How to launch a fair compensation strategy

Published: 31 May 2024

Fair compensation is a top priority for employees, and it’s not going away. In fact, it’s becoming more and more important to employees, reward and benefits departments, and C-suite leaders.

But ensuring fair compensation goes well beyond collating and reporting on your gender pay gap. To truly ensure fair pay, you need a strategy.

In this guide, we provide step-by-step guidance on how to launch a successful fair compensation strategy.

1. Understand fair pay in your organisation

To launch a fair compensation strategy, you must first understand what it means to the organisation and how your employees feel about it.

What does “fair compensation” mean to your organisation?

Providing fair compensation, or fair pay, means paying employees equal pay for equal work. That is, it means eliminating any pay differences where employees are undertaking equal work.

However, fair compensation can also mean:

• Paying a living wage. The Living Wage Foundation in the UK campaigns for minimum pay levels to reflect the basic cost of living. The Resolution Foundation calculates the pay level each year.
• Reducing the executive pay ratio. Quoted companies with more than 250 employees must publish the ratio between their CEO’s total remuneration and employees’ pay and benefits. They must also provide supporting information on the data produced.
• Supporting employees through reward and benefits. Employers may offer financial benefits to help boost financial wellbeing, as well as benefits to support health and wellbeing.

Knowing what leaders and employees think fair compensation is (and isn’t) will help guide future efforts and communications.

Employee perceptions

According to Gartner’s survey, only 32% of employees think their pay is fair. Unfortunately, employee sentiments like these, even if inaccurate, can lead to increased labour turnover. It can also undermine your fair compensation strategy.

To gauge employee sentiments, consider asking questions about fair pay in an engagement survey or pulse survey. This will ensure the organisation is aware of what employees think fair pay is and how employees feel about their pay and the organisation’s practices.

2. Communicate the benefits of fair compensation

Communicating the benefits of fair compensation is essential to your strategy because it helps prepare the organisation for change. It also helps attract and retain top talent. By sharing how you’re ensuring fair pay, you can enhance the organisation’s reputation among potential recruits and existing employees.

Communications like these will show that the organisation is transparent and committed to addressing inequality. In the current labour market, this can be a key differentiator from potential competitors for talent.

3. Secure buy-in from key stakeholders

For fair compensation plans to flourish, you’ll need employees from across the business to commit to the strategy. This includes all key stakeholders, including local reward teams, HR business partners, line managers and global leads.

Organisations can ensure commitment from those needed by:

• Identifying a senior level champion for leading the strategy.
• Securing top-level ownership and accountability over the strategy.
• Making conversations about fair pay the norm internally and externally.

4. Create a focused action plan

Securing buy-in from leadership shows that your organisation is committed to having a fair workplace. It enables the organisation to send a strong message of commitment, both internally and externally. However, while commitment might be fundamental, you also need a focused and structured action plan.

To establish a plan, organisations can:

• Join a network. Joining a network will allow leaders to exchange best practice and raise the organisation’s profile
• Build relationships with organisations and press. Building relationships with other organisations that represent what you stand for will develop a good reputation for your organisation.
• Find partners to assist with fair compensation efforts. Partners, such as a pay equity software provider or law firm, will help you execute your strategy.
• Establish a timeline and goals. Launching a fair compensation strategy is a long-term project. A timeline and specific goals will provide a framework for carrying out audits, analysing data and making changes.
• Review the organisation’s budget. A budget can help you prepare for future pay adjustments that you may need to make to ensure fair pay.

Consider where the organisation operates

As part of your action plan, ensure that the organisation’s actions reflect the law, demographics and internal business requirements where it operates. For example, if your organisation operates in the US, you need to comply with the Equal Pay Act of 1963. US employers must also comply with a network of state-level pay transparency laws.

5. Analyse data

Once you’ve established an action plan, you can gather data by performing a pay equity audit. This will help inform any needed pay adjustments and future pay decisions. Analysing data will help you understand where the organisation currently stands. Specifically, it can help you discover:

• Instances of unequal pay.
• Pay gaps.
• Pay outliers and inconsistencies.

If you’ve invested in pay equity software, you’ll also be able to use the data to model pay adjustments and future changes.

Accessing the right data

While data on employee gender has traditionally been easier to collect, organisations should extend this to other workforce characteristics such as ethnicity or disability status. This will provide a more complete picture of any pay inequities in your organisation. You can try acquiring this data by inviting employees to self-declare.

When you’ve acquired the right data, you can identify any barriers to fair pay by searching for patterns at key touchpoints in the employee journey. For example, you might find that initial pay offers for similar roles differ based on gender, race or disability.

To understand what may be contributing to unfair pay, consider acquiring data to monitor patterns in or among:

• Job applicants and recruitment pools.
• Initial pay offers.
• Promotions.
• Employee turnover.
• Job titles, job roles and pay bands.
• Workplace flexibility access and use.
• Job roles before and after parental leave.
• Employee retention after parental leave.

Use data to tell the story

The organisation can build a great deal of trust with employees by regularly communicating about fair pay efforts. Regular communication that leverages data can help employees understand what the business is trying to achieve. For example, during the annual salary review, your organisation should disclose how it’s using the budget to ensure pay is competitive and equitable.

The communication plan should also leverage data to celebrate fair compensation successes. Showing how the organisation has reached its goals demonstrates its true commitment to fair pay.

6. Act on the results

After analysing the pay data, it’s time to take action. This may include making pay adjustments, creating action plans to close gaps and disclosing pay gaps internally or externally.

Implementing changes can be a difficult piece of the fair compensation strategy execute. You’ll need to consider budget, the company’s reputation, potential liability and more. So, be sure to set clear priorities and consult with counsel when needed.

For similar reasons, publishing the pay gap can also be a challenge. When you disclose the pay gap, provide a narrative that demonstrates the organisation’s commitment to equality. This will show that equality is important to the organisation and support the employer brand and reputation. And before disclosing, agree on an action plan to make changes in the near future.

Together, the narrative and action plan will provide context. They’ll also provide insight into the drivers behind the gap and the progress the company has made.

7. Monitor progress

At a local and global level, leadership should undertake a regular review of their commitments to fair pay. This includes assessing the organisation’s position and progress against any targets or goals. The review can also include an action plan for future work or areas of focus. And again, stakeholders should communicate results and plans across the business and potentially more widely.

Conclusion

Implementing a fair compensation strategy has proven benefits. It helps attract and retain top talent, foster equity at work and ensure compliance. However, implementing a fair compensation strategy may take time and will inevitably have its challenges. To make your strategy a success, be prepared to continue analysing data, making incremental changes and practicing transparency.