One of the most important things to do when creating an equitable compensation strategy is to make sure that all employees are being fairly compensated for their work. This includes ensuring that employees are paid equally for doing the same job, regardless of their gender, race, ethnicity, age, religion, ability, or any other characteristic.

What are some common compensation strategies?

There are many different compensation strategies that organizations can use, and each has its own advantages and disadvantages. Some common compensation strategies include paying employees based on their job title or level, paying employees based on their performance, and using location-based data to set base pay.

Paying employees based on their job title or level can be advantageous because it is simple to administer and understand. However, this method of compensation can also be unfair, because it does not take into account an employee’s individual skills or experience. Paying employees based on their performance can incentivize employees to work hard and produce great results. Still, it can also be unfair if employees are not given the same opportunities to succeed.

In addition to these downsides, location-centric strategies, such as national averages, worker’s locations, or company headquarters, bring on new challenges as global talent becomes available. For example, when tying base pay to workers’ locations, employees in lower-cost locations may feel that they are being underpaid relative to their counterparts in higher-cost locations, leading to frustration and dissatisfaction. For a more specific example, the national average minimum wage in India was about $0.60 per hour in 2019, compared to $7.25 per hour in the United States. If an Indian worker and an American worker are both earning the minimum wage in their respective countries, the Indian worker would be earning about 1/12th of what the American worker is earning. This can lead to feelings of inequity and resentment, along with perpetuating a global economy of inequality.

To avoid these negative consequences, it is important to consider other factors besides location, job title, and employee performance when setting compensation.

What are equitable factors to consider when setting compensation?

When creating an equitable compensation plan, take a holistic approach that includes the cost of living in different locations, quantifiable metrics for skills and experience of employees, and the fair, global market rate for similar jobs in the industry at similar companies. By taking all of these factors into account, you can create a compensation strategy that is equitable and inclusive for all employees.

The cost of living in different locations can have a big impact on how much money employees need to live comfortably. Housing indicators, perceived crime rates, healthcare quality, transport quality, taxes, and other statistics are vital to a team member’s ability to thrive, and these costs vary dramatically. For example, the cost of living in Argentina is much cheaper than in the United States. A meal in a restaurant in Argentina may cost around $5, while the same meal in the United States would cost around $30. This means that someone who earns a salary in Argentina would need to earn 3 times as much to have the same purchasing power as someone in the United States This cost of living difference can create inequity among your workforce if you have employees in both countries. If you only consider the cost of living in each country when setting salaries, then your Argentine employees would be at a disadvantage.

Unfortunately, many companies take advantage of the disadvantage: outsourcing labor to countries where the cost of living is much lower so that they can save money by what they consider cheap labor, which in turn keeps poorer countries poor. But this will only happen if the company pays that minimum wage. If your company places value on making a difference through DEI initiatives, then deliberate action is needed– which is where the other factors of skills, experience, and global market rate come in.

1. To create an inclusive workforce, consider a mindset of a more equitable global economy by lifting and empowering areas that struggle economically.

The Mercer Cost of Living Survey is a popular index that can help you compare the cost of living in different cities around the world. Using this index, you can ensure that your employees in different countries are paid fairly based on the cost of living in their location. However, I recommend that you do not stop at the base cost of living. In fact, it would be exploitative to do so. Utilizing data points on the cost of living in different countries set a baseline that you simply do not go under. They give you a view of the socioeconomic status of those whom you employ so that you can support them with opportunities they would not otherwise have, and if your company is out to make a difference, then your company can use this data to target areas where brilliant-minded individuals are often overlooked despite having the same talents as those in more developed countries.

2. Pay diverse talent by measuring the skills and experience of employees with a quantifiable method that strips subjective biases that can lead to discrimination.

The traditional method to qualify job candidates’ skills and experience during the first stage of hiring is by looking at their resumes. By reviewing a candidate’s resume, you can get an idea of their skills and experience. This information can then be used to set the candidate’s compensation– but it is not quantifiable data. Any subjective interpretations can be made when reading a resume, bringing in subtle and unconscious biases in regards to age, nationality, gender, and more. The same goes for speaking to candidates during an interview. To combat this, use objective data when measuring the skills and experience of job candidates.

