Garry Straker and David Turetsky – SHRM 2023 – Avoiding Unintended Consequences of Pay Transparency

Connect with Garry:

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Connect with Dwight:

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• dwight.brown@salary.com

Connect with David:

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• david.turetsky@salary.com

Podcast Manager, Karissa Harris:

• HRDataLabs@salary.com

 

Production by Affogato Media

Resources:

• Address Pay Equity
• Compensation Consulting Services
• HR Data Labs Season 6 Episode 3
• HR Data Labs Season 6 Episode 1

• “Letting people know what you make might feel uncomfortable, but isn’t it less uncomfortable than wondering if you’re being discriminated against or being paid unfairly?”
• “The #1 ‘pro’ of pay transparency is that it will effectively eliminate gender and racial [pay] gaps.”

Announcer: 0:02

Here's an experiment for you. Take passionate experts in human resource technology. Invite cross industry experts from inside and outside HR. Mix in what's happening in people analytics today. Give them the technology to connect, hit record, pour their discussions into a beaker, mix thoroughly. And voila, you get the HR Data Labs podcast, where we explore the impact of data and analytics to your business. We may get passionate and even irreverent, that count on each episode challenging and enhancing your understanding of the way people data can be used to solve real world problems. Now, here's your host, David Turetsky.

 

David Turetsky: 0:46

Hello, and welcome to the HR Data Labs podcast. I'm your host, David Turetsky. Today, we have a very special episode for you. This is a presentation that Garry Straker and myself gave at the SHRM national conference in Las Vegas, Nevada, in May of 2023. The title of the presentation was avoiding unintended consequences of pay transparency. We had a really a blast actually doing the presentation. And hopefully you'll enjoy it. Take care and stay safe.

 

Garry Straker: 1:14

I want to thank everybody for joining today. I understand that the only thing standing between sort of dinner, perhaps a concert and an NHL championship final tonight is me and David. So we'll we'll do our best to keep this entertaining. Or I should really say that David will do his best to keep it entertaining. I'll do my best to keep it keep it on track. Just by way of a quick introduction, so David, and I lead up the compensation consulting practice with Salary.com. We have the great privilege, and we also have a lot of fun, helping organizations really throughout the country, some internationally, help design and build compensation programs to better meet their business needs. And so we you know, we love talking about this stuff. And obviously pay transparency is a big issue nowadays, I think. So SHRM referred to 2022 is the year of pay transparency. So I'd like to begin the session with a public service announcement. The pay transparency train has left the station folks, and everybody in this room is going to have to get a lot more comfortable in terms of planning for, managing and evaluating the impact of pay transparency on our organizations. I realize that for some of you, you'll take this right in stride, because maybe that's consistent with your culture already. But for some of you, it might be a little bit of a bumpy ride, right? There's a lot of good that can come out of pay transparency. And certainly, you know, we're advocates of that. And we encourage our clients to be as transparent as possible about their pay practices. But there are also some pitfalls, right, there are some speed bumps, there are some pots in the road that you want to avoid. So that's what this session is about, we're hopefully going to share our insights, our perspective, our thoughts, we have a little bit of research, some data about this to hopefully help you avoid some of those mistakes that we've seen other other folks make. You know, David, I thought we would maybe just try to get a little bit of a pulse read on the room. So if the pay transparency train has left the station, how many of you are actually comfortably sitting on that train, you're clear about what the destination is, in other words, you have already embraced and put forth in your organization, a pay transparency strategy, show of hands, anybody done that. So a good number of you already have good for you!

 

David Turetsky: 3:26

Good job.

 

Garry Straker: 3:26

And then there's probably a second group who you may have found yourself on this train, maybe not quite sure how you got there, maybe have really no idea where it's going. And you're just hoping that it's going to land you in a good place. Anybody in an organization that's in that category? Okay, quite a few there.

 

David Turetsky: 3:44

Thank you for being honest.

 

Garry Straker: 3:47

But lastly, there's a group that may still be standing on the platform and wondering, are we supposed to be on that train? Anybody in that group at all? Okay. And that's okay.

 

David Turetsky: 3:58

This group over here has not answered very much. So we're gonna have to focus on them a lot. Okay.

 

Garry Straker: 4:04

And it's perfectly okay, we're gonna help you along your journey, regardless of what your starting point is. And I will tell you, I have missed metaphorically, many trains in my life. But the important thing is you just have to get there eventually. Let's just talk about what we mean by pay transparency, you know, fairly obvious question. At a bare minimum, we're talking about sharing pay information or paying ranges for employees for the job that they do. But I also think pay transparency needs to go a lot further, we need to really help our employees understand not just how much they're paid, but how they're paid. What are the underlying principles? What is our what is our compensation philosophy? What is our intent? Are we instilling confidence in our employees that our compensation practices are administered consistently and fairly throughout the organization? And I think that that's an important, really a significant and important part of how we think about pay transparency. Pay transparency, not a new concept! We've been talking about this for years, compensation professionals, HR professionals, a lot of debate and discussion about paying transparency, some think it's like the worst idea since you know, forever. Others really do sort of embrace it. This is a professor David Burkus, I love what he said he'd gone back in 2007. I think it was 2016. He did a TED, and his quote is letting people know what you made might feel uncomfortable. But isn't it less uncomfortable than wondering if you're being discriminated against or being paid unfairly? And I certainly think that's true. You know, one thing about that quote today is that, you know, even since 2016, we know that employees, especially younger employees, they are much more likely to share pay information amongst themselves. So even if we don't have pay transparency explicitly, we certainly have implied pay transparency, because of basically employee behavior. Different organizations have taken different approaches to pay transparency. Some have embraced it. Whole Foods comes to mind, that's an organization that has had paid transparency, apparently if you're a Whole Foods employee, you can go in and see not only what you're paid, but what other employees are paid. Other organizations have taken it really to maybe the furthest extreme. One of those is a company called Buffer. Some of you may be familiar with Buffer. They're infamous right, for fully disclosing their pay for all their employees, not only just internally, but they do it externally. And what they have found is that pay transparency builds trust. And that's one of the most significant and important outcomes of pay transparency is instilling trust, that employees feel that the compensation program has integrity, right? It is disciplined, and a structured, it is methodical, that you're not just shooting from the hip, right? A lack of trust, or opacity to compensation can really lead to perceptions that things are probably not being done consistently and fairly throughout the organization. And that's certainly one of the things that you want to avoid. But Buffer, you know, this is just a quick shot from their website, you can actually go onto Buffer's website, and by department and by location, find out what everyone gets paid. How many of you in this room would ever be comfortable going this far in terms of that extreme? Anybody ever see that in their future? One person, okay, you're counting.

