The landscape of compensation and pay transparency has changed significantly since 2020. Currently, 36 states have some form of pay transparency law in the United States. These laws vary from state to state and may include a variety of requirements, from posting a pay range for internal and external job postings to not asking salary history questions of applicants. Failure to follow these new pay transparency laws may result in monetary violations that range from $100 to $10,000 per violation.

According to Forbes, these new laws, paired with labor costs, make up approximately 70% of expenses for most organizations, making it increasingly important for organizations to develop a compensation strategy. Organizations that invest in a thoughtful compensation strategy better position themselves to motivate and retain their employees, attract new hires through a stronger employer brand and navigate the landscape of pay transparency and pay equity.

It is important to understand that a compensation strategy doesn’t only involve how to compensate employees in terms of pay and benefits but should start with the leadership team setting a foundational framework of where the organization is now and would like to be in the future. The leadership team should consider how the organization wants to position itself with the market and industry. Some questions to consider include: Is the organization in a growth phase? Does the organization need to attract and retain top talent? What positions will be added for anticipated growth? How do strategic goals align with the current and future budgets?

The leadership team needs to develop its retention philosophy and determine if more value will be placed on retaining current employees for organizational knowledge or attracting top-tier talent. Finally, the compensation strategy should measure the equity of the positions internally and externally and align with the organization’s goals.

Leadership teams new to creating a compensation strategy shouldn’t overcomplicate it but start basic and build on it over time. Everyone in the organization needs to understand the strategy. While the organization shouldn’t share the full details of the compensation strategy, it is critical all managers and supervisors have a solid understanding of the compensation strategy, direction of the organization, goals that the organization is working towards and how the supervisor and their team will be able to contribute to the success.

Once the compensation foundation has been built and goals set, a job analysis should be completed. This process will study the foundation of a position, its essential functions and responsibilities, including mental and physical skills, and determine its relative value and rank in the organization. Upon making those determinations, job levels and families need to be created. The supervisor is instrumental in creating the job analysis as they fully understand what is required of the position and its desired accomplishments. Human Resources will also be involved in facilitating, gathering and evaluating the data. The job analysis will result in a hierarchy of jobs based on a level or point value determined by a variety of factors. Having a clear valuation of each position and aligning the pay accordingly helps to assure pay equity across the organization.

The job analysis will lead the organization in creating detailed job descriptions for every position that contain the responsibilities of the position and outline which ones are essential or non-essential. This can also assist with the American Disability Act — reasonable accommodations and workers’ compensation claims. Job descriptions are commonly part of a performance review process and are used in a performance improvement plan (PIP). As an organization’s goals change, the responsibilities in a job description may need updating, and the compensation level for the position may need adjusting.

With a compensation strategy in place and the job analysis complete, there is now a road map to complete a pay analysis. Because there are many types of pay analysis completed, the organization will want to think back to the strategy and current goals to provide guidance. Communication of the pay analysis results, along with the organization’s follow-through and actions, will contribute to creating pay equity and increasing employee loyalty and retention.

Working through these steps, there is now a strong foundation to build salary bands required for the new pay transparency laws. Analyzing the organization’s compensation against industry-specific salary benchmarking is a good place to start. The USource team can assist with access to the industry’s salary benchmarking. The position valuation combined with benchmarking to create a salary band for each position is an efficient process to ensure the organization’s compliance with the pay transparency laws.

Whether you are revisiting an existing compensation strategy or building one from scratch, understanding these principles and steps can empower your organization to develop a compensation strategy that supports both your employees and your goals.