Pay practice tracking and compliance is becoming ever more complex. Recent developments include state and local laws requiring employers to share pay data during recruitment along with heightened scrutiny of pay inequities impacting women and people of color. Fortunately, technology can streamline the process and boost HR and other leaders’ confidence that their pay practices are meeting compliance requirements, as well as attracting and retaining top talent.
Growing Need to Address Pay Equity and Transparency
Thomas Rylko is managing director of compensation consulting at Gallagher, a risk management, insurance and consulting services firm with global headquarters in Rolling Meadows, Ill. Rylko pointed out that “states are increasingly legislating practices around pay equity and transparency, like posting salaries and limits on asking candidates what they made in a previous job.”
In most instances, he said, “these regulations have significantly minimized low-ball or potentially discriminatory offers not in compliance with pay range laws.”
But, he added, “some employers have widened their pay ranges to give them maximum flexibility and avoid dealing with disgruntled current employees who see new hires earning more for the same job. While this may address short-term needs, it creates pay inequity issues that can take years to resolve.”
Technology can play a role in both pay equity and pay transparency, said Stefanie Camfield, assistant general counsel and HR consultant with Engage PEO, “by comparing compensation rates both internally and externally to ensure that they are fair based on duties and geography along with other relevant nondiscriminatory factors such as education, seniority and performance.” In addition, she noted, “newer technologies allow companies to be more strategic with setting and adjusting compensation rates. It can also add some additional objectivity to the review process.”
Technology and data can enable informed, confident decisions related to pay, Rylko said.
“Technology platforms are supporting our pay transparency journey by providing colleagues with increased visibility into their respective pay range and their placement within that range,” said Danielle McMahan, chief people officer at Wiley, a multinational publishing company headquartered in Hoboken, N.J. “Equipped with this information, colleagues can have more informed conversations with their managers about their compensation and how they can best impact that.”
Rylko said modern compensation technology “can provide employers with a detailed statistical picture of their workforce compensation based on gender, race and role tenure—correlated to experience.”
Tools currently in the market can generate easy-to-understand dashboards based on a wide range of data points, he said.
“The most sophisticated tools will highlight red flags and tell you that you have a compensation problem” based on certain factors, he added. Advanced analytics capabilities can help organizations spot areas where they may be paying women or people of color inequitably compared to white male colleagues.
Choosing the right system given all the options currently available can be a complex undertaking—and not one that HR should pursue on its own. Input from and collaboration with key stakeholders is critical for making an informed choice.
Don’t Go It Alone
HR certainly has a critical role to play in ensuring pay equity, but it’s not the only function within the organization that should have a seat at the table when making decisions about how to manage the issue.
Other senior leaders, especially chief financial executives, should be involved in the strategy and overall structure of the compensation program, as well, said Kendra Janevski, SHRM-SCP, managing director of human resources with Vault Consulting, an accounting, human resources and analytics firm with offices in Washington, D.C., and the Carolinas.
“Hiring managers should also have a role in the process as the jobs are built into a structure—if there are some compensable factors that are not represented in the job descriptions used for the basis of the data, the role could be completely off the mark,” she said.
Participation will vary based on the organization’s size, Rylko added, but most midsize to large companies will want to include IT, accounting and legal representatives, as well. “It may also be prudent to include a handful of operational business leaders that are consistently in contact with compensation,” he added. This shouldn’t just occur when selecting a vendor or new technology. “Regularly reviewing compensation should be part of your strategy to keep the organization competitive, maintain a positive brand and avoid discrimination lawsuits,” he said.
“Like many traditional HR programs, pay transparency has a strong dependency on a solid technology foundation to enable the team to deliver on the goals,” McMahan said. “Partner with your technology teams to ensure your current tech inventory can support where you want to go. If it doesn’t, you need to prioritize this investment.”
This, she said, can be especially challenging for global organizations that have different legacy HR technology platforms in place.
Education is an important part of this process, especially for managers and supervisors, McMahan noted. At Wiley, she said, “educating our managers and colleagues on our pay approach has been critical to delivering increased pay transparency. Training and communications technology platforms have been instrumental in laying this foundation.”
Choosing the Right Tools and Vendors
When considering new technology, Rylko said, “a well-crafted RFP [request for proposals] should be assembled and sent to vendors that specialize in this space.” It’s important to be able to easily compare responses across all interested vendors. “HR technology experts can also help ensure you don’t under- or over-buy. The market is rife with sophisticated tools with bells and whistles offering limited value to smaller organizations.”
Make sure the data vendor uses a variety of sources for their compensation information, Janevski recommended.
“First-person reporting is fine as long as it is also coupled with a more unbiased third-party reporting. Comp leaders should also be clear about what industry they are targeting. Some vendors focus on health care, some on manufacturing. Many have data for a broad swath of jobs, but they might not have as rich a dataset as a more industry-targeted source,” she said.
According to Janevski, some key questions to ask when considering vendors include:
- Where does the vendor source their data?
- How often is the data updated?
- What is the target audience or industry for the data?
- Are your organization’s jobs reliably benchmarked in the vendor’s data?
“Technological tools are only as good as the data they are based on,” Camfield said. “It’s important to find tools that are based on a large pool of verifiable data. This is especially true for companies and employees in smaller geographical markets or industries which may have limited data available for comparison. Poor data can result in employers setting compensation rates that may be too low to attract quality applicants or so high that an employee feels trapped in a position they cannot afford to leave.”
In addition, Camfield said, it’s important to ensure that any technology selected is compatible with other technology in use.
“This is particularly important when determining how internal data will be pulled or incorporated into the tool for analysis,” she said. “Companies may also want to know whether their data will remain private or if it will be incorporated into future datasets to develop compensation rates that can be used by other organizations.”
Janevski recommended requesting several vendor quotes and sitting through the demos to experience the tools.
“Demos are time-consuming but by the end of them, the decision-maker will have a much better sense of what is out there, what is fresh in terms of innovation and what might be added to the list of must-haves,” she said.
It’s time well spent, especially in an environment where both pay equity and pay transparency are top of mind not just for organizational leaders and their HR advisors, but for current and potential employees, as well.
Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.