Recently the news showed a picture of Lake Powell and Lake Mead. Both have sections where the water levels are some of the lowest they have been due to the ongoing drought. Boats at one end of the lake are considerably higher, several boat launches are so low they cannot even be used and many of the rental houseboats are out of commission.
Different variants cause this based on depth, where the water source comes from at differing points in the lake and the lake structure.
This picture can be carried into the business world, regarding levels of pay. A question often posed sounds something like this…” I have been here 8 years and the new person who started a year ago, doing the same job is making more than me.” This has been exacerbated by HR rules creating acceptability for employees to discuss earnings.
Here’s how many companies respond and then we will discuss what they should do.
Typical responses: “they were a better negotiator,” or “they came to the company with deeper experience and were at a higher level,” or “it was what the market would bear back then and now,” or “it takes into account inflation and cost of living.”
Market pricing is often used to determine salary range structure in companies. Many review these structures regularly to maintain a competitive edge.
What companies SHOULD consider doing:
Markets for hiring can be very different based on multiple factors of the economy and time periods, or inflation. We know that many companies who do bring in talent based on industry experience and tenure, often are not looking at the overall water levels in the lake. This can end up in morale problems, attrition, or toxic culture which all come with tremendous cost.
One way to solve this is to open the dams and let water into the lake so all boats are raised or even (or closer to) on a regular basis. This is an example of the point factor. The point factor is a critical component used frequently to look at internal pay equity.
Many companies during the old-fashioned performance review process determine a range of merit increase based on the archaic process of ratings or bell curve (sense displeasure at these systems here?) While we are still trying to get many of these companies at least into the 20th century, many can examine the level of the lake water every 2-3 years at least and make the adjustments to raise the boats. This still leaves room for a tiered or level approach as in sales for Associate, senior, executive…for promotion opportunities, but creates a more fair and balanced approach to salaries overall. This does come at a price, but so does attrition, cost of re-hiring, cost of training and the cost of a new hire to operational and profitable.
Relating this back to culture, which in this author’s brain, everything should, also helps maintain a healthy and productive work environment versus pitting employees against another or creating tension on a team or a toxic culture.