Your competitive edge: Wage plans

Because of the current Fair Pay Act, it is a good idea to have a wage plan, covering all of the positions within your company. The Fair Pay Act prevents wage discrimination based on protected categories for employees who work in similar positions; particularly “gender”. With the recent enforcement of this law signed by Governor Jerry Brown, employers should review all the positions in the workplace and determine an appropriate wage plan for each classification.

Having “pay grades,” (a minimum, midpoint and maximum) for each position shows a structured salary plan. Basing employees’ compensation on a pay grade allows employees to know the scale of how much they can earn while in that position. This system provides a fixed framework for employees rather than allowing pay negotiations or favoritism from taking place. Paying one employee more than the other may oppose the Fair Pay Act, if seniority and qualifications are the same.

Pay grades will help you hire the right people at the right pay rate. Working with the company’s budget, setting pay grades allows employers to set aside the right amount of money to pay for their employee’s compensation. With a clear wage plan, employers can avoid exceeding the pay limits set for payroll. For more experienced and seasoned workers, the maximum pay grade may be implemented whereas new hires will likely receive the minimum salary within the pay grade.

Always remember “equity” in pay – If someone has been employed with you for many years, he/she may need to be provided with an equity increase (in addition to their standard merit increase). An equity increase is a permanent change made to an employee’s base salary. If you notice that certain seasoned employees have a substantially lower compensation in relation to their skills and training, or if your minimum pay for a classification has increased; an equity increase should be considered. Make sure you conduct an audit to determine whether an equity increase in pay is appropriate.

Do your homework – Are you competitive within your industry? How do you want to compare yourself to your direct competitors? Do your research and check to see how much other companies pay for the same or similar positions. Make sure you offer your employees competitive wages in order to reduce turnover rates and increase employee satisfaction. Check your benefits package as well and aim to offer your employees with a full competitive compensation package that is fair and up to par with the current market trends.