This blog is guest-authored by Anita Lettink, Founder of HRTechRadar. Anita has worked with the largest global organizations to re-imagine the way work gets done, future-proof their people function and services, and ensure they are supported by the latest innovations and technologies.
Now that we know why it’s important to look at total compensation when rolling out pay transparency initiatives, it’s time to switch to what we actually need to do to establish this overview. In a young, small company, this might be straightforward and centrally registered. But the larger and more mature a company is, the more likely it is that employees have individualised arrangements that compensation leaders may or may not be aware of. In addition, when companies have a history of mergers and acquisitions, they often have legacy rewards policies for specific employee groups. How can you make sure that everyone’s total compensation is properly documented and evaluated?
When you want to introduce equal pay, I recommend that you start by defining a compensation philosophy. This is a document that describes why you pay and what you pay. It lists all the elements that are included in your total rewards strategy. When you document your approach to pay and compensation, your current and future employees — including your managers — understand the behavior that can lead to pay increases and other opportunities. The compensation philosophy serves the following purposes:
- Alignment with business goals: A compensation philosophy helps align the organisation's pay strategies with its broader business goals and values. It ensures that your compensation practices support the achievement of organisational objectives.
- Competitive positioning: It aids in positioning your company competitively within the market. By having a clear compensation philosophy, you can attract and retain top talent by offering competitive pay and benefits packages.
- Transparency and fairness: A well-articulated compensation philosophy promotes transparency and fairness in pay decisions. It helps you communicate to employees how pay decisions are made and reduces perceptions of inequality or favoritism.
The Intricacy of I-Deals
But even when you have a compensation philosophy, it’s not always easy to document everything an employee receives. And that’s often caused by so-called individualised work arrangements, or i-deals. An i-deal is a personal agreement between the employer and an employee. In practice, i-deals typically refer to informal agreements between a manager and an employee regarding benefits that aren't extended to their coworkers. Think about flexible work arrangements, development opportunities, or unique job roles. I-deals may have existed for many years and have become standard practice, but they are often undocumented.
When you first implement equal pay, managers and employees might look for alternative ways to award benefits and perks. An i-deal can be quickly arranged and does not necessarily need formal approval. Think about the opportunity to work from home several days a week for one employee or an extra training course for another employee. Because i-deals contribute to the total rewards package, they require meticulous management to ensure they don’t inadvertently foster inequality.
When i-deals remain hidden, they create disparities and erode the essence of equal pay. It's crucial that you create clear policies and consistent practices to manage i-deals, ensuring they contribute positively to your total rewards framework. To uphold equal pay, you must make sure that all i-deals are properly recorded, and a benefits solution is uniquely suited for that purpose.
Do I Need a Total Rewards Solution?
People often ask if they can use the information in their payroll solution to achieve equal pay. The answer is: yes, but that data alone does not tell the whole story. For instance, it does not include the value of an education that is granted to an employee, discounts they use for a gym membership, etc. When your compensation includes more than a salary, you should consider a total rewards solution for several reasons:
- Holistic view of compensation: Total rewards solutions provide a holistic view of compensation, encompassing not just base salary, but also bonuses, benefits, career development opportunities, and work-life balance. Pay transparency works better when employees can see and understand the full spectrum of their compensation and how it compares within the organisation and the broader market. This also helps with communication.
- Standardisation and consistency: These solutions help in creating a standardised and consistent rewards approach. They allow you to objectively compare employee packages. They aid in ensuring that pay decisions are made based on clear, objective criteria, which is crucial for the credibility and effectiveness of a pay transparency initiative.
- Analytical insights: Total rewards solutions often come with analytical tools that enable companies to analyse their compensation data, identify disparities, and ensure alignment with the organisation's pay philosophy. This analytical insight is invaluable in executing a pay transparency initiative effectively.
In addition, with a total rewards solution you can give employees a rewards budget instead of a package, so they can pick and choose between options until they’ve reached the total sum. This allows them to create a personalised benefits programme, uniquely suited to them. And while this is not directly related to equal pay, it does raise your profile as an attractive employer.
Revealing the Unknown
Your total rewards solution serves a dual purpose: it offers employers and employees a comprehensive view of total compensation, from salary and benefits, to perks and bonuses. It allows you to calculate the total sum of compensation per employee and use that in your equal pay reporting. Secondly, it allows an employee to check if all elements of their compensation are properly registered in the solution. When they are not, employees are likely to raise concerns. When you provide employees with this overview, it enables you to identify existing individualised deals (i-deals) and take necessary actions in alignment with the equal pay initiative.
Please note that during the early stages of your pay transparency initiative, corrective actions may be required. However, benefits that have already been granted cannot be revoked. But going forward, benefits and perks should only be awarded in line with the compensation philosophy. A total rewards solution gives you the tools needed to uphold these policies effectively and ensure that ongoing compensation practices are consistent with the organisation's overarching compensation principles.
Your Next Steps
When you want to establish equal pay, it’s important to create a complete overview of total compensation. Here are four suggestions to help you get started:
- Educate yourself and others: Establish a comprehensive overview of the total rewards, including i-deals, that are available in your organisation. Share this knowledge with your leadership team, and advocate for a holistic approach to compensation.
- Establish a compensation philosophy: Document why you pay what you pay and make sure to include all compensation elements that your organisation provides.
- Provide solution support: Determine if your current HR solutions help you with the proper analysis, comparison, and communication of these packages, or if you need to look for a focused solution.
- Promote transparency: Advocate for clear policies around total rewards and i-deals to foster a culture of openness and fairness.
The conversation around equal pay is complex and nuanced. It’s also just getting started. And if you want to be ready by 2027, time is of the essence. You will only comply with the EU Directive if you expand the narrative to include total rewards and take time to ensure all employee benefits are accurately registered. Taking a holistic approach to total rewards, including individualised deals (i-deals), contributes significantly towards nurturing a culture of equity and inclusivity in the workplace.
Establishing equal pay is not only about compliance. When you embrace the concept of total rewards, this fosters a culture where every employee is valued and recognised for their contributions in the same way, irrespective of their background or characteristics. It's about creating an environment where fairness and inclusivity are not just words on paper but are deeply embedded in the organisation's DNA. As the conversation around equal pay continues to evolve, when you adopt a holistic approach to total rewards, you are also building an attractive and transparent workplace that reflects the principles of equity and inclusivity.