 

David Turetsky: 7:44

Only government excluded, because that's disclosed, you have to. Thank you very much for offering that, that is cool.

 

Garry Straker: 7:51

Public sector not uncommon, but in the private sector this is really an unusual practice. And not everyone is going to be comfortable with this degree of transparency, because transparency is really a continuum. And every organization has to find the sweet spot for them in terms of what they're comfortable with. An organization like Buffer, this is a technology startup based in New York City. Last time I checked zoom info, they had about 200 employees, right? Some of you work for very large, mature multinational organizations, you've grown through acquisition, you have legacy pay practices, you have decentralized decision making, you have got all kinds of things going on, in terms of how you would manage to pay. Yeah, probably this level of pay transparency is not going to work for you. But you should be able to find a sweet spot sweet spot that does that is consistent with your organizational values and culture. And just lastly. This is another company that I like this quote a company called Kepler. Also in New York City, by the way, they have a if you go on to their website, you'll see that they share a lot of information in terms of pay transparency, but their quote, If you can read it in that red box that says, we believe every employee should understand, I can't even read it myself, our compensation philosophy and practices. Now, wouldn't that be a thing? Right? I mean, that just sounds so obvious to me, that people should understand how their paid. And again, that's just, you know, I just sort of view that as common sense. But it helps establish trust, and confidence that pay practices are, in fact, administered fairly. And I like to just sort of switch gears. And so one of the things we know is that a lot of the push towards pay transparency is the result of new legislation that's occurring around the country. Right? Just to take a quick inventory of that legislation. There are really two general themes in terms of the legislative activity at the state level. There's those states who require proactive disclosure of wage ranges to basically to employees and job candidates requiring wage range disclosure in job postings. Right? So some of you probably have operations in those days, but certainly Colorado, California, New York, Washington, all require that proactive wage range disclosure. Other states have not quite gotten quite so far. They require wage range disclosure generally to job applicants is the general theme, or upon request, right. And it even still, it's amazing to me, you know, some organizations, and I saw this recently in a handbook where it explicitly says in the employees' handbook that the policy was not to share wage rage information for anything other than the employees own job. Again, that feels to me like a little bit of an antiquated practice.

 

David Turetsky: 10:40

In the 1990s, when I worked for an investment bank, we literally told employees that if they did talk about pay, we were talking about bonuses by the way, that we would let them go. Anybody have that as a kind of unwritten rule maybe? I know not now. Okay. We're trying to fight this. Remember, we're on the same team. But there was that thought process, though, that if you talked about it, like what we used to call it water cooler talk that if you talked about it, you could get disciplined up to and including termination.

 

Garry Straker: 11:10

Thank goodness that's a relic of the past. Right? You know, just recently there are other states that have been introduced, or actually you have bills awaiting governor's signature. So three states now, Hawaii,

 

David Turetsky: 11:21

Wasn't Hawaii just signed?

 

Garry Straker: 11:23

Yeah, Hawaii, Illinois, and Maine. Right. Anybody from Maine? No? One from Maine in the back. Awaiting governor's signature bills requiring wage range disclosure in job postings. Right? Massachusetts, my neighbor to the north, I'm from Connecticut, likely to fall into that category, we'll see how all that shakes out. Several other states, off the top of my head, you know, Wisconsin, Pennsylvania, New Jersey all have bills in the process as it relates to pay transparency. This trend is going to continue. And even if it doesn't continue, the vast majority of employers, and the vast majority of HR professionals we talked to, aspire to much greater pay, much greater levels of pay transparency. Most of them however, just not ready for right now. Unfortunately, time is not your friend here. Because in some cases, these new wage range disclosures become effective, you know, within a few short months of the governor signing them into law. David, you were gonna make a comment?

 

David Turetsky: 12:21

Yeah, I was gonna say we interviewed the state representative to introduce the pay transparency law bill in Massachusetts, on the HR Data Labs podcast, and they're very excited for one aspect of the law, and that's that it's simple. It's simple to comply. It basically says we want you to disclose a relevant range of pay for the job. That's all it says. It's not very complicated. And it should be something that you should be able to apply very simply. Now, I wouldn't test them on that. Because to the extent at which you're going to try and do what Netflix, do we have anybody from Netflix here, by the way? Okay, they're not here. So. So for those of you who saw, Netflix posted a flight attendant job. Did anybody see this? $60,000 to$385,000, for a flight attendant job for Netflix. This wasn't an actor playing a flight attendant. This was actually a flight attendant job. Do you think that, anybody from California, California here? Do you think that you could post that range and get away with it? Exactly. So don't do that. By the way, we're not giving legal advice here. I don't know. Yeah. But don't do that. That's good legal advice. That's free. It's not really legal.

