By Claudine Kapel
Your organization pays employees in line with competitive market practice and maintains a formal salary structure. So when it comes to keeping compensation practices on the straight and narrow, you should be golden, right?
Not so fast.
While an effective program design is vital, it’s just part of the equation for sound compensation management.
So yes, you do need to pay attention to how internal compensation levels compare to competitive market practice. And it is important to have a well-designed base pay structure with clear salary ranges that reflect solid math.
But you need to examine more than just program design to ensure you stay clear of compensation potholes – or perhaps even compensation sinkholes.
You also need to look at your organization’s pay administration practices, including how the organization awards salary increases and moves employees through salary ranges and how the organization allocates incentive opportunities.
In essence, you need to ensure you are paying employees fairly and that pay decisions are not being influenced – or don’t appear to be influenced – by considerations such as an employee’s gender, age, race, sexual orientation or any other prohibited ground.
Depending on where your organization operates, employees likely have multiple regulatory options through which to file complaints if they feel they are being paid unfairly due to some form of discrimination. These may be called different things in different provinces, but include:
- Employment standards – which calls for employers to deliver equal pay for equal work; and
- Human rights – which protect employees from discrimination under any prohibited grounds.
In addition, some jurisdictions also have pay equity legislation, which essentially calls for employers to deliver equal pay for work of equal or comparable value. Some provinces only have pay equity legislation covering the public sector. Others, such as Ontario and Quebec also have pay equity legislation that covers both the public and private sectors. Federally regulated employers, meanwhile, must adhere to pay equity requirements as set out in the Canadian Human Rights Act.
To minimize the risk of complaints, it’s a good idea to periodically review internal pay levels to test for relativity and fairness. Some questions to ask include:
- How are employees in the same job compensated? Can you offer a defensible explanation as to why some earn more and others earn less?
- How are employees in the same salary range compensated? Can you offer a defensible explanation as to why some earn more and others earn less?
- How are bonus opportunities allocated? Do individuals in the same job or in the same salary range have comparable opportunities?
It’s important to keep in mind employment legislation does not demand employers pay all employees in the same job the same. Pay can vary based on considerations such as performance, experience or time on job.
Organizations, however, can fall offside with regulatory requirements if there is evidence of discrimination with respect to pay – meaning there’s a factor related to a prohibited ground, such as age, gender, or race, is resulting in an individual earning less than others.
You can audit your own compensation practices by looking at the distribution of pay for employees in the same job and in the same salary range. Can you explain differences with respect to pay? Do you see any troubling patterns, such as some particular employee group being paid consistently less than others?
If you spot any potential issues, some course corrections may be in order. These may include addressing internal equity issues and refreshing the organization’s training on effective pay administration practices.
Although regulatory compliance is vital, that’s only one of the reasons organizations should pay attention to the internal fairness of compensation programs. The reality is that if something is amiss in how compensation is being managed, employees will likely find out – and spread the word. And that may lead to internal conflict, lower levels of commitment and morale, and potentially higher levels of turnover.
So when it comes to pay fairness and internal equity, an ounce of prevention is worth more than a pound of cure.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.