Beyond the Money: Being Clear About How Pay Works
By Amy Born & David Goott
One February, Sam and Jamie both began jobs at the same Jewish organization. Sam had one summer of relevant work experience while Jamie had three years of relevant experience. They both started with annual salaries of $56,000. Sam’s manager explained that she would receive only a small raise at the end of the first year, but if she continued to improve she would be rewarded more significantly after another year or two. Jamie’s manager didn’t tell Jamie anything about a future career trajectory.
The two met at orientation and sat near each other at the office, and they quickly became friends. One evening they went to dinner after work and ended up talking about their paychecks. Jamie was shocked to learn that they were both paid the same amount. She had assumed that she made more than Sam because of her experience and the fact that her role required more advanced skills; Jamie’s job description included rigorous data analysis, while Sam’s involved administrative support and responding to emails.
When Jamie learned that she was paid no more than Sam, her motivation went out the window. It seemed clear that her supervisors didn’t really value her skills, her effort, or the value she was providing. And even though she knew it wasn’t Sam’s fault, Jamie also couldn’t seem to stop herself from feeling a little resentful of Sam. Their new friendship began to cool.
What Jamie didn’t know was that her manager had been planning to give her a significant raise at the end of her first year. But since the manager had never communicated this to her, Jamie assumed that she and Sam were on the same pay trajectory, despite Jamie’s more extensive experience and the fact that her role required a more advanced skill set. As Jamie grew more frustrated with the situation, she began job hunting, and left for a new opportunity before the end of her first year.
Jamie had a bad experience and the organization needlessly lost a talented and dedicated employee, both because the organization didn’t have a structured compensation strategy and because managers weren’t consistently communicating the right information.
Okay, truth time: Sam and Jamie don’t exist. But their problem of an organization’s compensation seeming unfair and unintelligible to employees sure does. It’s all too common in many sectors, and unfortunately Jewish nonprofits are no exception. The 2019 Leading Edge Employee Experience Survey found that about one out of three respondents feel they are unfairly compensated compared to others in similar roles, and only 38% of respondents said they understand how pay decisions are made at their organization.
Don’t undervalue the point about understanding the decisions. A 2017 PayScale survey of over 500,000 employees found that “employee satisfaction is driven mostly by feeling that pay is fair, not by how much someone is actually paid.” A 2015 study even found that most employees were satisfied with a lower-than-average salary as long as they understood the rationale behind the decision.
That’s not a reason to be stingy; organizations are wise to pay people well when they can, both because they’ll reap value for that investment and because they’ll strengthen the community around them. But whether or not an organization can afford to meet or beat the average going rate for talent, clarity about the process of making pay decisions is always extremely valuable and virtually cost free.
One of the best tools for achieving this kind of clarity is by implementing salary bands.
Salary bands are ranges of pay that provide structure to salary decisions. Each role in an organization is assigned to a band based on the amount of responsibility required of the position, years of experience, and/or the job level.
Salary bands are important for four main reasons:
First, they encourage consistency, ensuring that employees with similar skill levels and years of experience are paid within the same range.
Second, they promote equity and fairness, forcing managers and Human Resources professionals to stay within a designated range when determining salaries. This will help to reduce all kinds of biases, including those that contribute to racial and gender pay gaps that still unacceptably persist. Salary bands will also help to minimize other universal human biases like status quo bias, the halo effect, and more.
Third, salary bands provide an opportunity to create or revise an organization’s compensation philosophy – a written statement of the values, principles, and goals that shape how employees are compensated, answering questions like “Will we lead, lag, or match market rates” “How will we respond when people negotiate salaries,” and more. Having a formal compensation philosophy can help managers making pay decisions stay consistent with the principles and practices specified, and with one another, over time.
Finally, salary bands can be a starting point for a more general move toward increased salary transparency, as many organizations choose to share some or all of their salary bands with employees.
Salary transparency is a big topic, and it’s not just one model – it’s a whole range of choices and practices. At the most radical end of the salary transparency spectrum is the social media company Buffer’s choice to post all its employees’ salaries online publicly. A small number of other organizations share all salaries internally with employees; others might let employees know which roles are in which salary band (whether in their own department or organization-wide) without knowing any individual numbers.
There’s no one right answer for every organization, but the broader point is that moving toward salary transparency is generally good, and more organizations should consider it. Moving in the direction of more transparency will help employees feel valued, fairly treated, and engaged; make salary negotiations an easier and smoother experience for both sides; and help minimize turnover and inequity, both in the organization and in our whole sector.
There’s a lot more to be said about salary bands. How should we set them? How do we benchmark the numbers? Should the bands overlap? Which job goes in which band? How should job titles relate to salary bands? How do we transition from an ad hoc status quo to a new, structured system?
We at Leading Edge have just completed a new guide exploring these questions and more. Our newly-released guide is Salary Bands: Valuing Talent with Intention and Transparency.
Download it at leadingedge.org/salary-bands. Share it with your colleagues, your CEO, or your HR professionals. Talk about it with your manager or at a staff meeting. The more we can break through the idea that talking about salaries is taboo, the more quickly we can achieve a Jewish nonprofit field in which our people are paid fairly, know it, and know why.
Amy Born is Chief Strategy Officer, and David Goott is Program Manager, at Leading Edge.