The Path to Equitable Compensation

Today’s workforce places a high expectation on an enterprise’s commitment to fostering a fair and inclusive workplace. Numerous advances have been made in technology and employment regulations in the past few years, elevating the need and urgency for equitable and transparent operations relative to employee compensation. Technology plays a critical role in unlocking an enterprise’s ability to modernize its compensation practices and enact a system of processes designed to ensure a fair and equitable approach to compensation strategy, design and ongoing process management. Ventana Research recognizes the importance of compensation technology as part of the employee experience conversation, as captured in this previous perspective focused on highlighting the role of technology in support of continuous compensation practices.

So, what does equitable compensation really mean? Equitable compensation refers to paying employees fairly and consistently based on their work, not on factors like gender, race, ethnicity or other irrelevant characteristics. To deliver on this, enterprises must commit to enacting fair practices, transparency in communication regarding compensation structures and strategies and maintaining laser focus on the work being done and not the people doing the work. We are not just talking about salary either. Equitable compensation should include salary, benefits, bonuses and other forms of compensation that an employee receives. Compensation is a complex topic, affecting all parts of the business, but each in different ways. Sales incentive compensation is one of the more complicated domains to tackle, often with a few extra layers of considerations relative to equitable strategies. A holistic approach to incentive compensation for salespersons is critical, as articulated by my peer Stephen Hurrell in an article published earlier this year.

Historically, enterprises have faced many challenges in achieving equitable compensation practices. The legacy mode of operating (without adequate technology support) is subject to a myriad of obstacles, including unconscious bias, lack of adequate data, subjectivity in performance reviews, lack of transparency in pay structures and even salary history bias. Further, enterprises have struggled to identify the specific skills that are critical in job definitions and job postings. In addition, businesses often have a limited awareness of market rates for specific skills and positions. I assert by 2027, compensation market pricing processes deployed in one-half of enterprises will include the benchmarking of skills, not just jobs.

Technology is key to the design, implementation and sustainment of equitable compensation practices. Compensation planning and management software can provide unparalleled access to the necessary data for decision-making and insights relative to compensation practices and help to define fair and equitable compensation structures and goals that can be tracked and managed for long-term accountability. Without the support of technology, these processes can be very labor-intensive, creating an extended delay in an enterprise’s ability to adapt to changing market conditions. By enabling process automation, these tools can speed many aspects of compensation programs and strategies. This functionality will redefine the role of managers and compensation staff with regard to compensation activities. When these employees are able to offload some of the burden associated with ideation and creation of programs, in addition to research and contemplation throughout the process, they are able to elevate the level of productivity and efficiency relative to compensation activities while also maintaining the integrity of balanced, fair and equitable processes.

Data is a critical component to the design and sustainability of an equitable and fair compensation program. HR software has the power to gather and analyze employee data with ease and speed, surfacing key insights and trends for compensation teams to review. Bringing together data from disparate sources, such as salary, performance, goals, learning and employee recognition, compensation software reduces the time invested in data collection, normalization and analysis. Data visualization tools bring pay disparities, anomalies and other trends to the surface, making the information easy to consume and digest.

Compensation software will not deliver standardized processes; rather, it will offer a framework and guidance for designing and validating processes, with the ability to scale and adapt more easily as business needs evolve. Technology can also be a tremendous resource in the effort to identify and mitigate human bias that often comes into play when setting salaries and other compensation structures. With the best of intentions, human emotion can often derail the path to fair and equitable compensation practices. We never set out with the intention to be unfair; however, in the moment, it is possible for human emotion to materialize and create an imbalance. Technology, while not perfect, is continuing to evolve in ways that assist humans in the identification and mitigation of bias.

Compensation benchmarking and planning solutions enable teams to explore more focused datasets, allowing for a more precise comparison to markets, industries and other factors that align with the needs of the business today and in the future. Technology can also support pay transparency for compensation teams and employees. The continuing evolution of US and International regulations for businesses relative to pay transparency can be overwhelming to keep track of. In today’s workplace, employees have access to tools outside the enterprise that allow them to perform salary comparisons and develop an informed perspective on compensation. Unfortunately, oftentimes these tools and resources do not reflect the proper context of an enterprise’s programs and policies, resulting in the high risk of misinterpretation and frustration for employees. Enterprises should consider the possibility of enabling this type of visibility within the workplace so employees can better understand their compensation relative to their current role and potential future roles.

The decision to place technology at the center of your compensation strategy can yield higher engagement for employees. In recent years, workers have signaled that compensation, while very important, is no longer the leading consideration of importance for employees relative to their employer relationship. Instead, workers are indicating that it is more important to know their employer has high integrity and a commitment to core values that align with their own and encourage professional development while providing support for employee growth and success. Transparency, fairness and equitable processes and systems are critical to success for organizations navigating the new expectations from employees. Employees view compensation differently today, with a much broader definition and scope than ever before. Employees define compensation in many ways, including those which are non-monetary in nature, and each has significant value for them. Employee recognition and expressions of gratitude provide an emotional compensation that signals to them that they are seen and valued for more than the job they were hired to do. I assert that by 2026, there will be clear evidence of a trend in the compensation management and rewards and recognition software markets to merge respective capabilities.

When considering the path to equitable compensation, it is important to have a broad, holistic strategy relative to the technological components. In life, we have been conditioned to closely examine the tools we bring to the solution conversation to ensure alignment. You would never recommend the use of a hammer as a solution if the problem required a screwdriver, would you? The conversation regarding equitable compensation programs should be no exception. A fully realized compensation technology stack should include tools that support compensation management, compensation planning, artificial intelligence (AI) (or other analysis support) to consistently evaluate for bias, training and coaching support for managers and employees, feedback mechanisms and data visualization. Compensation is one of the key pillars of my 2024 HCM Market Agenda. This year is part of a multi-year transformational phase for many of the HCM software providers, and compensation technology is already seeing positive impacts from the incorporation of AI to support compensation processes and practices. I am passionate about all aspects of human resources, and elevating the discussion with leaders and executives where process intersects with technology. Whether through buyers guide research on the software providers supporting compensation, a dedicated focus on total compensation management, or future analyst and market perspectives, I am committed to being a voice rooted in advocacy and education in the conversation for human resource leaders regarding the impacts and adoption of technology solutions that will enable growth, transformation, performance improvement and employee engagement.

The conversation regarding compensation is one that all employees participate in, whether the enterprise enables it or not. The challenge to attract and retain talent with elevated levels of sustained engagement continues to grow more complex with each passing year. Technology should be viewed as a tool, not a solution, to enable HR and compensation teams to deliver exceptional experiences for employees that garner trust and empowerment. If you find yourself at the beginning of a journey to fair, transparent and equitable compensation practices, prioritize abundant and clear communication to allow your workforce to buy-in and support the process. Transforming existing compensation strategies and programs, as well as creating them for the first time, can feel overwhelming, The key is to start small, with focus and purpose. Invest in the time necessary to properly identify the needs relative to compensation management and planning, and assign priorities accordingly. This allows for thoughtful planning and mindful execution to bring your strategy to life. All journeys begin with a single step.

Regards,

Matthew Brown