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Navigating compensation strategies can be a tricky landscape for HR and compensation professionals. In today’s competitive market, getting pay right is more important than ever—yet many companies make avoidable mistakes that can lead to pay inequities, confusion, and even compliance risks. From over-complicating pay bands to relying too heavily on market data, these pitfalls can undermine even the best compensation strategies.
In this blog, we’ll explore five of the most common compensation mistakes, why they matter, and how you can avoid them. Plus, we’ll show how Pequity’s platform can simplify your compensation processes, empowering you to make fair, informed, and efficient pay decisions.
Let’s dive in!
Mistake #1: Over-Complicating Pay Bands with Too Many Job-Specific Benchmarks
- Why It Matters: It’s easy to fall into the trap of precision—creating multiple pay bands for roles that are only marginally different in title. For example, you might have separate bands for a product manager, technical project manager, program manager, and technical program manager. However, this level of granularity only adds unnecessary complexity and confusion for employees, especially when the pay difference is minimal (2-3%).
- How to Avoid It: Streamline your compensation bands by grouping similar roles into broader categories you achieve accuracy and efficiency. Pequity’s software easily configures flexible, yet simplified pay bands that align with your business needs and avoid over-complication.
Mistake #2: Relying Too Heavily on Market Data
- Why It Matters: While market data is useful, it shouldn’t be the only factor driving compensation decisions. Market data includes compensation for a broad spectrum of talent, many of whom you might never hire. It’s a guide, not an absolute answer, and treating it as such can lead to overpayment or underpayment.
- How to Avoid It: Use market data as one tool in your broader compensation strategy. Pequity’s platform allows you to combine market data with internal data for more informed decisions that reflect your unique business and talent needs.
Mistake #3: Failing to Provide Managers with Pay Increase Guidance
- Why It Matters: While it’s important to trust your managers, giving them free rein over compensation without context can result in inconsistencies and pay equity issues. Without the right tools and information—such as market data, peer compensation, and budget constraints—managers can make uninformed or biased pay decisions.
- How to Avoid It: Ensure managers are equipped with clear compensation guidelines. Pequity’s software allows you to set approval workflows and provide real-time data on market trends, internal equity, and pay guidelines, giving managers the context they need to make fair and consistent pay decisions.
Mistake #4: Not Documenting the Reason for Pay Changes
- Why It Matters: Failing to document why certain pay decisions were made can lead to confusion down the line, especially when it comes to promotions, bonuses, or sign-on incentives. This can also cause problems if your pay philosophy changes, or when conducting pay equity audits.
- How to Avoid It: Use Pequity’s compensation planning tools to track and document every pay decision. This makes it easy to justify and explain compensation changes 12 months later—and protects against compliance issues if employees or auditors ever ask for clarification.
Mistake #5: Starting a Bonus Plan Without Measurable Goals
- Why It Matters: Implementing a bonus plan without clearly defined, measurable goals can lead to frustration and wasted money. Many companies introduce bonus structures just because they appear in compensation surveys, but without knowing exactly what the bonuses are for, they become a costly, unproductive expense.
- How to Avoid It: Before launching a bonus plan, ensure you have clear, measurable goals tied to the payout structure. Pequity’s platform helps you define and manage bonus plans, so you can track performance metrics and ensure the payout aligns with your company’s objectives.
How Pequity Helps You Avoid These Compensation Pitfalls
Managing compensation effectively requires more than just the right data—it requires the right tools. Pequity’s compensation platform helps HR leaders and compensation managers avoid common pitfalls by providing real-time data, customizable workflows, and detailed reporting to ensure pay equity and transparency.
With Pequity, you can:
- Simplify pay bands and avoid over-complication by organizing similar roles.
- Use market data as a guide and combine it with your internal data to make informed decisions.
- Equip your managers with the context and tools they need to make consistent and fair pay decisions.
- Document all pay changes with automatic tracking and clear audit trails.
- Set up bonus plans that align with your business goals and track performance to ensure proper payouts.
Avoid These Mistakes with Pequity
If you’re ready to streamline your compensation strategy and avoid these common pitfalls, Pequity’s platform is the solution you need.
