Making Compensation More Equitable
Published: November 7, 2022
Estimated reading time: 5.5 min
Salary transparency has been in the news lately—and that’s a good thing! California, Washington, Colorado, and New York City are just a few places adding or strengthening laws requiring companies to advertise pay ranges. It’s an important step toward closing pay gaps, especially when it’s paired with a thoughtful compensation philosophy.
How you approach compensation tells current and potential employees who you are and what you value. Yet, secrecy and strong emotions about money are common, and even justice-minded groups have a hard time talking openly about pay differentials among staff.
While there is no “right” way to create your philosophy, TMC advises clients to develop compensation guidelines that are:
- Rooted in your organizational values.
- Structured and transparent with guardrails and flexibility built-in.
For TMC, this means we are continually learning and refining our approach. We adapt to evolving best practices around equity and inclusion and respond to external factors like inflation and a possible recession. We know we can’t change the wind, but we can adjust our sails.
6 Anchors for More Equitable Compensation
The following is a snapshot of our best thinking, whether you’re developing a transparent salary structure for the first time or striving for more equitable outcomes as you make decisions about promotions and recruitment this year.
1. Develop your philosophy
There’s no single set of criteria for a good compensation philosophy, but we recommend treating it like your mission or values—it should reflect your organizational identity and guide decision-making. Your philosophy shouldn’t change much from year to year. At TMC, our compensation philosophy has 4E’s:
- Explicit: Everyone in the organization has access to our compensation bands, we include them in job announcements, and we share what we’re grappling with when we make new or tough decisions.
- Effective: We can hire and retain the talented people we need.
- Economical: We can afford it, now and in the future. We strive to pay as much as we can with sustainability in mind.
- Equitable: We aim to have no gaps in pay across race or gender identity, and we conduct regular equity assessments to spot patterns and eliminate disparities.
2. Set compensation bands
Our career pathways toolkit goes through creating a “competency model.” Competency models help bring consistency to role expectations across your team or organization, and guide your hiring and promotion decisions.
- Start by defining titles and levels, creating as few levels as possible (keep it simple and flexible!).
- Show what’s different between various levels in terms of experience, skill, and expectations.
- Then, get explicit about the salary range for each level.
Once you have salary ranges, consider these questions:
- How will you decide where someone falls within it?
- Will you establish a step structure?
- How can you provide clear criteria for managers to decide where someone starts or how staff receive increases?
If you work in schools or public agencies where you get less say in setting salary bands or philosophy, flex the authority you do have to be as transparent as possible, even when your peers are not.
3. Approach compensation holistically
Compensation isn’t just about dollars on a paycheck. Look at all the support and benefits you offer your team—like student loan support, healthcare, wellness stipends, professional development funds, retirement benefits, and time off. At TMC, we survey employees to understand how much they value each benefit and whether there are any other benefits we might not be offering.
From an equity perspective, these benefits can also address broader disparities by providing targeted support for marginalized staff. For example, several organizations (including TMC) offer support for trans and gender non-conforming employees to supplement gaps in insurance coverage. More recently, we have expanded this policy to cover other health hardships, including acute illness, disability, and reproductive care.
4. Adjust your sails
Traditionally, organizations look to the labor market to benchmark salaries and make adjustments. At TMC, compensation is market-informed, but not market-directed. This means that we consider—but don’t solely rely on—market rates when determining our salary structure, offers, and raises.
For example, this year we are changing the way we do increases to account for inflation. Instead of a percent-based increase, we’re using a flat dollar amount. Recent research from Vega Mala Consulting shows that percent-based raises compound wealth gaps, especially for lower-income staff. Over the course of a career, this can mean hundreds of thousands less in take-home pay, and less invested in retirement and social security. A flat dollar amount for a cost of living adjustment means lower-paid staff get a higher percentage increase:
- Let’s say you want to offer all staff a $5,000 raise this year given historic inflation. If someone makes $55,000/year, this is an 11% increase and goes a long way for staff who may be hardest hit by the rising cost of food and gas.
- Meanwhile, for senior staff, this might be more like a 3-5% increase, which is still notable enough to make a difference for people.
Other considerations include whether to account for the cost of living in different parts of the country for national organizations. This article shares some pros and cons of factoring geography into pay and this tool can help you see the differences.
5. Shift the burden off job candidates
Asking for salary history and negotiating salaries can lead to pay inequities. Candidates who feel empowered to ask often get higher pay, while candidates who don’t ask start with a lower salary. That disparity compounds over time. Some states have banned employers from asking for past salary history, but negotiating is still a common practice. Here are a few ways you can bring more equity to job offers:
A. You can have a “no negotiation” policy.
B. You can be explicit that you don’t lowball salary offers with the expectation of negotiation (and also: don’t lowball!).
6. Recognize choice points
As you develop your compensation approach, take time to spot choice points. For example, the status quo might lead us to pay someone more for a master’s degree, but what about the value of lived experience, community relationships, and results (like running a major campaign for a short time that had huge impacts)?
Ask these questions to surface compensation choice points:
- What is the pay difference between your highest paid employee and your lowest paid employee? Will you set a limit on this differential? Why or why not?
- What other organizations do you compare yourself to? Beyond being similar in size, location, or sector, do they share your values and prioritize compensation equity?
- When determining salary offers, how do you weigh education, skills, work experience, and lived experience?
- Do certain roles require more hidden or emotional labor than other roles? Does that differ based on the staff member’s identities?
- When offering raises or bonuses, how do you calculate them? Do you use percentages or flat rates?
- Are raises or bonuses tied to performance? If so, how do you mitigate bias in performance evaluations?
- Within a school or public agency where managers have limited say over salary bands, what discretion do managers have (e.g., starting salary, professional development, or other benefits), and how will you prepare them to make equitable decisions?
- Do you negotiate salary with candidates? If so, what are the parameters (if any)?
- How and when will you conduct a pay equity audit or reevaluate salary bands? If your audit surfaces disparities, what changes will you make to address underlying causes?
Looking for more guidance? We highly recommend Vega Mala Consulting’s Compensation Scale Equity Process and Calculator.