2023 Compensation Check-Up: Four Questions to Ask About Your Compensation Practices
August 2, 2023
This article was originally published on March 29, 2023
Compensation is always a top-of-mind issue for employers, but on the heels of the “Great Resignation,” and amidst ongoing labor shortages, economic uncertainties, and evolving legal requirements, many employers are reassessing their compensation practices.
Here we share some questions to help guide you.
- Is Our Compensation Competitive? Pay isn’t the be-all, end-all to employee recruitment and retention, but it’s important. Employees who feel that they are underpaid are far more likely to entertain another opportunity. If you haven’t done so recently, look closely at how you compensate your employees to ensure that they are being paid appropriately – both inside the company and in the industry/marketplace. If you cannot offer higher salaries, there are other ways to remain competitive. Many employers offer new hire signing bonuses, home office allowances, bonus opportunities, paid professional development opportunities, and generous paid time-off policies.
- Are Our Compensation Practices Fair? Employers should ensure that they have a solid rationale for compensation determinations and that there aren’t inappropriate pay disparities that appear to be linked to gender, race, ethnicity, or other protected classes. If a self-audit uncovers any areas for concern, employers should make necessary changes. This is particularly important for Illinois employers preparing to apply for their Equal Pay Registration Certification.
- Does Our Compensation Boost Retention? Research shows that helping employees feel valued and part of something bigger is vital to boosting retention. While there are non-monetary ways employers can do this, employers should also consider different compensation arrangements that help put the company’s proverbial “money where its mouth is.” Some examples of ways to help employees feel more invested in their work aside from salary increases are profitability-based bonus pools, phantom equity programs, and long-term bonus programs that allow employees to share in the company’s growth, or transaction bonus programs that enable employees to share in sale proceeds if the company is sold. These kinds of deferred compensation programs can present potential complications so they must be documented in writing with clear terms and crafted with the help of an attorney who understands the applicable tax requirements. When done properly, such programs can create a stronger link for employees between their work and the success of the company.
- Are our Compensation Practices Compliant? Many states have new compensation based legal requirements. Employers should ensure they are complying with any state-specific laws that may impact minimum wage and overtime compliance, equal pay reporting, and pay transparency in recruiting/hiring.
For additional information on employment-related best practices, refer to LP’s 2023 Employment Law Checklist.