How to Design a Fair & Equitable Compensation Program

Conceptual image of marbles on a balance

In order to develop a compensation program that’s both fair and equitable, employers need to take into account internal factors as well as external market data. By conducting market analyses, you can identify positions where you are not competitive or perhaps where you are overpaying. You must take this information to key stakeholders, and while it may not be good news, it is critical to identify and communicate areas of concern so they can be addressed.

Here are the two main components you can use to design a fair, equitable compensation program:

Salary Ranges

Salary ranges should be used to recognize differences in employees’ experience and abilities. When pay ranges are set appropriately, you can pay your people in the ways that best suit your company goals while still staying within the parameters of market competitiveness. If ranges aren’t broad enough, you could impose limits on yourself, making it impossible to hire workers with high-demand skills. If ranges are too broad, there’s the risk of internal equity issues with significantly different pay for employees in the same position. Appropriate ranges are just wide enough to stay flexible, but not too wide to create internal equity issues.

Market Data

When analyzing market data to use for setting competitive rates, keep in mind that survey data is a guide, not a definitive answer. Survey data is extremely helpful for making pay decisions, but it won’t tell you precisely what to pay. No two organizations share the same goals, location, size, or values; so ultimately, even the best data must be handled by an HR professional who has a thorough understanding of your strategic compensation goals.

By integrating salary ranges and market data into your compensation program, you can ensure you’re paying competitively enough to attract in-demand talent, while also maintaining a pay program that’s equitable for your company.

HRsoft is a leading provider of compensation management and total rewards software. Learn more about our Compensation Management Software, COMPview.