Compensation Issues: 6 Problems to Control

Stay on top of common compensation issues like planning, internal equity, perceived equity, geographical differences and weak HR services.

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HR professionals and hiring managers often walk a fine line when it comes to employee compensation issues. If you are involved in the hiring process, you’ve probably already faced challenges with compensation structure and pay levels for existing and new hires. If you haven’t, the chances are good you will at some point.

The Bureau of Labor Statistics (BLS) reported on Dec. 2, 2022, that average hourly earnings were up 5.1% over the previous year. However, that was below the inflation rate for the same period. That means employers could face compensation challenges.

In this article, we’ll cover 6 of the top compensation issues that HR leaders often face when navigating the compensation strategy for new and current employees.

1. Compensation planning

Compensation planning means you don’t leave it up to chance whether you attract top talent and retain it. A strategic long-term approach, if done right, can help keep employees happy and reward them for their efforts. Many businesses struggle to balance compensation needs with their current financial position and future goals. But that’s really an argument for planning, rather than against it.

Compensation planning involves weighing the levels of pay rates, bonus structures, raises, and other perks. Achieving the best balance of compensation and company finances can be difficult. Finding it, however, can help a company keep its positions filled with top talent and gain a competitive advantage.

2. Internal equity

Internal equity means you provide the same level of compensation to all employees who fill comparable positions or use similar skill sets to perform the same jobs or similar ones. Compensation includes:

If you don’t develop internal equity, you risk losing employees and potentially facing lawsuits since equal pay for equal work is required by law.

3. Employees’ perceived equity

The way your team perceives equity is vital. Even if they are getting what the market commands, they might feel underpaid if they think they are overworked. Likewise, once they start to think that someone or some group is being treated more favorably, the perception of unfairness can grow quickly. When this happens, it often leads to lower engagement and morale. Certain things tend to foster a perception of equity, such as: information, transparency, listening to employee concerns, and adherence to standards for managers’ interactions with staff. The goal is to help employees see that they are valued and are compensated accordingly.

4. Lack of a human resources department

Many small and mid-sized businesses don’t have a dedicated HR department to address compensation matters. As a result, mistakes may occur, and some of them might damage a brand or break employment laws.

Hiring a compensation consultant can help SMBs overcome compensation challenges, including:

  • Setting salaries and pay grades
  • Making salary adjustments
  • Recommending bonus structures
  • Initiating retirement plan savings
  • Establishing other compensation benchmarks

With this kind of expert help, small businesses can stay abreast of the latest compensation trends. Both compensation consultants and compensation management software can help a business address top compensation issues, remain competitive, and sidestep legal problems.

5. Geographical differences

Technology has drastically widened the talent pool and employers have the option of hiring people from all over the country or even the world. However, companies must consider factors like local cost of living as they decide whether remote employees earn enough money. At the same time, they must balance requirements of equal pay for equal work.

Depending upon the size of the company and whether employees perform remote work or in-house, geographic differentials can complicate compensation programs for many employers. In addition to setting compensation, they must explain location-based differences to other team members.

6. Executive compensation

Good executives and senior managers are a key to achieving positive business results and strong company performance. Executive compensation packages play an important role in securing top talent. Common items to include are:

  • Base pay.
  • Health benefits.
  • Retirement benefits.
  • Short-term and long-term incentives (e.g. stock options).
  • Bonuses.
  • Other fringe benefits.

Not all companies can afford to offer massive executive compensation packages. However, companies can offer more flexibility and creativity in their compensation to draw great leaders, too.

Staying on top of compensation issues

Employers who promptly address compensation issues can build an employee-friendly environment with a reputation that draws talent. Even the most organized businesses can develop problems, but a proactive stance gives you the best chance for success.

Want to learn more about human resource issues and solutions? We invite you to visit our Workest blog for more helpful reading.

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