Presented by TriNet
Keeping up with ongoing changes in federal, state, and local regulations is one of the toughest parts of running a young, fast-growing company. Navigating the complex framework of laws and guidelines isn’t high on any entrepreneur’s list. The specter of increased regulation on pay equity may feel like just another burden. However, regulation serves a purpose, and that is definitely the case with the wave of equal pay statutes being introduced.
Pay inequality — particularly related to gender — has been a stubborn issue for many industries. New laws are intended to help level the playing field. Some laws have gone further than others in prohibiting employers from asking about previous compensation history or relying on it to help determine employment and compensation offers. Other laws prohibit employers from restricting workplace discussions among employees about their wages.
California is on the cutting edge of this trend, having previously enacted the California Equal Pay and Fair Pay Acts. Those regulations allow employees to openly discuss compensation and require equal pay for employees who perform “substantially similar work,” among other provisions. In addition, California recently passed a ban on salary history inquiry, beginning on January 1, 2018, which prohibits California employers from asking about or seeking previous salary history. It also prohibits including that information in decisions regarding compensation or an offer of employment. Notably, the California law requires an employer, upon reasonable request, to provide the pay scale for a position to an applicant.
Delaware and Oregon also have compensation history inquiry restrictions in place. Massachusetts is set to follow in 2018. San Francisco and New York City have passed similar regulations. You can expect the list to grow over time, as more and more cities and states seek strategies to address pay inequality.
It’s understandable for some management teams to question these changes, given the various regulations already in place and the perceived need to know about a candidate’s past compensation. However, inquiring about the past pay of potential employees can not only disadvantage job seekers, especially women, it can hurt the company as well. Previous employers may have either overpaid or underpaid the job candidate for reasons unrelated to actual skills or performance. So, a decision based on a candidate’s past pay may be ill-advised at best.
This mistake can be particularly burdensome for startups as it can lead to a costly and misaligned pay structure early in the game. It may prompt an attempt to retrofit compensation practices to suit evolving job responsibilities. This can then lead to inefficiencies, resentments and unneeded complexity.
Developing a compensation framework
Young companies should establish formal compensation structures that are based on realistic ranges for various levels of expertise, value to the organization, market data, responsibility, and tenure within the organization. It’s not an exact science but there are many research and advisory services available to help companies develop applicable frameworks. Creating a matrix of all positions in the organization with corresponding compensation ranges will bring transparency to the process and reduce the potential for pay inequality.
7 steps to fair and transparent compensation
Formal compensation structures with clear wage ranges can help startups attract talent, build goodwill among employees, and be compliant with pay equity laws. Specifically, developing a workable pay range framework requires seven planning steps, based on best practices advice from the Society for Human Resource Management (SHRM):
- Determine the appropriate compensation philosophy. Regardless of the industry, it will be paramount for the philosophy to be consistent with actual compensation decisions.
- Conduct a job analysis. Compile, document, and analyze information to accurately describe the responsibilities and performance metrics for each position.
- Group roles into job families. Once an employer has developed accurate job descriptions, they should determine whether to group the jobs into various functions, such as sales, marketing, administration, technology, etc.
- Rank positions based on clear evaluation methods. This is all about matching the appropriate level of work and responsibilities to each job level.
- Conduct market research to help ensure that wages are comparable to similar positions in your marketplace and industry.
- Develop job grades. There are two avenues to accomplish this: either use your job evaluation data to group positions within each job family into job grades or use market data to group positions based on similar salary survey data.
- Create salary ranges based on research. For each pay grade, an organization will need to establish a minimum, midpoint, and maximum pay range.
Each of these steps can help organizations create highly transparent, practical, and consistent compensation processes. In conjunction with adhering to various regulations coming to market, companies can, in fact, have a positive impact on reducing wage inequality. It’s never too early to put these processes in place. There’s a misperception that having a rational compensation structure is primarily a task for large companies. Small companies can actually benefit just as much, if not more, from developing clear pay ranges and career projection policies.
Establishing effective compensation policies early in the development cycle of a young and growing business can help alleviate issues down the road — including those related to gender pay equity. Investing in a professional compensation policy not only makes good business sense; it’s imperative to attract and sustain loyal employees.
Burton Goldfield is President and Chief Executive Officer at TriNet.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.
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