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3 Ways to Build Fair Pay Adjustments into your Raise Cycle

Jen Dewar
Mar 4, 2020 11:31:08 AM

Raise cycles have a way of perpetuating unfair pay practices. Often, it’s the “loudest,” most visible people that receive the biggest pay increases and promotions—not necessarily the top performers. Managers may distribute more of their budgets to their favorite employees (or worse, to “squeaky wheels” to avoid difficult conversations), and company leadership may add discretionary adjustments to the most familiar names. Some decisions may even be rooted in unconscious (or conscious) bias. Achievements from those in underrepresented communities are often minimized or overlooked altogether. In the interest of being “fair,” or perhaps for simplicity’s sake, some companies issue a standard 3 percent raise across the board. Each of these scenarios widens the existing wage gap.

Rather than perpetuating the wage gap, use your raise cycles to make fair pay adjustments. Many companies already use raise cycles to provide compensation increases that account for performance, high competition for talent, and cost of living expenses. It’s important to factor in fair pay adjustments to ensure pay equity, employee retention, and legal compliance.

Here are three methods you can use to build them in:

Option 1: Make fair pay adjustments at the beginning of the raise cycle

Addressing fair pay at the beginning of your raise cycle signals that it’s a priority for your organization. This can go a long way in setting expectations for managers, and building trust with your employees.

First, you must define what “fair pay” means at your organization. Sure, there’s a legal definition, but that is likely not specific enough to explain the company’s methodology and strategy. For instance, do you target a specific market range? Do you prioritize making sure no one falls below-band? Do you prioritize rewarding employees for hitting specific target goals? With limited budgets, you probably had to make difficult choices.

Then, communicate your definition of fair pay with your managers and employees. When your commitment to fair pay is known throughout your organization, employees will feel more confident in how compensation decisions are made and how pay is distributed.

A fair pay adjustment at the beginning of the raise cycle sets the floor for each employee’s salary. This ensures that each employee is in-band, and that wage gaps can be identified and addressed. Then merit-based increases can be added on top.

The downside to this approach is that even well-intentioned managers can still muck this up, and you will still probably still have to make additional adjustments after your managers have a go. But these adjustments will be smaller and fewer than if you began with merit increases.

Option 2: Train managers to recommend fair pay adjustments along with merit increases

Managers are the best suited to make merit-based raise recommendations because they know how each of their employees compares in terms of performance. With a basic understanding of salary bands and a bit of context, managers may be able to include fair pay adjustments alongside their annual raise recommendations.

Sharing each employee’s salary history at the company can help the manager understand the decisions that have led to their current compensation. Salary range data—whether that’s the actual salary range or range penetration—can help them understand the lowest point, and how much room each employee has to grow. Then they can help make strategic recommendations based on the context and their performance knowledge.

For instance, they can recommend a larger-than-average increase for a top performer at the low end of her salary range because her previous manager didn’t advocate for her. Or they can recommend discussing development opportunities and promotions with a great employee at the top of the salary range. Below-band employees may be brought in-band, or some more serious discussions about their performance may be warranted first.

Just remember, your managers won’t be looking at pay equity across the entire organization. People from underrepresented groups are often an “only” on their team: the only woman, the only Black person, or the only LGBTQ+ teammate. In isolation, pay inequities among underrepresented groups may not present themselves.

Option 3: Make fair pay adjustments after merit increases are awarded

A common way to make fair pay adjustments is to wedge them in at the end of the raise cycle. Managers get the opportunity to make merit-based recommendations to reward their top performers, then HR gets to work to ensure fair pay.

This can get really messy, really quickly. Let’s say two employees are below-band once you complete your annual salary band update. One is under-performing, and the other currently has average performance but high-potential. The manager provides the latter with a modest increase, but allocates the bulk of their budget to their existing top performers. When you make an adjustment to bring the two employees in-band, they end up receiving the same increase. Had your manager known this was going to happen, they probably would have allocated their budget differently. Instead, they feel as though they wasted their time distributing budget, only for their recommendations to be disregarded. And when your managers aren’t happy about the way raises are distributed, they may lose trust in the company’s commitment to fair pay. If you are going to use this approach, remember that communication will be crucial to reduce that feeling of “mixed messages” amongst your managers.

Final thoughts on making fair pay adjustments during your raise cycle

Fair pay is a crucial component of retaining your workforce. It’s also the law. Every raise cycle has the potential to widen the wage gap if it’s not executed properly. That’s why it’s so important to include fair pay adjustments in your raise cycle. The way you do this is ultimately up to you and your other stakeholders—just be sure not to overlook it.

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