HR Dive: 7 Steps to Get Hybrid Compensation Planning Right

Originally published on HRDive.com by Thanh Nguyen, CEO and co-founder of OpenComp

 

majority of companies have indicated that they intend to return to a hybrid office in 2021, largely in response to employee demands. However, research shows only three out of 10 companies have a clear hybrid plan in place. So how can struggling leaders — especially those at startups — move forward confidently?

 

Hybrid, remote, in-person. There's a lot of debate about which model is optimal, especially for fast-growing employers that know much of their success rides on the shoulders of the talent that they hire and keep.

 

I unfortunately hear far less about the strategies needed to make selected models succeed — particularly as it relates to compensation. But as the largest expense for many, compensation should be at the forefront of any discussion.

 

As employee geographies, roles and priorities shift throughout the pandemic, now is the time to identify and address gaps in your compensation and plan for future hires. 

Below are seven steps for getting hybrid planning right to succeed in this new model of work.

 

1. Craft your compensation philosophy

 

A compensation philosophy is a set of documented values that outlines your organization's guiding principles and values for every compensation decision — from setting pay to designing total rewards.

 

Candidates and employees are infinitely more likely to accept an offer and remain happy, valuable team members when they understand the "why" driving your company's compensation philosophy and programs. 

With the shift to hybrid, consider the following questions: 

  • How much should pay differ by geography across functions and levels?

  • Can policies be defined across the entire organization and regions? 

  • How can we ensure equitable pay and promotions if some workers are remote and others are in-office? 

2. Analyze with data that truly reflects your organization

 

A compensation strategy relies on good data to define your talent market and your market positioning. While it's the most foundational part of planning, I've seen too many companies get this part wrong, buying traditional compensation surveys that aren't fresh or verifiable — and may represent companies of a much different size or industry than their own.

 

Want to get compensation right? Make sure your data: is from a reputable source (no self-reported surveys, as markets change quickly); reflects the size and stage of your company (data for more mature companies is more accessible but not comparable); and includes roles and specialties reflected in your organization (e.g., hardware engineers, aeronautical engineers, credit analysts, telehealth clinicians, etc).

 

3. Identify gaps to ensure pay equity 

 

Once you have defined your talent market and normalized your functions, roles and levels, you can compare pay against it. Your market analysis will give you the data to inform your compensation philosophy and adjust for inconsistencies, high performers and region. The analysis identifies any gaps that need closing. 

 

For example, if a valued employee is being paid under market, but decides to move to a lower-cost geography, you can bring them to the higher band within their new geography, increase share of equity or reward with a spot bonus.

 

4. Use groupings to meet talent needs, opportunities

 

Your analysis should reveal where employees are already geographically close — which can become your high priority areas for hiring.

For example, if you need engineering talent, you might establish a presence within a university town with a prestigious engineering program. Or if you have a strong client relationship in a particular geography, it could be synchronous to have an employee base there as well.

 

5. Ensure compliance

 

Still, it's time-consuming and costly to set up entities in multiple jurisdictions. Each state and country has its own local payroll and labor law and filing requirements, which can also vary dramatically by employee group — a significant management undertaking with real financial impacts when mismanaged. 

 

Compensation professionals will need to ensure compliance, ideally in a way that provides clear audit trails that allow for easy forensics, which becomes more important over time.

 

All of this translates to an environment where you can operate with confidence, knowing you are abiding by established and evolving antitrust and compliance regulations. 

 

6. Manage complexity with geographic differentials

 

Another way to manage complexity is through geographic differentials. Geographic differentials provide a simple way to manage finances yet continue to pay competitively for talent in local markets. They are direct reflections of variances in compensation paid to employees in different geographic locations, based on the local cost of labor. 

 

Let's say you may want to lead your market and not adjust for lower cost of labor. In that scenario, an employee working in San Francisco would receive the same salary as one in Atlanta because they are contributing the same value to the company. This would be an example of pay based on a national premium. 

 

The other option is to pay based on headquarters with either a discount or premium for remote workers, depending upon location. Most pre-IPO companies with a blend of in-office and remote employees or companies with small HR teams fall into this category.

 

Whether you're paying a local or national average, think through how you message your strategy to employees based on where they are located. It's a nuanced exercise to ensure that employees understand the thinking behind your choices.

 

7. Scale with pay ranges

 

Salary ranges help an organization move fast and scale while being consistent, competitive and equitable. Rather than opting for a large range or the opposite extreme — a single target — one of the best strategies for setting pay ranges is opting for the middle ground.

 

The middle ground is where your pay ranges are tied to level and grouping based on your competitive market benchmark and job family (a group of positions in the same functional area and share the core knowledge, skills and background requirements). Pay ranges are constructed from your competitive benchmark and leveling.

 

Benefits of this approach include tighter ranges for internal equity; enough room to manage your budget; and the ability to add new roles quickly without having to build a new pay range that's new to the organization. 

 

You only get the full benefits of compensation planning if you communicate your strategy to the people affected: your employees. Clearly explain why you are making any changes as a result of moving to a hybrid organization by explaining the "why" behind any compensation changes. If the messaging flops, the program's success rate plummets, too. At a time when there's employee anxiety and confusion over their futures, the time for clarity has never been more important.