Should a Compensation Structure be Proactive or Reactive?

We recently had a potential client tell us that establishing a formalized compensation structure for their organization was only being reactive to the current government’s comparable worth push and they weren’t going to give in to this pressure. This company has been in operation for several years and has not felt the need to create a salary range structure based on job descriptions, job point ratings, employees’ pay data and outside market data.

It is our belief that a company, no matter the size, should have comprehensive ADA compliant job descriptions, a method to place an internal value on each position, and the ability to understand the current market pay levels within the organization’s geographical trade area. This proactive approach for compensation management comes with the following benefits.

  • Lower turnover as employer is more transparent about its compensation program including explaining the approach and employees participating in the job description process
  • Better budgeting and allocation of funds used for employee pay
  • Ability to identify any potential discriminatory compensation issues as relates to gender, ethnic background, age, hiring pay, promotions, etc.
  • Provides department managers with pay adjustment guidelines to assist with pay increases for performance, promotions, transfers, demotions, and outside the salary ranges. Promotes consistent and fare treatment for all employees.
  • Integrates several components (job point ratings, current employee pay levels and outside market data) to establish the salary range structure vs. outside market data only.
  • Meets the ADA guidelines (15 employees or more) for a listing of job duties and physical requirements for each position within the organization

There are a significant number of classification and compensation audits being performed by several government agencies including Department of Labor, OFCCP, and EEOC. These agencies will request a copy of the organization’s job descriptions and employee data to determine if the company is complying with various pay and disability laws. Based on our knowledge, organizations that have taken a proactive approach to compensation management tend to fair better in these audits vs. those groups that don’t have a formal plan in place. In addition, when a discriminatory issue is identified, the company is required to create job descriptions and a formal compensation structure going forward as a part of the audit resolution. For us, this is reactive and tends to cost organizations more in the long run over the proactive approach of establishing a formalized job evaluation and salary administration program. If an organization does not have a solid defensible compensation management program in place, we can assist the company with the implementation of one and/or provide our DBCompensation software program for internal program development.