One way to do this is by using pre-employment assessments. Pre-employment assessments are tests that measure a job candidate’s skills and abilities. By using these assessments, you can get a more accurate picture of a candidate’s skills and experience. This data can then be used to set the candidate’s compensation, ensuring that they are being paid fairly for their skills and experience. When building a pre-employment assessment, take the following factors into consideration:

1. The types of skills that are being assessed. Make sure that the assessments are measuring the skills that are relevant to the job. For example, if you are hiring a software engineer, assesses their coding ability rather than their writing ability.
2. The difficulty of the assessment. Make sure that the assessment is challenging enough to accurately measure the candidate’s skills. If the assessment is too easy, then it will not be an accurate measure of the candidate’s abilities.
3. The time limit of the assessment. Ensure the assessment can be completed in a reasonable amount of time. If the assessment takes too long, candidates may become frustrated and give up before finishing.

In order to create inclusive and equitable compensation structures for diverse workforces, companies should take into account the different skills, experiences, abilities, and cultural backgrounds of their employees. By doing so, companies can ensure that all employees are fairly compensated for their work.

To ensure the most inclusive and equitable pre-employment assessments, take the following factors into account:

1. Language barriers. If you are hiring globally, make sure that the assessments are available in different languages. This will ensure that all candidates have a fair opportunity to showcase their skills.
2. Cultural differences. Assessments should be culturally-sensitive to avoid any bias. For example, an assessment that is based on Western cultural norms may be unfair to candidates from other cultures.
3. Different learning styles. Assessments should be designed to accommodate different learning styles. For example, some candidates may learn better through visual aids while others may learn better through auditory aids.
4. Neurodiversity. Assessments should be designed to accommodate different neurotypes. For example, some candidates may have ADHD or dyslexia. You can accommodate different neurotypes by providing extra time or a different format for the assessment.
5. Different abilities. Assessments should be designed to accommodate different abilities. For example, some candidates may have a physical disability that prevents them from using a keyboard or mouse.

By taking these areas into consideration, you can create a more inclusive and equitable pre-employment assessment process. This will ensure that all candidates have a fair opportunity to showcase their skills and experience, creating an inclusive compensation structure for your diverse workforce that is backed by data rather than subjectivity.

By taking into account the different skills, experiences, abilities, and cultural backgrounds of their employees, companies can ensure that all employees are fairly compensated for their work. This will help to attract and retain the best employees, as well as create a more inclusive and equitable workplace.

3. Utilize global wage data to set fair wages based on industry and skills, not a location singular to your company or employees’ locations.

Lastly, look at the market and see, on a global wage level, where similar roles with the same levels of skills and experience stand on the pay scale. Websites like Payscale collect data that gives an online global wage calculator that you can utilize when deciding what pay range to offer a candidate by showing the latest pay data and trends using proprietary research and insights.

Creating inclusive and equitable compensation structures for diverse workforces is essential for companies that want to create a fair and just workplace, and make an impact on the overall global fair market.

Other compensation strategies to consider include:

1. Variable Pay Incentive Bonuses
2. Stock options
3. Profit sharing
4. Commissions
5. Overtime pay
6. Shift differentials
7. Hazard pay
8. Education reimbursement
9. Employee referral programs

Each of these strategies has its own advantages and disadvantages.

Variable pay incentive bonuses can incentivize employees to perform well, but they can also create tension and competition among employees. Stock options can be a powerful motivator, but they can also be difficult to value and manage. Profit sharing can incentivize employees to work towards the same goal, but it can also result in unequal payouts if profits are unevenly distributed. Commissions can reward employees for their results, but they can also create pressure to sell products that may not be in the best interests of the customer. Overtime pay can compensate employees for extra work, but it can also create incentives to overwork employees. Shift differentials can account for different working conditions, but they can also be difficult to implement fairly. Hazard pay can recognize and reward employees for dangerous work, but it can also create incentives to take unnecessary risks. Education reimbursement can help employees further their careers, but it can also be used as a way to keep employees from leaving the company. Employee referral programs can attract high-quality candidates, but they can also result in a homogenous workforce.

Ultimately there is no one-size-fits-all strategy.

Take into consideration which of the pros outweigh the cons for your specific company and its culture. Creating an equitable and inclusive compensation strategy can be challenging, but it is important to get it right. By following these tips, you can create a compensation strategy that is fair to all employees and helps to ensure that everyone is motivated, engaged, and treated fairly and equitably.