Watch this Space: Pay Trends

Should remote workers be paid less? How can organizations address gender pay equity and racial wage gaps? What should HR be doing now, as well as planning for the future? In this two-part series, HRCI CEO Dr. Amy Dufrane, SPHR, CAE, looks at the previously staid state of compensation and what the recent rapid changes mean to HR.

The history of employee compensation pre-dates modern times significantly. One of the earliest examples of compensation – rewards for work – is documented in 3100 BC. In those times, a day’s work earned the necessities for living. Fast-forward to 50 B.C., Roman soldiers were paid in salt, which was highly valued at that time. As commerce advanced, so did employee pay. Being paid by the piece produced or the amount of time worked coincided with the evolution of currency and banking.

Fast-forward again to the Industrial Revolution and the advent of steam-powered machinery. Workers were exposed to dangerous working conditions, and women and children worked for far lower wages than men. Given high unemployment and pervasive poverty, people were considered dispensable and held no bargaining leverage.

Today’s workplace is very different. The 1938 Fair Labor Standards Act (FLSA) established minimum wage, overtime pay, recordkeeping and child labor standards. The OSH Act created the Occupational Safety and Health Administration (OSHA), which sets and enforces protective workplace safety and health standards. The Wage Theft Prevention Act was passed in 2011, requiring employers to provide employees with an annual notice regarding their compensation.

When we look at the evolution of employee compensation, we would hardly call its progression to be fast paced. If anything, it’s remained one of the most predictable elements of work life, enabling employers to manage compensation effectively on an annual basis and employees to understand what it means to them. Until recently…

One could argue that pay trends have become one of the most dynamic aspects of recognizing the value of human assets. First, let’s look at the fundamentals of compensation design:

• Fixed versus variable: With total compensation comprised of a fixed base salary and variable incentives that might be contingent on organizational goals, this model enables companies to dangle a carrot in the form of additional compensation – often used by high-growth start-ups – without having to account for it on a fixed basis.
• Short-versus long-term: When we consider the variable aspect of compensation, we need to consider when it might be paid out. One of the most common schemas is the annual bonus to reward performance; using a calendar year approach, it might be paid out in January for the prior year. Longer term compensation might be in the form of stock options.
• Equity versus cash: Going back to our example of a high-growth start-up, it’s not unusual for employees to agree to lower salaries (fixed) with the possibility of an equity stance (stock and options, often tied to a longer-term vesting schedule.)
• Group versus individual: As the relationship between pay trends and performance has aligned more closely, some compensation plans are designed to reward group goals instead of individual ones.

Adding to the potential complexities of compensation design are a growing list of new laws in states and cities across the U.S. In some cases, companies are now required to post salary ranges on jobs. In New York City, employers are required to tell how much their jobs pay. In just a few short years, pay trends have been not only put under a microscope and laws enacted, employees and job candidates expect transparency.

What does this mean to HR? In my next post, I’ll expand on how multi-faceted this issue is for HR professionals, HR teams and organizations at large, especially as it relates to pay equity.