Maintaining Pay Equity in Leaner Times

When Budget Cuts Loom, Pay Strategies Should Get Back To Basics

Employers have spent the past five years getting their pay systems current, competitive and attractive to a scarce talent workforce. But now what? While some skill sets remain in short supply, others are now readily available, often at a better bargain than last year.

New issues of what is equitable and fair are creating a stir at the offer table. A key IT staffer hired 18 months ago was in a position to demand a significantly bigger package than the candidate you're considering now. Is it fair to offer less? And can companies afford not to pay what the market will bear, especially if it's less than just a year ago?

Dan Moynihan, principal of Compensation Resources, Inc., in Upper Saddle River, N.J., says there is "definitely downward pressure on the IT marketplace, and companies are taking two tacks - shedding higher-priced, underqualified people who were brought in at inflated rates, and/or bringing in adequately compensated people with real talent and skills who are now more readily available."

Maintaining fair compensation rates is always challenging in times of severe skills shortages, when companies have to pay much more to hire the same level of talent they already have onboard. But it can also be an issue when the market loosens up, and that talent becomes available and affordable. The key, says Moynihan, is maintaining a compensation structure with wide salary bands, "so you could have people at Grade 10, say, earning very different salaries." 

It can be tricky when an employer has to offer a great talent who's been pink-slipped a significantly lower salary than he or she was making before the axe fell, but this can be remedied through bonus pay, Moynihan suggested. "Employers can maintain their salary structure, but may want to offer sign-on or other bonuses to boost the candidate's total compensation. When they look at their W2 at the end of the year, it will come closer to their sense of self-worth." This can support retention and enable companies to stay within their salary limits, he pointed out.

Understanding and demonstrating for candidates the real value of the company's benefits package can also empower hiring managers to present the most attractive offer. "Employers should make an effort to break out the real value of the package - to quantify it for the candidate," said Moynihan. "For example, if the employer makes immediate contributions to the 401(k) rather than imposing a waiting period, or will cover a larger percentage of health premiums than the competitor, that carries cash value."