 

Garry Straker: 13:34

And so we have a couple of questions. So let's just maybe pause I think you had your hand up here. So great question. So the question was with this legislation is that based on where the company is located, where the job is located, or where they report to? It varies. Generally speaking, though, if you report it, like, for instance, in Illinois, if you report to an organization based in Illinois or headquartered in Illinois, you're subject to it. Each, each state has slightly different nuance on on this, but generally speaking, remote workers who report into a location within a state that has just passed legislation are subject to the law. And there's also in some cases, there are a number of employee thresholds that you have to meet, but that threshold is typically low. It's in some instances only 15.

 

David Turetsky: 14:16

Very low. Yeah, yeah, or I think in California, it's even lower than that, isn't it? We had a question.

 

Garry Straker: 14:20

I think maybe 10. I, you know, there's so many laws, I can't even keep them all straight in my head. So, but So that's a great question. So the question was, there are some nuances in terms of who it applies to. But I'll paraphrase this, but if you have multiple state locations, regardless of the compliance concern or consideration, and I'm not saying that that's not important, we know that most you know, should you be aspiring to the most stringent law and organizations plan to disclose more wage ranges in their job postings, right, because the recognize that that's the trend, right. That's the way the direction employers are going and it's helping them in the recruitment process. It's making it a more efficient process. And so regardless of whether or not you have to comply with any state law, we know from our research that most organizations are moving in this directions and expect to include wage range disclosures in the job posts. Like maybe just by a quick show of hands who doing that now. Okay, so a lot of you are. deploy that ubiquitously throughout the entire organization? I think I got that right. And so I would consider that the best practice would be to do it uniformly across the entire organization. I mean, you're really sending a very, I think, difficult message to your employees, if you say, we're only going to do it in those states where it's required. The rest of you folks, we're not going to do it for you, because we don't have to! That's really sending, you know, a strong signal to your employees that you're not really serious about the spirit of the law. And not really serious about addressing some of the underlying, the foundational the impetus for some of these laws are to address pay equity, and specifically gender and/or racial pay gaps, right? That's the intent here. And so if you fail to provide this level of disclosure to some segment of your employees, think of what you're sending, what kind of the message you're giving to them.

 

David Turetsky: 16:07

Yeah, I had one other point on this, which was what we saw early on in pay transparency, especially after Colorado passes law that we would see on indeed, that people would post or job companies would post and they would say, if you're in Colorado, here's the pay range. Okay, so should I take that and then use the index to figure out what I'm going to be getting? Well, that's not really what we're talking about here. And what it could mean is you might create a new compensation strategy that says, we're gonna post the national wage range. Okay. And then we might use geographic differentials on here. But the best thing to do in that case is tell people about it. Right? Disclose that to people! Communicate over communicate, what's the harm to doing that? You might actually tell people something that they need to be able to make a rational, mature decision, a business decision about whether or not they want to apply to your company. Right. Is there any harm in that?

 

Garry Straker: 17:04

Well, one more question here and we'll move on. Yeah. And so that's an important consideration.

 

David Turetsky: 17:09

She said that what she was advised to post what would reasonably expect to be paid within the first year, right? Yeah. So. Okay.

 

Garry Straker: 17:19

I'm not so, I'm not entirely. I don't give legal advice. But we know that there's a lot of latitude in terms of what needs to be posted. And so generally, the language is that you have to post what you reasonably expect to pay. I'm not quite sure about the first year part. But what you can reasonably expect to pay maybe just a hiring range, or it could be the full range. And so employers do have some latitude there, we get asked a lot of questions about well what is appropriate? And my response is, well, tell me how you're paying your current employees. Before we can answer the question about what is appropriate to post in your externally facing job postings, we need to understand how you're paying your internal employees. Because if your internal employees start seeing wage ranges in job postings for their own job, that doesn't align with their own, you have a problem. So you want to avoid that. So I'm just going to one more point, just so I know, this isn't that we have some international folks here as well. European Union, right, just in the last. Where are you from? You live in Berlin, great! European

 

David Turetsky: 18:17

Then this applies to you.

 

Garry Straker: 18:18

Yes. Applies to you, and anybody who has European operations, 27 member states right. Now, the European Union has passed a very stringent equal pay transparency directive within the last two months, this is really going to transform pay transparency in the European continent. There is a little bit of a window of implementation, it looks like they're moving towards sort of a three year implementation window in Europe. So you maybe have a little bit more time to sort of build that out. We generally don't have that luxury here in the US. Another the question here?

 

