Survey: Pay structures are changing to suit equity, transparency needs

Organizations have become more transparent about pay, according to Payscale, but generally only disclose data to individual employees and only when required to do so.

Published June 6, 2024

Traditional pay grades remained the most common form of pay structure for organizations entering 2024, but many were considering market-based pay ranges — segmented either by individual jobs or by groups of comparable jobs — to meet equity and transparency goals, according to a recent Payscale report.

The vendor’s late 2023 survey of more than 5,700 compensation professionals, most of them from the U.S. and Canada, found that more than half said their organizations targeted pay ranges either presently or in the future. Another pay structure model, the step structure, was cited by 31% of respondents as a future target for their organizations and by 22% as both a current and future target.

Most employers’ pay strategies target middle of market or are job-specific

“Which of the following best describes your organization’s market strategy?”

A plurality of respondents said their organizations priced pay by targeting the middle of the market, but Payscale said it found that top-performing organizations were more likely than their lower-performing counterparts to pay above-market. Paying above-market rates was also more common among smaller organizations with fewer than 100 employees.

Employers are making those changes against a backdrop of shifting compliance demands. Jurisdictions in at least 13 U.S. states and Washington, D.C., now have laws requiring some form of pay transparency, such as the inclusion of pay ranges in job postings. Minnesota is the most recent state to join that list with a law set to take effect in 2025.

The trend toward disclosure has been observed even where such laws are not in place, a recently published National Women’s Law Center analysis of Glassdoor data between 2022 and 2023 found.

Generally, most respondents to Payscale’s survey said they were posting pay ranges either to comply with applicable laws or had done so regardless of legal requirements. In 2023, only 15% said they were not posting or advertising jobs in locations that mandated pay transparency, and 11% said they had refrained from doing so while they worked on their pay practices. Both percentages declined when respondents were asked about their 2024 plans.

While transparency has grown thanks in part to legislation, the manner in which organizations approached the subject varied, Payscale found. For example, nearly 70% of organizations said that they shared individual pay with employees only, and only when required to do so. Only 6% said individual pay was shared within departments, and even fewer shared this information organization-wide or publicly.

“While the prevalent method centers on sharing pay ranges only with affected employees, as pay transparency becomes more ubiquitous, it is important to think about the impact publishing ranges can have on employee retention — both positive and negative,” Payscale said. “Even more critical is the importance of empowering managers to have proactive conversations with employees about pay and the organization’s approach to it through pay communications.”

Sometimes the newfound availability of pay information can increase employee conversations about the subject — leading to sometimes awkward interactions between co-workers or between managers and their reports. But over time, familiarity with pay conversations will help normalize the topic and support discussions about pay and career progression, Payscale said.

When setting pay, 63% of respondents to Payscale said they use between two to four sources, with over one-third of organizations with more than 5,000 employees stating they used more than five sources.

Salary survey data from traditional publishers, HR-reported aggregate market data in compensation software and closed-network HR-reported data ranked highest on the list of data sources that respondents trusted most when setting pay policies. “Free or open online data” and salary data from job board postings were among the least trusted sources, according to Payscale, although they remain commonly used.

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Source: HR Dive

https://www.hrdive.com/news/pay-structures-change-to-suit-equity-transparency-needs/718228/