibly positive. Being paid well and fairly for your work and being recognized for great work through raises and bonuses feels rewarding.
This is part of what makes discussing pay so difficult. But both pay equity and pay transparency depend on the organization’s ability to both understand and effectively communicate about pay.
Managing Wage Compression and Pay Equity
Pay equity is about making sure people doing comparable work are paid equally. For pay equity, any differences in pay must be based on legitimate business reasons and not based on gender, race, or other protected factors.
Wage compression is when the pay range for similar work becomes narrower and people with less experience or tenure sometimes are paid higher than people with more tenure and experience. It usually happens when wages for new hires are increasing and wages for existing employees stay the same.
Addressing pay equity can push compensation toward being the same; addressing wage compression can push compensation to be different. It’s a little like two dogs tugging on the same stick. And it’s easy to get off balance. The goal is to find the sweet spot and a pay range that fairly compensates everyone while considering the work they do and the differences that justify higher pay in specific cases.
Under equal pay laws, you can pay people differently if the skills, effort, and responsibilities involved in the work justify the pay differences. If the work is similar, then differences in pay can generally be based on seniority; a merit system; a pay system based on quantity or quality of output; or any factor other than gender, race, or other protected class. This includes differences in geography and cost of living, performance, experience, and skills. Basically, there has to be a good business reason why one person makes more than another.
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Finding the Right Salary Range Based on Internal and Market Factors
You want a salary range that is wide enough to avoid wage compression and gives you room to pay people more or less based on legitimate factors. But you also can’t make the pay range so wide that it becomes meaningless.
Overly wide pay ranges make it hard to assess pay equity. If you have people at the top and the bottom of a wide pay range doing comparable work, it becomes difficult to justify the pay differentials.
To find the right pay ranges, you need data. Start with your internal pay ranges and compare those to tenure. Are you seeing newer employees making almost as much as or more than longer term employees? If so, you want to check market data and benchmark against what’s happening for similar jobs in your industry and, if people work on site, geographic areas.
What you want are competitive wages for newer people and people you don’t want to leave for higher pay. You also need room for pay increases as employees gain experience and tenure at the same level. This is different from pay increases for promotions to a different job level.
This is going to look different at every organization, and there’s no secret recipe. For example, if people usually stay in one level for two to three years, you can have a narrower pay range than if they stay at the same level for five to six years. If you are seeing wage compression, then look at broadening your pay range and giving increases to employees who are under market rates.
If your budget does not support raises for lots of people, think about what can make a difference so that people want to come and stay even though they can make more money somewhere else. Flexible schedules, a four-day workweek, remote work, or more time off are all important to employees and can have less effect on productivity than you might expect.
Excerpted with permission from Get Pay Right: How to Achieve Pay Equity That Works by Kent Plunkett and Heather Bussing. SHRM, July 5, 2024
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