David Turetsky: 18:49

Alright, so the question is, what does it relate to? Does it relate to just base or does it relate to everything? We're going to talk about this in a little bit. But at the end of the day, there's no reason that you can't disclose everything. And one of the reasons why what we chose to do is talk to you a little bit more holistically about total rewards, you can see that there are some things that we've already been transparent about. Now, what we're showing here is think about the concepts that we've currently been utilizing. One is horizontal pay transparency, for those organizations that you've worked in, where you allow organization, part of your organization to see just the relevant range of pay for the jobs that are tangential to them, or around them in your salary structure. What I mean by that is, so if you have like 10 grades, and you share just those that are above and below someone, think about that as horizontal pay transparency, you're showing them the range of pay that is potential for that, whether they get promoted or whether they get demoted, which we hope never happens, but that's the range that's relevant to them. Then think about vertical pay transparency, where you're sharing with them throughout the organization. You're sharing all the relevant pay ranges for jobs that are in their hierarchy. Now, we typically will exclude executive pay for that, we won't show everything. In fact, a lot of times, you're just showing the pay scales. You're just showing the salary ranges, you're not showing, what are the bonus potentials for that. I'm proud to say that I've actually seen some companies that alongside their salary structures, they'll literally have a column next to it that says, what's the bonus potential for this grade? Because we typically will tie grade to what the potential bonuses or what the target bonus percentage might be. So that's vertical pay transparency, seeing the high and lows throughout the entire structure relevant to that job or that geography. What we're talking about additionally, now is the cross from pay transparency, where we're revealing these wage ranges to other companies. That's what we're kind of talking about now. That's really a new concept. Garry mentioned, there are a few firms that have been doing this, they probably haven't been doing this a long time. Although we probably know of some companies, some examples of some companies that have been very vocal about we're not going to pay less than $70,000. I forget the name of that company. But they went there, they're not going to pay less than that. They want to pay a living wage to everybody. Well, okay, that's not what we've been doing for a long time, we've really only been focused on the internal. Now with pay transparency as the laws we've been talking about. Now, we're introducing the concept of now having to share our wage ranges out externally to other people, whether it's through candidates, or just posting it online as part of what we normally do when you're going to the career section of your website.

 

Announcer: 21:44

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David Turetsky: 21:56

So why is it important? Is there really any need to go beyond the first one? It's really the right thing to do. I think we all can agree there is a problem in this country where people are not paid the same for the same work, right? We agree on that. Right? Okay, thank goodness, we're all in the right place. So the reason that existed is because people made deals, they went in interviewing for a job, and they were given a deal. Sometimes it related to the pay that they used to have from their old job. And part of the pay transparency laws, in fact, some of the laws that preceded pay transparency laws was, you cannot ask what your former pay was. You can get around that by saying what are your pay expectations? You still do that, right? A lot of us. Yeah. Go to Salary.com and they can get what the wage range should be for that job. But what we're talking about pay transparency, it's really the right thing to do. Yeah, sure, I'll back up. There are some states where it is not legal to ask how much someone makes today. And for good reason. Because if you ask them what they're making today, you could be exacerbating the problem that you are paying them unfairly in their new job. What frame of reference do those people have other than their current pay? If you're not telling them what the wage range is for your job? And by asking them what they make today, and by not telling them what the current wage range is, you're going to make their next job paid unfairly as well. Does that answer your question? Again, we're not trying to give legal advice, we'll get in really big trouble if we do. So pardon some of the ways in which we have this dance around that language. Did you mean to go

 

Garry Straker: 23:50

Oh, do you want to go back?

 

David Turetsky: 23:51

Did you really pushing me ahead that far? The next thing is, this touches everything. This is a big deal for all of us in this room. It's a big deal for consultants, because we get a lot of work from companies who say, where do I start? This is so big, it's so big! It is big. You have to make sure your job documentation is up to speed, you have to make sure that you have your market data all up to speed, you have to make sure your salary structures are up to speed. Everything has to be well documented. And also somebody said, What about I think you had mentioned what about variable pay? Well, also you have to make sure all the documentation about your pay programs are in plain English for all of your stakeholders to understand it. If you gave your documentation today on your variable pay plans to your employees, what would they do? What the hell is this?! I don't know what this means! They will have no idea what how to apply that to themselves. Now some of you do a really good job. So I'm sorry, I wasn't trying to be broad stroke and make you all bad. But what we have to understand in HR is, is that they don't speak our language. We have to put a lot of these constructs, whether it's a salary structure, whether it's midpoint progression, whether it's spread, we have to put them into terms that people who never stepped foot in HR one day understand. And so we have to change that. And we also have to do a lot around communications, because these things matter to these people now. What happens if your employees go out to the web, and see their job posted with a wage range? They're gonna go to their manager first. The manager says, well, you know, that's something HR is doing. I don't know. I can't tell and then know what's gonna happen. And so actually there was a article today that was published, I think from HBR, that said, that research was done that says that what it's going to cause is and part of the unintended consequences, that it's gonna cause more compression. Because managers are going to do knee jerk reaction, and they're just going to give increases. That's the stupidest thing they could do! But without you giving them the training, and the communications, and the support to know what to do, when that employee sees that wage range, the first thing they're gonna want to do is protect that employee, protect that person from leaving, and they're gonna give them an increase. The next thing is, these things are not going to get overturned. And if you're in a state that doesn't have it, as we talked about before, it doesn't mean you do nothing. What it means is, you have to develop a strategy. Because either it's going to come to a state near you, or it's going to come to a state where you have employees, and you need to do something about it. And your best friend here is going to be your labor attorney. They're going to help you set a strategy that works today, and it'll help as new laws come in. That was the last point. So

 

Garry Straker: 26:55

Yeah, I mean, let's just switch gears, and we'll talk about some of the impacts of pay transparency, we're starting to see more studies and papers being authored as it relates to, you know, understanding what this means in our organizations. And so, you know, we have a quick kind of summary from various data sources, Harvard Business Review, SHRM, LinkedIn, Indeed, and even our own our own research. And so, you know, in terms of the cons, Dave, I'm gonna run by the cons first, and then you do the pros?

 

David Turetsky: 27:23

Please.

