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Managing Internal Equity

If you’re a hiring leader, you are keenly aware of how competitive the market has become.  Companies hiring for skilled positions have been feeling the pressure to step up their current compensation models and salary ranges to meet the increasing demands of skilled job-seekers. This not only impacts an organization’s bottom line, but it can potentially cause issues with your current team, specifically regarding internal equity.

Internal equity refers to your internal pay scale or the average compensation for your current employees in their respective positions, and it has become increasingly difficult for companies to balance the demands of the market with the need for internal equity.

There are many reasons for a company to prioritize an approach that ensures internal equity. Organizations that fail to consider or implement equitable pay scales for similar positions open themselves up to discrimination allegations, disgruntled employees, decreased productivity, and increased turnover.

One challenge currently facing hiring leaders is the salary requirements of skilled candidates on the market are oftentimes higher than the salaries being paid to your current team. Bringing on a new skilled worker would create a pay discrepancy between newer hires and more tenured employees who are both filling similar roles.  Managing internal equity while enabling your organization to hire the skilled employees they need is a complex issue, but there are ways to combat this.


Option 1: One-time bonuses

One option to consider is including high one-off bonuses as part of the offer. This could include sign-on bonuses, completion bonuses, or achievement bonuses. This gets the candidate to where they need to be from a compensation perspective while not disrupting your company’s internal equity.


Option 2: Equity increase

The market and economy have changed, and are continuing to change, whether we like it or not. I encourage employers to consider a mid-year equity increase.  I recommend companies base the percentage of their increase on the cost of living and inflation and adjust their current staff’s salary appropriately.  Remember, if external candidates are looking for a higher salary, your current staff are likely to follow suit. By implementing an equity increase, you not only remain competitive in the hiring market but bolster your retention efforts as well. This exercise allows for flexibility with external hiring while keeping your current employees engaged, hopefully preventing the need to seek a higher salary elsewhere. As we all know, hiring talent will always be more expensive than retaining talent.


Transparency is key

Be open and transparent about your company’s pay policies. For example, if you are willing to pay a higher salary for a certain license or credential, be sure this is communicated to your current staff via an annual policy review. When your employees understand how their pay is determined and the guidelines on how to advance are clear, issues of internal equity are less likely to occur.

Invest in reputable, employer-reported salary data reports. Avoid self-reported data when possible because this information often comes straight from employees who submit their compensation information in exchange for their current market rate. This can be problematic because employees report this data differently.  For example, some employees would include their 401k employer match, and some do not. There are employer-reported data reports available at a cost, and they will give you the full picture of the market and your competition. In most reports, you can filter this data by industry, company size, geographic location, and more, offering you even deeper insights into your unique market.  These employer-reported compensation data reports are the best way to get complete and accurate pay data from your market, and being equipped with this information will give you the leverage you need to hire the best talent at a fair rate and retain your highly valued employees.

The way we hire is changing, and the need to hire new staff will never go away. Whether you’re looking for an incremental addition to foster company growth or responding to typical attrition, you’ll always be hiring.  The idea of offering sizeable bonuses or increasing your entire staff’s salary can be daunting, and most leaders’ first thought is, “I don’t have the budget for that!” However, remember that hiring is an expensive transaction (more on that in a future blog) so weigh the costs of hiring with retaining your current staff.

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