Do you know that episode from The Office where Michael Scott goes to corporate to ask for a pay raise because he found out that his salary is not that much higher than the employees that he manages? Sometimes when an employee asks for a raise it can feel as awkward as an episode of The Office. What do you do when an employee asks for a pay raise?
Having the appropriate compensation structures in place is crucial so that you can justify your decision to give a raise or not. Salary bands and salary reviews are integral to the basic compensation structure of your organization. These structures also help to frame any conversation that you are having with an employee about their pay.
Why Do I Need Salary Bands?
Salary bands provide a base, a midpoint and a maximum salary for each wage bracket. Each job is assigned a pay band so you know the minimum and maximum that an employee can be paid for any given position. These pay bands should be rooted in market data as well as the compensation position of the organization.
For example, you have a Customer Service Associate who has asked for a raise. You know that the Customer Service Associates are in pay band 4 which ranges from $43,000-$53,000. If the employee is already at the top of their band then you know that they are not eligible for a pay increase. Pay bands also make it very objective for the employee to understand how much it is possible for them to make while they hold the position that they are in.
If the employee is at the top of their pay band and you believe that they are being under compensated, then perhaps their job has been assigned the wrong pay band or your pay bands are not aligned with the market. If that is not that case, then you may need to look at the job responsibilities that are being performed against their job description to understand if they are actually performing a different job that is in a different salary band.
You will need to review your pay bands periodically to ensure that they are in line with market data and to make changes if job responsibilities and descriptions have changed.
Conduct Annual Salary Reviews
Salary reviews are conducted towards the end of the fiscal year so that the raises can coincide with the budgets for the new year. You will need to decide what your approach is to raises. Will you give a blanket cost of living wage increase, or are you tying increases to performance and performance reviews, or a mixture of both? Do you have a bonus or profit-sharing program to take into consideration? Align your rationale for pay increases with your compensation philosophy to keep a consistent approach.
For those employees who are already at the top of their pay bands, when you review their salary you can consider paying out a lump sum. For example, if you are doing a blanket 3% wage increase across the company, then you could pay your Customer Service Associate who is at the top of their pay range a lump sum payout of $1,590.00 rather than the increase because they have hit the cap for their pay range. This approach will help contain your salaries within your established pay bands while being equitable in your distribution of raises.
Keep Compensation Methods Fair
Above all else, make sure that whatever salary bands, salary review processes, or pay increases that you implement are fair. If you are using performance standards as the basis for your pay increases, then they need to be objective. You don’t want to be accused of favoritism or inadvertently provide one group of employees a discriminatory pay advantage over another. Additionally, you are required to comply with pay equity legislation to ensure that men and women who are performing the same work are paid the same rate.
We Can Help
Does the world of compensation feel intimidating to you? We have a wealth of programs to help you feel confident in your compensation and total rewards systems. Our services include compensation reviews and audits, building a compensation roadmap for your business, conducting analysis and researching market pay data. We have the resources and knowledge to help you build effective compensation structures for your organization. Get in touch, we would be happy to help.