How to get from differentiated salaries to the equal ones for the same position in company?

Question

Recently I found some interesting articles about salary politics (1), (2). I also believe that equal salaries makes life more simple and I generally favor simple and transparent solutions. I believe that when you pay good enough people can focus even more on their work.

But what is more interesting to me is not pros and cons of this concept, but rather how to move the organization from the state of differentiated salaries to the state of equal ones.

Do you have any ideas how to do it? Let's assume that differences between salaries for the same positions could reach 30%.

One problem that I see is that when salaries will grow to the highest for the position the company budget will suffer. On the other hand when I would make it Robin Hood way - take from the rich and give to the poor - I'm afraid that good people would leave the company.

Any ideas?

(1) Stop using differentiated salaries - Crisp's Blog

(2) Stop Tying Pay to Performance - HBR

Answer 1

A lot of the discussion around untying pay to performance is still largely induced theory, softly correlated to some evidence. Definitely there are some strong arguments to consider, but plunging into this school of thought is quite risky.

If you want to approach a single salary level or a very small range perhaps, I would not shoot for any salary level that already exists in your organization. You still have the ongoing problem of attracting new talent and mitigating existing talent from leaving. Therefore, I would analyze the market and establish the range and frequency distribution for a particular job family, then establish a salary target on whatever percentile makes sense for my organization, a value that will still attract new talent from my competitors.

For example, if you discovered that for job family A the salary ranges from $31K to as high as 65K, the MODE is say $52K. I might choose to be in the 80th percentile which would put the salary around $55K.

Setting the target based on external actual data will level set everyone's expectations, be a standard set from reasonably objective data, and remove any sense of unfairness.

From there, I would begin a program to start moving people towards that value, either in increments or in one move. I would NOT move higher paying people towards that value. That would have to change through attrition.

If the proponents are right on this, this method could cure those internal issues they cite; however, I cannot see how you would remain competitive in the market place when finding talent. The market, supply and demand, is dynamic and in constant flux. This single salary method will, in my view, completely disable you from being agile enough to respond to changing market demands. If it becomes a buyers' market, you would end up being the highest salary provider and that will make you too expensive to compete for business. If it becomes a sellers' market, you would become the lowest salary provider and you will lose all of your talent and attract no one.

Answer 2

Without tackling the issue of whether or not it's the right (good cases on both sides - what's right depends on corporate culture), here are some thoughts...

1) Transparency and consistency is key. Tell everyone what you are going to do, and follow that plan.

2) It's better to do it quicker rather than slower. If you tell the firm, "Paying everyone the same by level is consistent with our values" and 2 years later have discrepancies because you are equalizing over time, people won't believe you.

3) People react very bad to nominal wage cuts. If the range of a position is 100k to 140k, you can't put everyone at 120k. All the good employees between 120k and 140k will be looking to leave. You have to go to 140k, and moderate future raises if you need to.

4) The more junior the employee, the less room they have for surprises. Sometimes it's hard to remember being 22 or 23, but a lot of these folks live paycheck to paycheck. It's not fair to surprise them, or leave them in the dark.

5) Be prepared to lose a couple folks over this. If this is truly in line with your corporate culture, you have to accept this.

Good luck!

Answer 3

This is a very sensitive issue. Touching one's pay check can trigger very passionate reactions... But I am asking myself: "Why is there some different salaries in your work place for the same tasks; maybe there was a merger or something like that?" If you want to reduce the highest salaries, you are going to start a war. The only possibility is to get a higher salary raise every year or every 6 months for those who earn less. However, to be fair, I would base your judgment on the amount of years of service in your compagny: raise the salery of those who are the oldest first and quicker. That is a fair way that everybody will accept. If you do the same task and that you do it for longer that the others, you should be a prioritiy for the management.