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Are you Paying Too Much – Or Too Little?

Choosing how much to pay your employees can be difficult. Are you paying too much? Too little? How much is enough to keep your best and brightest employed within your organization? Being fair to all employees while also showing that they’re valued takes more than a standard pay scale. While the ability to hire a great candidate is often reliant on salary, retaining a great employee may require a little more than just dollars and cents.

Fairness in compensation within your organization, otherwise known as internal equity, is somewhat of a preoccupation in today’s workplace. Our employees can’t help comparing what they’re making to what their peers are making, both inside the organization and out. While we try to keep salary information confidential, the information is easily obtained, sometimes by word of mouth and by information found online. Creating internal equity can help create and maintain the loyalty of your employees.

Looking at the balance between internal and external salary equity is a great place to start. However, no matter how complex and complete your compensation formulas are in reality (assuming all related laws are considered), it is how they are perceived that can truly impact employee loyalty and happiness. If employees perceive that they are not being paid fairly in comparison to their coworkers, they may not feel valued and may leave. If the employee perceives that they do more work than their peers but are paid the same, this may create a similar outcome.

Wages should not be based on job title alone. The tasks completed are more important than the titles. Similar tasks should earn similar wages. Of course, beyond job tasks it is certainly acceptable to consider an employee’s education and prior experience.

More and more employers are creating compensation plans built on the idea of transparency, which helps them to explain why compensation decisions were made. Explaining the factors that led to a compensation decision will allow employees to understand your exact reasoning, which can result in the perception of being paid fairly. The employee’s perception of being paid a fair wage is just as important as the wage itself.

If you haven’t reviewed your pay or internal equity structure recently, now is the time. Your best employees are probably already aware of how much their peers are making and how much they could be making elsewhere.

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