Structure your pay process
There are many ways to structure your pay processes. To get started, identify what roles exist in your organization (or you plan to hire for), and detail what is required to be successful in those roles. You can organize this information by identifying what roles exist in your organization, and what is required to be successful in those roles. This could include naming job titles, summarizing job tasks and responsibilities, identifying the knowledge and skills needed to do the job as part of a job analysis.
Once you’ve completed a job analysis, it’s time to understand what these jobs are worth in the market (i.e., what other companies pay employees for doing similar work) and how you want to position employees’ pay compared to the market (e.g., you could target pay at the 50th percentile of the market, the most common practice). You can define “market” based on where you get or lose your people (e.g., organizations in your industry, in the same geographic location). When thinking about how you want to position your employees’ pay compared to the market, be sure to keep your budget in mind.
Using the job descriptions from the job analysis, compare your roles to market pay data for similar roles. It is important that you base your comparison on more than just a job title as companies assign job titles differently. A vice president at a startup may have five years of experience and a small scope of responsibility, while a vice president at a well-established, multinational organization may have 30 years of experience and be responsible for large groups or budgets. You can get free market data from the US Bureau of Labor Statistics for standard jobs, and more detailed data based on surveys by industry organizations and consulting firms. If market data is missing or unavailable, you can consider filling in gaps using the median pay of your current employees in that role, or using the market data for jobs of similar scope, responsibility, or complexity.
Many large organizations set specific pay targets with wide pay ranges. Pay ranges represent the minimum and maximum pay for a given role based on the market data and are typically based on a percentage above and below a job’s pay target (e.g., +/- 20%). Implementing a pay structure that includes targets and ranges makes it easier to consistently pay for each role and helps you spot outliers.
Reference your pay structure every time you assign pay—from new hire pay to promotion increases. For example, new hires at Google have their compensation set in relation to a pay target associated with their role, level, location. Keep in mind that local legislation may actually prevent you from either asking about or using prior pay as an input.
As you evaluate your programs, remember that pay equity doesn’t always mean “pay everyone the same amount.” Based on your compensation philosophy, there could be factors that you determine should differentiate pay among people in similar jobs. At Google, for example, it is expected that top performers earn more than others in the same role.