 

Garry Straker: 27:24

I'll give you a little bit of break here. So, yeah. I mean, as we said earlier, there's very positive things that could come out of pay transparency. But there are some downsides. And one of those is it does require more communication and training to explain pay differences. And that's a little bit what David was talking about was that we have to get better at communicating about our pay practices and policies. And also we have to get HR out from underneath the pay and the comp cops, right? If you're a supervisor, if you if you manage people, you ought to be able to have a conversation with those you supervise about pay. An intelligent, credible, you know, confident, consistent conversation about pay. There's no reason why anyone who manages people shouldn't be able to have that conversation. But they need some help. Right? And that helps gonna have to come from HR. You know, more time and effort to prepare and monitor pay transparency. Yeah, there's no question about it. I mean, we are in an environment where we have never seen more scrutiny and attention and focus on pay practices, right over the last couple of years. I mean, David and I, we both been doing this close to 25 years each, we've never seen a time like it. And it's only gonna get worse, there's going to be more scrutiny. There's talk about the newest SEC regulations for publicly traded companies. We may go back to pay data reporting, like we had in the Obama administration, we know that's true in California and Illinois. So it's only going to get worse. And so we need to make sure that we're putting the time and effort and committing the resources to making sure we're resolving some of those pay challenges that exists within our organization. Some of those things that are keeping us awake at night, and we're sort of putting on the backburner hoping they're going to go away? We need to be able to address those now. You know, David mentioned this, you know, this concern about pay compression, right? The big issue that that organizations are wrestling with is that they're concerned about having outliers within any particular job category. Because if you have an outlier, you have to explain why that person is paid differently maybe than their peers. There may be very legitimate reasons why that occurs. Of course, we can have pay differences, right? We just need to be sure that those pay differences are justified and defensible, based on job related factors. And so this, this concern around salary compression. Particularly here in the US, you know, we're, you know, virtually a lot of organizations we talked to, when we talked to how they administer pay, we have a pay for performance program, we have a merit based program. You know, in some cases that may be true and, you know, maybe the differences are minor, but when you start to sort of have employers that are paid, in some cases, significantly different than their peers, again, could be performance, there could be other certifications, other things that are going on, we're just going to have to be able to show that we can defend it. David, pros.

 

David Turetsky: 30:12

The number one pro, and really you don't need to go beyond this is, pay transparency will effectively eliminate gender and racial gaps. That's all we need to say! There shouldn't be anything more that necessarily necessarily needs to be said than that. But that's the best one. It also has this really cool effect, where now an employee can really feel like you're giving me the right deal. And they have a more of a trust from the moment, not even the moment they get hired, from the moment they actually look at your ad. Wow, is that an old concept? They look at your website, they look at the job listing, and they go, Wow, that's actually pretty cool. They have the pay range there. They're also telling me I can go to the link and see their philosophy on pay. I can see the variable pay program, so I can understand what my target might be, everything's all laid out for me. So you're building trust with someone, before they ever even have a conversation with you. They don't even have to have a conversation with a recruiter, they can buy into your culture, because you're going out there and you're giving them something that then they can hold on to and say, well, it's more than I make now. And it's more open than I'm dealing with today. And what we see is 75% of job seekers are more likely to apply to a job when there's a pay range. That's a lot! We also see that with jobs that have pay information receive 30% more impressions. That's really cool. These are all really, really good benefits. And yes, there are costs, and there are cons. But number one was the most important one. And if we can solve for that, to me, it's worth everything.

 

Garry Straker: 31:55

So let's just kind of touch base on a few more things. This is this data comes from an article that was in the National Bureau of Economic Research, there was a a Harvard Business School professor Zoe Cullen who did a really terrific article, and this is a, if you're interested in understanding some of the implications, this is a really a great read, I would encourage you to go out and get it. But you know, this author looked at different, again, different types of pay transparency that David talked about earlier. But one of the issues is, you know, counterproductive peer comparisons, right? We know that employees have a protected right to talk to each other about pay. But employees don't always have the insight into somebody's prior years experience, somebody's qualifications, or their performance for that matter. And so when employees start to talk about pay, and they do these peer comparisons, they're often doing it with imprecise information, incomplete information. That's a challenge and that's a problem. Because even their perception of unfairness or favoritism, or whatever it is, whatever that's going on, in their mind, you know, that becomes their reality. And that can be a problem, it can have a demoralizing effect. You want to do the next one?

 

David Turetsky: 33:03

The only thing I want to say about that is, why would you or how could you counteract that? Conversations, education, communications? You know, I know you're comparing yourself against three of the other people that are doing your job. But here's why there are differences in pay. Have open communications! Garry said this before, train your supervisors, when your managers on how to answer these problems, give them the tools to be able to have these mature conversations about pay, and then there'll be able to answer very much like that.

 

Garry Straker: 33:36

Yeah, and just another issue as it relates to vertical pay transparency. David mentioned this earlier, but maybe we can expand on it. You know, we talked about sharing, not only wage ranges for the job that you're in, but perhaps the maybe the full pay scale the full salary structure within your organization, because what that does, it gives a line of sight into future earnings growth, or future career development in your organization. It might give employees a pathway into understanding, maybe I do want to stay here, right? You know, there may be other opportunities for me to continue my growth in here, if we have that sort of vertical pay transparency, and that goes beyond just the job that we're doing. But now we're seeing what the earnings potential is for jobs and maybe other parts of the organization. So I think that that can be a very positive thing. You know, one of the big concerns is that pay transparency will lead to our employees seeking work elsewhere, right? They're gonna see some posting somewhere and they're gonna, you know, the shiny new penny, here we go, let's, let's go chase the shiny new penny. And that is a very real concern. But there was this study, again, I'm referring to the article that was in the National Bureau of Economic Research. This author did some research on that very issue. And David and I talked about this and we looked at the results, and we thought, that doesn't make any sense to us. What this researcher looked at is how employers were thinking about the impact act of posting salary ranges on employee turnover between two different employee groups, high performing employees, and low performing employees. You know, highest performing, lowest performing. Clearly, we want to keep our highest performing employees right? There like gold, right? We don't want to let those people go. And and I always thought intuitively that a higher performing employee if they saw, you know, maybe a salary range that was more attractive to them that you're at risk of losing them, but this researcher found that high performing employees were less frequently to change jobs. And the low performing employees were more more likely to do that. You know, it didn't didn't really kind of compute with me. But I don't maybe by show of hands in this in this room here. Have any of you seen higher turnover of higher performing employees within your organization's as a result of pay transparency? Anybody seen that or concerned about it? Yeah. So you know, a couple hands going up. And maybe there's some something in this study, of course, a lot depends on the pay rates you're actually giving those high performing employees. And, of course, there may be other incentives that is causing them to stay.

