Recent Gallup data shows that 16% of people quit their last job because of pay and benefits. Clearly, compensation matters when it comes to attracting and retaining top talent.
For many organizations, the end (or top) of the year marks the time for annual reviews and compensation adjustments. If this is the case in your organization, learn what you need to know about pay transparency laws and using benchmarking, compensation banding, and fair raises to navigate salary decisions.
What’s Changing in Pay Transparency Laws?
In California, SB 642 will amend pay transparency rules starting on January 1, 2026. Employers with 100 or more employees must submit annual pay data to the state’s Civil Rights Department. The law also expands the definition of “wages” to include total compensation elements such as stock options and bonuses.
Oregon’s Wage Deduction Transparency Law (SB 906) takes things a step further. Starting January 1, 2026, it will require that employers furnish details of pay rates, itemized deductions (including the reasons for the deduction), and payroll codes when someone is hired.
Compliance Tip: Use VirgilHR’s automated legal updates to stay informed of upcoming pay transparency changes in states where your organization operates.
Best Practices for Determining Employee Compensation
Are your pay practices fair and aligned with industry standards? Here’s what you need to know to ensure you pay your employees well this upcoming year.
Benchmarking Salary Data
Benchmarking your salary data helps you make sure you’re offering competitive pay. To do this successfully, make sure to:
- Define the scope by deciding which roles to focus on
- Gather job description information, including specific responsibilities, required skills, experience, and location
- Collect internal data about employee salaries, bonuses, and benefits
- Use tools to identify peer companies for comparison and find market rates for similar roles, ensuring a focus on recent data
- Match internal jobs to market and peer data, ensuring both titles and responsibilities align, and analyze for competitiveness
- Set pay ranges by establishing clear minimums and midpoints (usually the market rate, and maximums for each role)
It’s crucial to use the correct tools for your benchmarking process. The U.S. Bureau of Labor Statistics provides extensive wage, salary, and benefits data categorized by region and sector. Additionally, organizations like Mercer and Aon offer high-quality aggregated data and deeper insights at a cost.
Some real-time data platforms offer live data, analytics, and compensation management tools. It’s important to know whether the data contained on these platforms is official or self-reported, as this may affect reliability.
Compliance Tip: Review equal pay audits and address gaps before they escalate.
Compensation Banding
Compensation banding groups similar jobs into salary ranges, each with a minimum, midpoint, and maximum pay level. Higher bands typically pay more, as they correspond to roles with more complexity, experience requirements, and material impact.
To set bands, it’s best to start with your benchmarking data. You can pair this information with an internal job analysis of role complexity, skills, and impact on group roles.
Use market data for similar roles to determine your midpoints for each compensation band. Then, decide on a percentage or range spread (e.g., +/- 20% from the midpoint) for each band.
To figure out a minimum and maximum for the compensation band, you would subtract the percentage or add it to the midpoint. For example, with a $50,000 midpoint and a 20% spread:
- Your minimum would be $50,000 – ($50,000 x .20) = $40,000
- Your maximum would be $50,000 + ($50,000 x .20) = $60,000
Make sure to continually review and update your bands to reflect economic or market shifts and new internal role structures. It’s also crucial that you ensure everyone understands the compensation structure in your organization, as well as the criteria for promotion and how pay decisions are made, as offering clarity helps you build trust.
Compliance Tip: Balance pay confidentiality with adherence to disclosure requirements, such as those affecting job postings and salary ranges, for CO, CA, NY, WA, IL, and OR.
Structuring Fair Raises and Adjustments
As you consider how to ensure fairness in increasing pay, it’s important to first ensure you have created a standardized performance management system across the organization. Employees should be clear on the objective metrics you are using to determine performance and how each metric affects their rating.
Then, you may consider using a merit matrix to determine pay increases or simply offering increases based on performance rating. For example, you may give a 3-4% raise for average scores and a 5-7% raise for exceptional performance. You may also consider giving those with a current salary below the midpoint a larger raise to ensure fair progression for all employees.
Compliance Tip: Ensure documentation for raises is nondiscriminatory and job-related.
Fair and Compliant Compensation Is Essential for Today’s Enterprises
Being clear, transparent, and fair when it comes to employee pay not only helps you attract top talent but also builds trust, loyalty, and morale in your existing workforce.
Fortunately, VirgilHR’s automated platform can help you build a compensation structure that’s both equitable and compliant with today’s complex labor laws. Schedule a demo today to see how our tools can enhance your HR strategy.