This document discusses managing pay inequities as part of a three-part series on compensation budgeting. It recommends starting with a clear compensation plan and using accurate market data to identify inequities at the organizational, department, position, and individual levels. Potential solutions are identified along with their costs to resolve inequities over multiple years. Communicating solutions to executives, managers, and staff is also discussed.

1. Compensation Budgeting Part I:
Managing Pay Inequities
Mykkah Herner, MA, CCP
Manager of Professional
Services
PayScale, Inc.
www.payscale.com

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14,000 Positions 2500 Customers 11 Countries
250 Compensable Factors
40 Million Salary Profiles

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Three-part Series on
Compensation Budgeting
Part I: Managing Pay Inequities
Part II: Determining Raises
Part III: Putting it all together
with PayScale Insight

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Agenda
o Start with a Plan
o Do you have a clear pay philosophy, strategy, structure, policy?
o Are you using accurate and current Market Data?
o Identify Compensation Inequities
o Organizational Level
o Department Level
o Position Level
o Individual Level
o Develop solutions
o Next month: determining increases & putting it all together

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Start with a (comp)
plan

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Comp Plan
Elements
o Philosophy - high-level view on the aims
of the organization with regard to
compensation
o Strategy –
o Define your Labor Market(s)
o Determine level of competitiveness
o What do you want to reward?
o Structure - Mathematically sound way of
aligning your positions to market and
internally
o Policy – ensures that the comp plan is
carried out

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Getting Reliable Market Data
 Critical factors for benchmarking jobs
o Know your positions, go beyond titles
o What are the top 3 functions of the role
o What’s the level of responsibility
o What kind of decision-making authority
o What typical tenures do you seek for your roles
(newer, more tenured, etc)
o Are there required degrees or certifications
 Defining your competitive set
 Accurate and current market data

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Testing for Pay
Inequities

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Types of Pay Inequities
 At the Plan Level
o Are you paying fairly to market?
o Are your ranges competitive with the market?
 At the Department level
o Are you paying fairly across departments?
 At the Position level
o Have some of your positions moved faster?
 At the Employee level
o Are you paying fairly across employees based on
• Your comp policy (what do you reward)?
• EEO status?

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Plan-wide Pay Inequities
Paying Fairly to Market
o Determining your target market percentile
o Budget
o Competitiveness and impact on retention/attraction
Staying competitive relative to market
o Annually, examine your ranges to see if they’re current relative to market
values

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Analyzing Ranges to Market
Create a report showing your range midpoints relative to the market, and the
difference between the two
o Look through your positions- do most go up? Most go down? A mix?
o If most positions moved up, you may want to consider adjusting your ranges
by 1-3 percentage points.
o Determine the cost impact of the shift prior to making the change.

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Cross-Department Pay Inequities
Targeting
Determine the appropriate targets for your departments
Build ranges around the appropriate targets
Execution
Ensure that you are paying according to strategy by looking at department-level
compa-ratios and market-ratios

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Position-specific Pay Inequities
Identifying inequities at the position level
o Critical positions may move faster in the market than others
o Review these positions on a quarterly basis
o Listen to your employees – flight risk
o Consider adjusting the grade level and perhaps employee pay
o Be prepared to adjust pay between cycles for your critical roles

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Employee-specific Pay Inequities
Identifying Employee-specific pay inequities
o Are you paying according to your comp plan?
o Do you have compression issues?
o Examine your compa-ratios (.8-1.2)
o Look at your outliers (green and red)
o Determine your plan to bring people in range, or have a clear
policy for why it’s ok to not be in range.

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Disparate Pay and EEO Concerns
Create a Disparate Pay Report
o Examine when % difference is high and low
o A good guideline is a % difference greater than your range widths
o A high difference is a flag for potential litigation
o A low difference may not be an EEO concern, but is a concern that you may
not be rewarding according to your comp philosophy

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Develop Solutions

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Identifying
Solutions
o What are the options for remedying the inequities
identified?
o How much will it cost?
o Can we absorb that cost in this year’s increases or
are we talking about a larger amount?
o Do we need to resolve over multiple years?
o How critical is it that we resolve the inequities?
o Legal considerations
o Attraction/retention issues
o Morale
o Develop multiple scenarios
o How will we communicate:
o To Execs
o To Managers
o To Staff

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Identifying Options & How much it
will cost: Plan Level
Plan Level Options
o Do nothing
o Make small incremental change
o Update your comp strategy
o Adjust all the ranges at once
Plan Level Costing
o How do you plan to do increases? Do you want to maintain the compa-
ratio (across the board market-based increase) or do increases by position
in range?
o What is the $ impact of employees falling out of range in the green?
o Former red-outliers may again be eligible for increases.

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Identifying Options & How much it
will cost: Position Level
Position Level Options
o Keep the position where it is – may have high compa-ratios
o Move the position to a new grade
o Keep the position where it is but offer a “market premium”
Position Level Costing
o Calculate the cost of moving position to a new grade
o Calculate costs of your market premium – advantage year over year

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Identifying Options & How much it
will cost: Employee Level
Employee Level Options
o Identify any critical issues
o Determine the cost of non-critical issues and priority to organization
o How will you handle compression issues?
o What about disparate pay (non-EEO)?
o Are there any concerns amongst your green outliers that won’t be
remedied with a regular increase?
Employee Level Costing
o Determine the amount to resolve critical issues
o Calculate amount to resolve compression issues – increases to existing?
o Any necessary market adjustments for individuals?

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Communicating about Pay
Inequities
Ask for what the organization
needs
o Provide solutions
o Share the big picture – with only
the detail needed to make your
case
o Make your recommendations
concise and easy to understand
o Explain the why
o Communicate what the
impact/cost will be to the
organization
Help the organization manage
the budget once approved

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Next Month:
• Determining Increases
• Putting it all together

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Mykkah Herner, MA, CCP
Manager of Professional
Services,
PayScale, Inc.
www.payscale.com