HRM 5400 Module 6 Final Project: A Best Practice Proposal for Total Rewards Example

Open Ranges and Real Choice: A Total Rewards Proposal for Brightwater Systems

Student Name

Master of Science in Human Resources Management, Thomas Edison State University

HRM-5400: Lifestyle Benefits and Compensation in the New Millennium

Mentor Name

Month Day, Year

Open Ranges and Real Choice: A Total Rewards Proposal for Brightwater Systems

Executive Summary

Brightwater Systems, a composite 220-person software company in Princeton, New Jersey, has built a pay structure, a pay for performance program and an improved benefits package during this course. Two gaps remain. Employees do not know the pay ranges for their own or other jobs, and the benefits package offers little choice to a workforce whose needs differ. This proposal recommends publishing pay ranges internally and in job postings, reviewing pay equity every year and adding a $1,200 annual lifestyle spending account. The first-year cost is about $564,000, about 1.7 percent of the $33 million payroll. The practices support the company's strategy of attracting and keeping engineers and comply with New Jersey's pay transparency law.

The Problem

Engineering turnover reached 19 percent last year, and exit interviews cite pay as the leading reason, often because departing employees believed colleagues hired later were paid more. Those beliefs were sometimes correct: before this course's redesign, offers were negotiated without ranges. Secrecy allows such gaps to persist and invites employees to assume the worst. At the same time, the standard benefit package spends heavily on programs some employees do not use while offering nothing for needs such as learning or child care.

Research Evidence

Pay Transparency

Research suggests transparency affects both fairness and performance. Equity theory predicts that employees who believe their pay is unfair reduce effort or leave (Adams, 1963), and transparency lets employees verify fairness rather than speculate. Cullen and Pakzad-Hurson (2023) studied pay transparency laws and found that they narrowed pay gaps but also lowered average wage growth, because employers bargained harder knowing that a raise for one employee would be visible to others. The evidence therefore supports transparency of ranges and process, combined with a structure that already pays fairly, which Brightwater now has.

Pay Equity Reviews

A pay equity review compares the pay of employees in similar jobs, controlling for legitimate factors such as experience, performance and location, to find unexplained differences by sex, race or other protected characteristics. An annual review lets the company close gaps early, before they become claims under the federal statute at 29 U.S.C. § 206(d) or New Jersey's Diane B. Allen Equal Pay Act, which allows claims for any protected class and extends the recovery period.

Choice in Benefits

Flexible benefits let employees direct spending to what they value. Milkovich et al. (2014) note that choice raises the perceived value of benefits at the same cost, though it adds administration and can attract adverse selection in insured plans. A lifestyle spending account avoids adverse selection because it is a taxable cash account, not insurance, which makes it simple to administer.

The Proposed Program

Published Pay Ranges

Every job's grade and range, from Module 3's structure, will be visible to all employees in the company's HR system and included in external job postings, as New Jersey requires from June 2025. Managers will explain how employees move through ranges: merit increases from the Module 4 matrix, promotion to a higher grade and market adjustments when the structure is updated each year.

Annual Pay Equity Review

Each spring, before merit increases, an outside analyst will run a regression of base pay on grade, time in grade, performance rating and location, and test for unexplained differences by sex and race. Any unexplained gap above 2 percent will be investigated, and justified corrections will be funded from a reserve of 0.3 percent of payroll.

Lifestyle Spending Account

Each employee will receive $1,200 a year, prorated for new hires, usable for fitness, learning, home office equipment, child or elder care and financial planning. Unused amounts will not carry over. The account will be taxable income and administered by a vendor that reimburses claims through a mobile app.

Costs

As the company grows to 400 employees, the account's cost rises in proportion, but the review and training costs do not. If the program reduces engineering turnover from 19 to 14 percent, it avoids about four departures a year among 80 engineers; at a replacement cost commonly estimated at a large fraction of annual salary, the savings exceed the program's cost.

Legal Compliance

The ranges satisfy New Jersey's posting requirement. The equity review creates an analysis that should be conducted at the direction of counsel to preserve privilege where appropriate. The lifestyle account must be reported as taxable wages, and its eligible uses must avoid items that would make it a medical reimbursement plan subject to health plan rules.

Communication

Transparency fails without explanation. The rollout will begin with manager training on discussing pay, followed by a company meeting explaining the structure, how ranges were set and how employees progress. Each employee will receive a total rewards statement showing salary, bonus target, equity, benefits and the new account. Questions will go to a dedicated HR contact for the first three months.

Implementation and Evaluation

Rollout takes a year in four steps: manager training and the first equity review, then publishing the ranges, then opening the lifestyle account, and finally an evaluation. Success will be measured by engineering turnover, offer acceptance rates, employee survey scores on pay fairness, account usage and the size of any unexplained pay gaps. A target of turnover below 14 percent and pay fairness scores up 10 points within two years will indicate the program is working.

Conclusion

Published ranges with an annual equity review address the suspicion of unfairness behind Brightwater's turnover, and a lifestyle spending account adds choice at moderate cost. Together they complete the total compensation program built across the course, aligning pay with strategy, the market and what employees value.

References

Adams, J. S. (1963). Toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67(5), 422-436. https://doi.org/10.1037/h0040968

Cullen, Z., & Pakzad-Hurson, B. (2023). Equilibrium effects of pay transparency. Econometrica, 91(3), 765-802. https://doi.org/10.3982/ECTA19788

Equal Pay Act of 1963, 29 U.S.C. § 206(d) (2018).

Milkovich, G. T., Newman, J. M., & Gerhart, B. (2014). Compensation (11th ed.). McGraw-Hill Irwin.