 

David Turetsky: 36:10

I actually call this good news. Because if your lower performing employees are leaving because of transparency, sounds good to me.

 

Garry Straker: 36:20

Yeah, so this is an interesting finding. And again, I mean, every organization's probably going to experience this a little bit differently, based on how you pay, right, relative to the market, and maybe based on your role payment, and how you manage performance management and how you link performance to pay.

 

David Turetsky: 36:39

Hey, are you listening to this and thinking to yourself, Man, I wish I could talk to David about this? Well, you're in luck, we have a special offer for listeners of the HR Data Labs podcast, a free half hour call with me about any of the topics we cover on the podcast, or whatever is on your mind, go to Salary.com/HRDLconsulting, to schedule your FREE 30 minute call today.

 

Garry Straker: 37:05

So we're gonna just move into avoiding the unintended consequences of pay transparency, we've talked a lot about what it is, right? What is happening, some of the observations that we're seeing, what is the impact early days on increased levels, levels of pay transparency? So the question is, you know, what can we do about it? How can we avoid some of these potential potholes or speed bumps? And, you know, I guess the good news is, there are things that you can do proactively. The bad news is, there's lots of things that you need to do proactively, right. And I know that HR teams are generally pretty thinly staffed, you have a lot on your plate already. But there's a lot of work to be done. There's a lot of housekeeping that needs to needs to be done in order to prepare for, you know, a deeper level inquiry, some potential disruption as a result of pay transparency. And we're all going to have to spend some time doing that. So in terms of housekeeping, one of the things that we're seeing a lot is, this really needs to sort of define roles better within our organization, developing a more, a cleaner job architecture, right? You know, in this country, in the United States, we have come to rely upon market pricing as our predominant method of developing position hierarchies within our organizations. David, when you and I were young men, we used to spend a lot of time on job evaluation. Does anybody even talk about job evaluation anymore? Well we have, you know, we have some.

 

David Turetsky: 38:29

That's shocking. That's awesome!

 

Garry Straker: 38:30

Yeah, it is, it is good. And we know that some organizations, you know, have used those point factor systems right back in the 80s and 90s, we were putting point factor systems in left, right and center. And maybe some of you have have hung on to those things. But, you know, really spending time defining your roles has a lot of advantages. One, it can help employees understand the differences between your jobs and understand why some are paid differently than others, right? Because to the extent that they're looking at two jobs and see a distinction with no difference. If you can't legitimately explain to an employee why this job was paid more than the other because of the knowledge, skills and abilities that are needed for that job versus the other job, you potentially have a problem, right? Because employees will kind of distort that. And they'll begin to question whether or not they're being treated unfairly. So this focus on job architecture is something that we're seeing an increasing amount of focus on. Anybody here involved in significant job architecture work? So some of you are already seeing that, a lot of hands actually going up in the room.

 

David Turetsky: 39:30

That's great.

 

Garry Straker: 39:31

For those of you that are doing it, is it a result of concerns around pay equity and pay transparency, it's all driven by that? Okay, consistent with what we're finding and seeing in the marketplace.

 

David Turetsky: 39:42

And now that you've actually gone ahead and done all of that work on your job architecture, and you've defined your job descriptions, again, because all of you who have done that within the last two or three years, right, because jobs haven't changed at all since the pandemic, right? Yeah, right. Work From Home does change job duties and responsibilities. So you might want to actually look at what you're expecting people to do as part of that slide. Having that consistent approach to now documenting those jobs and documenting those differences and keeping the modern means now you need to go back and do your market pricing again. And for those of you who don't match year after year after year, you definitely need to do it once you change job content, because it will change the job that you're matching to. And for those of us who've been doing compensation for a very long time, we know that there are slight differences in matches, that make a lot of difference, a lot of difference. And if you're trying to explain to an employee, why you're paying them a certain way, and God forbid, you have to show them the market pricing with the job description that goes against that market pricing. And they say this has nothing to do with what I do. Or it's only part of my job. How do you explain that? Well, when you do a good job market pricing, now you can say that's explainable. The one thing people always ask consultants, when we go to do the market pricing is, hey, that's a perfect match, isn't it? There is literally no such thing as a perfect match. The surveys and the survey taxonomies and the survey descriptions are there as a guideline, we use that terminology, this is an art as much as it as a science, because while we do use percentiles, to describe the population, and we're using that to see what sampling is for that job. This is literally an art form. Because you're going to take that data. For those of you who know compensation stuff, you're going to age the data, if you know what I'm talking about, you're going to create a hybrid job, if you know what I'm talking about. Do you think that's what's intended when someone sends in their market pricing matches? No, they're saying this is the job that someone does, I'm using, like 8020 rule on their match. That's good enough. But now you're taking that data and you're creating this science around it. Don't be too scientific, don't beat yourself up if the match is imperfect. But you at least have to have something that's explainable to the manager and to the employee, because if you can't explain it to them, it's a worthless exercise. Okay? And can you go to the next slide? Everybody knows what this is. Those are the salary structures that you create. This is just a screenshot of our tool. But one of the things that we do when we create these structures is we're trying to approximate the market for our jobs. And the bottom is the minimum, the midpoint is what you see along the line. And then the top is the maximum. Putting rigor into this to create the perfect salary structure is a waste of time. Because again, this is an approximation of our market, we're using market matches, which we just talked about aren't perfect. And now we're going to create a salary structure. I will tell you, the lot of times when I create structures these days, I'm not creating one structure, which is what this one is trying to do. I'll create three, at least. One for non exempt roles, one for exempt roles, and one for executives, because they're all going to have different slopes, they're all going to have different ways in which they start trending up or down. Actually, thee non exempt looks much more like the executive nowadays than executive does to us. But that's different. Don't put too much stock, or don't put too much work into creating these structures. But make sure again, it's explainable. You can explain it to your leaders, you can explain it to your managers, and now fresh, you're gonna have to explain it to employees and the candidates, because these are the wage ranges you're going to use to explain the market for jobs that you're looking to attract. That makes sense? Okay.

