4 steps to developing a transparent base pay structure that’ll engage employees

When you break down your labor costs, it’s probably employee base pay that eats up the most money. Yet it’s an expense you can’t afford to live without because base pay’s also a significant factor in employee recruitment and retention in today’s competitive labor market.

Today’s workers crave organizational transparency, including about their compensation. In fact, in California pay transparency’s the law.

Although pay information is sensitive and highly confidential, being honest about how your company’s compensation is structured, and why, can go a long way in attracting employees and keeping top talent around for the long haul.

The key, according to global HR research and advisory partner McLean & Company, is to develop and implement a base pay structure that balances internal job worth with external market competitiveness, and includes sufficient guidelines to inform compensation decision-making.

Making base pay structure make sense

To form an accurate and understandable picture of your base pay structure, while also educating your people on the nuances of salary administration, the experts at McLean & Company suggest following these steps:

1. Collect and analyze market data to ensure you’re at least keeping pace with your respective market and industry. Provide HR leadership and your managers necessary resources to work together to confirm your business’s target market positioning strategy; identify comparable market competitors, appropriate data sources and benchmark market matches; and determine an optimal cadence for gathering market data.
2. Determine pay structures appropriate for your organization. This includes establishing job grades, developing pay bands based on your benchmark market data and comparing them with organizational base pay data. Give stakeholders the chance to take ownership of their base pay structure by reviewing it before it’s finalized.
3. Determine salary administration guidelines. This includes establishing new hire pay, promotional increases and lateral transfers, plus ensuring the base pay structure is applied consistently by compensation decision-makers.
4. Roll out a pay transparency strategy. Once your HR and management researchers have established current and desired pay transparency levels, then it’s time to develop a strategy to bridge the gap and craft a communication plan for your steps toward pay transparency.