Dear Artemis: How do we fairly manage internal pay equity vs new talent compensation?
Updated: Sep 29, 2022
Welcome back to Dear Artemis: Where you ask us tough questions and we use our collective 45+ years of knowledge in the recruiting space to answer them.
How can we be fair with internal pay equity when job seekers are commanding such high salaries in the tech job market right now?
VP People, B2B Scaleup
This is a question that our team has been asked a lot lately, so this is a great chance to share some learnings we’ve picked up along the way.
Job seekers with in-demand skills are able to command some pretty eye-popping salaries in the open market right now. With the power shifted towards job seekers in this market, looking for a new job right now is seen as the quickest path to a big raise.
You can be sure that your team is seeing posts on TikTok and other social channels, extolling the benefits of quitting and the costs of loyalty.
And Adam has a point here. Most would agree that loyalty to your company should be rewarded and that it is unfair when frequent job changes lead to substantially larger ‘raises’ than annual increases or promotion bumps.
Is it unrealistic to consistently raise salaries to keep up with leading market rates? The reality is there will always be someone willing to pay more for your top talent in the open market than you can justify internally. But staying generally competitive is also wise.
We don’t advise chasing the top of the market to keep up, but you need to be aware of what real salaries are out there. Otherwise you are playing a high-stakes poker game where you keep matching your opponents bets with blind faith, not knowing what is in their hand. All companies have their own unique set of circumstances that should dictate their short and long term compensation strategies, and if you get caught up in a race to the top, you could actually find yourself in a race to the bottom. Market data should always inform your total rewards strategy, but it should not be your dictator.
Companies should provide both merit and cost of living raises to their employees as part of a long term retention strategy and to keep up with annual inflation. These must proactively fit within the scope of your total rewards strategy rather than being hyper-reactive to market volatility.
So what can you do to balance internal pay equity against the pressures of the open market?
There’s no one size fits all answer, but consider this as you continue to reflect on your retention and total rewards strategy:
#1 - Don’t wait for employees to come to you to talk about salary.
Your employees are hearing the same stories about people getting rich in the open market. If your people are asking to negotiate their compensation based on rumour or with a competitive offer, then it may be too late.
Be proactive and control the narrative within your organization. A counter-offer to an employee who is halfway out the door is NOT the right time to find extra room in the budget. This is reactionary rather than rewarding and won’t lead to longer term retention.
Have scheduled reviews throughout the year to assess market compensation, and encourage employees and managers to be transparent about what they are seeing or hearing in the market. These conversations are an important opportunity to re-align with your team on salary expectations, market trends, and your company’s compensation philosophy.
#2 - Know your total rewards strategy, and communicate it well.
Accept that there will always be perceived (or actual) pay discrepancies among organizations. Trust your compensation strategy and distribution, and be ready to justify it.
Let’s say for example you have an engineer who is two years out of school, but they are measurably stronger than others on the team with more years experience. With specific metrics you can justify compensation decisions in an unbiased way.
Well defined, thoughtful pay bands and transparency also encourages learning, growth and development. If someone wishes to be paid as much as their peers, you now have a specific framework to point to and specific steps they can take to get there with your support.
A transparent environment requires safety and trust and managers who can talk about compensation, which for many people is a very personal and sensitive topic. It’s hard but the stakes are high. When employees perceive a pay gap, they will either talk to a manager - or they will stew on it, become disengaged and then go looking for a new job.
Having a clear and specific total rewards strategy that all leaders are well-versed in will go a long way with making sure everyone on your team is aligned with the plan. This way everyone can make informed decisions about their career with the right information - whether that’s reaching personal compensation goals within your company or understanding that they need to explore the open market.
#3 - Consider embracing pay transparency.
Inevitably, some of your employees are going to discuss compensation with each other, and they’re certainly going to do their own research on their market worth. Getting in front of this and sharing information about how people are paid in your organization will prevent rumours from emerging without context.
Pay transparency can create a healthy and positive environment, where people feel safe starting conversations on the subject with their peers and leaders.
Transparency doesn’t mean sharing a spreadsheet with employee names and salaries (although this is an approach adopted by companies like Buffer - even sharing the data publicly). Many companies opt to share pay ranges for each role with insight into how salaries are calculated. The goal is to give workers an understanding of why they earn what they earn, and what they need to do to reach the next level.
Advocates of pay transparency have proven that employees feel they are compensated more fairly when employers are open. This also goes a long way towards addressing structural inequalities in the workplace, where unjustifiable differences in wages between different diverse groups are no longer tolerated or hidden.
We’ve been socialized with the taboo around discussing pay with anyone other than your manager, assuming it can only lead to conflict, but a lack of transparency leads to distrust, misinformation, and inequity. Compensation is one of your strongest retention tools and when employees don’t trust or buy into the system, good luck trying to keep them around.
#4 - Pay equity comes in many shapes and sizes - don’t assume everyone wants more money.
Cash compensation is the most obvious element of your total rewards package, but it certainly isn’t everything. Take into consideration the diverse needs and goals of your teams and craft a rewards package to match. For some, flexibility is more important than cash. Raising wages may do little to influence a decision to stay if someone really needs the flexibility of remote work or flex hours.
Ask your employees what is most important and valuable to them in a total rewards package. They will be happy to tell you. At Artemis, we recently did a wellness survey to get a sense of how people are using and valuing their various perks and benefits, among many other things. We each shared feedback on what is most important to us and why, giving our leaders direct insight into factors that influence our wellbeing and satisfaction at the company (Hey Kristina - when are we getting that office cat? Tyler - depends if he’ll get along with the office dogs). With insight, you can build, re-design or tweak a total rewards package based on keeping your team happy and motivated to work hard - a ‘cheat code’ for employee retention, if you will.
The pressures of the open market and retaining talent can be scary, but taking a page from the Serenity Prayer we should all focus on what we can control and accept what we can not.
Compensating and retaining talent is complicated, because people are complicated. You could have the most thoughtful, employee-centric rewards plan that meets virtually all the needs of your team, and they could still leave sooner than you’d prefer. The best approach is to maintain balance when looking at both internal and external forces and motivations. Pay fairness isn’t reached by doing a one-time assessment. Maintaining internal and external equity should be an ongoing priority, consistently revisited. The modern workforce doesn’t always demand top pay, they do demand to be treated and paid fairly.
We hope this helps. As always - if you have any questions, thoughts, or suggestions… we’re an email away.
Until next time,
Tyler & the Artemis Team