 

Garry Straker: 43:59

Yeah, and another area where we're seeing our clients spend a lot of time is doing sort of a full blown pay equity analysis, a full blown pay equity audit, so that they can identify potential outliers in their in their pay models, and address those proactively. You know, one of the big issues and we talked a little bit about this in terms of job architecture is today's standard for pay equity is performing equal pay for comparable work right? Back in 1963, or two, whenever the Equal Pay Act, it was equal pay for equal work, we could all understand that conceptually, we can get our heads around it. But nowadays, the standard is equal pay for comparable work. And so we need to understand comparable work. I mentioned earlier that we moved away from job evaluation, using job evaluation our country, we use a market price and guess what market pricing is not a good way to define comparable work in many cases. And so some of you already started doing some job architecture work, and that's a way to solve for that right and be able to develop comparable work groups so that when you do a statistical analysis, you know that you're comparing apples to apples, you know, and the key here is making sure work that you, you want to identify a statistically significant pay disparities that are obviously impacting women and minorities in your organization. And if you don't have the skill set, and maybe the bandwidth or the, you know, the internal resources to be able to do that, you know, maybe go out and find some external resource, because

 

David Turetsky: 45:18

We know some consultants that know how to do that too.

 

Garry Straker: 45:21

I know a consultant that knows how to do that work. But yeah, and leverage technology, right. And now there's, I mean, this is hard to do this work, because there's so many moving parts, and there's some complexity to it. Obviously, the larger the organization, the more complex it becomes, but, you know, leverage technology, and we're a technology company, we have technology solutions that make it easier. That's the business we're in. But there's, there's a real need to kind of focus and invest in this particular area. You know, we know the states like Illinois requires equal pay certification, right? If you're an employer in Illinois, you have to get equal pay certified. And it's difficult to be able to do that unless you've done a full blown pay equity analysis. We know other states are requiring pay data reporting, right? EEO want pay data reporting by gender and race. And of course, when we think about pay equity, we think about it pretty broadly. And we think about not only just sort of focusing on those potential illegal pay disparities, but we also focus on the pay gaps that exist, right? Having a pay gap is not an illegal pay practice. Right. But it's not a good thing. And that's what pay transparency laws are specifically designed to impact, right? We want to reduce or eliminate gender and/or racial pay gaps in our in our US workforce. And that's why we have these pay transparency laws.

 

David Turetsky: 46:32

But just to put a finer point on that gaps may still exist. And you mentioned this before, because of some factors that may exist, like education and experience and other things.

 

Garry Straker: 46:42

Yes. Yeah. I mean, you've got the unadjusted gap and the adjusted pay gap, so you need to kind of look at it both ways. But, you know, having a pay gap is less about pay than it is about representation across your organizational hierarchy. And that's the, that's the real challenge or issue, we know that that's a problem, right? We don't have enough minorities and women, particularly in some of the higher tier jobs that are being paid, you know, at the top of the range. And so, you know, the work in pay equity is really important. You know, when we talk about pay equity, you know, people kind of get really sucked into sort of statistical modeling and the numbers on this. And, you know, I like to step back and think that pay equity really needs to be managed within what I call a tolerable threshold. You know, what is a tolerable threshold? Well, I don't think the goal here is to try and come up with perfect equity. I'm not even sure that in most organizations, you can reach a consensus around what perfect equity is! But we need to be able to manage pay equity, as I said, within a tolerable threshold, and I define that is making sure your pay practices are consistent with your organizational culture, your values, and particularly your diversity, equity inclusion goals, right? We know that diversity, equity inclusion is a strategic priority for virtually every organization in the United States. But if you're not addressing pay equity, as part of your DEI goal, I think you're you're selling yourself short, right? Those two things go hand in glove, right, they are two sides of the same coin. So if you have a really proactive, very strong diversity, equity, inclusion strategy, you should also be focusing on pay equity. And in addition to that, you also need to minimize the risk or liability, right, you're obviously want to avoid any potential legal liability as a result of any pay discrimination claim. And, you know, risk tolerance is a consideration here, some organizations are very conservative, right, they're gonna have a much higher level of less tolerance than the maybe some other types of employers. And so your risk tolerance really should shape again, your pay equity threshold. And last thing is that you need to be able to manage pay equity in a way which supports your recruitment and retention goals, right? We know that employees want to work for organizations that share their values, right, that have, you know, sort of a mission and a culture that's aligned with their own personal values. And so much of, you know, what we're looking for in the workplace today is is fairness in the workplace and equal opportunity. And certainly, conducting a pay equity analysis should take into all of these considerations so that you can manage it within a threshold, which is right for your organization. Right? It could be slightly different for different organizations based on your culture and some of your priorities and some of the things that you're wrestling with. But I think that from a pay equity perspective, there's an awful lot of work that needs to be done there. Of course, pay transparency is sort of, you know, putting a microscope on all of that. And that's going to be an important piece of work. Well Dave, let's talk about you already talked about documenting your compensation program, we're gonna talk a bit more?

 

David Turetsky: 49:42

Yes, everybody's got their programs documented, right? They're all readable. Every employee has access to them. Thank you. That's awesome. Can you can you actually publish them so we can all see them? Oh, that's you're getting there. Okay. Not there yet. Gotta make sure that documented well, you got to make sure they're documented in a language that people can understand, and I'm very particular about using that word, language. There are people who do not speak English in this country. So make sure that you're translating it to language that they feel comfortable with. Whatever that language is, make sure that all of these pieces, they have something that people can understand, because they're all pretty complex.

 

Garry Straker: 50:25

Yeah, well, we touched on this a little bit earlier, but it may be just a couple of seconds on this. Yeah, prepare your managers, right. HR shouldn't be the only people who can talk about pay in an organization. It's, it's just, it's untenable, right? You just can't manage, you know, pay expectations, if that's the case in your organization. And so, you know, we like to, we have a whole competency model, but one of the competencies we've developed is communication about pay. And so every manager and supervisor ought to be given the information and skills and training they need to be able to do that effectively and consistently throughout the organization. Anybody doing that, by the way? Anybody training your managers? Yeah.

 

David Turetsky: 51:05

Excellent. Thank you. Good for you.

 

Garry Straker: 51:06

Thank you. That's not an easy thing to do. Right. And that can be a real challenge. And I'm sure there's, you know, lots of questions along the way, but it certainly is important work. So

 

David Turetsky: 51:16

Did we answer all your questions as we're going through, so we're not gonna worry about q&a at the end? Somebody has to answer that, though, because it might be a really important question.

 

Garry Straker: 51:25

So it varies. So different states have different, you know, different laws on this. And I don't want to shoot from the hip on it because it depends on the state that you're talking about. But

 

David Turetsky: 51:33

It was California, right? Okay.

 

Garry Straker: 51:34

Yeah, in some states, I know. It's when at the time they submit their application. And other other cases, it's upon request. Another question over here.

 

David Turetsky: 51:43

If you're expecting to hire them elsewhere? Then then you don't need to, no.

 

Garry Straker: 51:51

But if you have employees in other states where it's required, you might want to think about that strategy, because you're really sending a mixed message out. Another question here? Yeah, so that's based on your compensation philosophy. So some organizations will use a national market, others will use sort of geographic pay differentials, but that should be really guided by your philosophy and your retention challenges and recruitment challenges.

 

David Turetsky: 52:10

She was asking they higher virtually, everybody virtually. And my advice very similarly would be start with national.

 

Garry Straker: 52:18

I just want to make one more comment, we spend a lot of time trying to understand how organizations are going to approach their performance evaluation, performance management processes, in the face of more gray pay transparency, of course, the big concern was that organizations will start to compress salaries, right, because the fear of outliers if they prefer, you know, giving significant pay differences to high performers. And you know, and so, our research research here is just basically told us the organizations are going to continue to do what they're doing in terms of performance evaluation, but they're going to spend a lot more time on it, they're going to make sure that their performance management processes are more robust, perhaps eliminating some of the subjectivity in their performance evaluation processes, perhaps calibrate across their organization to make sure that there is some consistency in terms of the outcomes and pay decisions like to pay. So that's an important part, I think of the work that needs to be done in the face of pay transparency. But that's an important consideration. We're just about one minute away from time, maybe just another couple of questions.

 

David Turetsky: 53:26

So what you're saying is, do we have documentation that we have around pay plans? Yes. So yes, we do. But they really do need to be configured and customized for your organization. But yeah, we do that. Yeah. We help companies with that. Yes, ma'am. Okay, so let me play this back. So if someone if you've hired someone on in a particular location, and that's what you've hired them for. And then they say, what if I move? I'm in a high cost area now, what if I move somewhere else? My advice is, if it's just them moving themselves, tell them look, I'm not going to pay you differently for moving where you're moving. This is your responsibility. But if you're moving from a low cost area to a high cost area, I'm not going to pay you more necessarily. It's all based on the deal that you made with them. Oh, okay. Sorry. You answered it yourself. You said that someone lives in a low cost area, but they see a posting for a high cost area, and they see the differential. That's the reason why there's a differential because the posting is for the high cost area. That's why I'm saying that when you communicate these ranges, be explicit as to what they're for, say, if you're this range is for Southern California, or this is for the cities in California, because they're all kind of high cost in cities, but not for rural California. However, that works out if you see the differential from where people actually work, to where you're posting the job, be explicit about it and communicate it. Tell them what it's for. My advice, though, is pull it back and be more generic like we were saying using the national averages and say this is based on the national market, there will be pay differentials on where you live or where you work. But it can go back to my other point, though, that I don't know if I finish. If you're hiring someone in a particular location, and then they move to a lower cost area, or a higher cost area, you may not necessarily have that same deal with them. But if they want to move on their own, you don't have any obligation to pay them more or less. It's up to up to you as a philosophy.

 

Garry Straker: 55:34

Folks, I want to be respectful of time. We're at the bottom of the hour here. David and I are going to hang around for a few minutes and you're welcome to come and talk to us afterwards. I want to thank you very much for being here today.

 

Announcer: 55:46

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