Betsy Irizarry - The Compensation Risk Most Companies Don't Measure

[00:00:03] Welcome to the HR Data Labs Podcast, now part of the WorkDefined Podcast Network. Join us as we explore the vital role of compensation, strategy, data, and people analytics in navigating today's complex business world. With the resources of WorkDefined, we're now bringing you deeper insights and actionable ideas from top experts. Now, here is your host, David Turetsky. Hello and welcome to the HR Data Labs Podcast. I am your host, David Turetsky. And I have with me a very, very good friend.

[00:00:34] I don't want to say a very old friend because that has other connotations, but a very good friend, Betsy Irizarry from HR Contempo, the CEO and founder of HR Contempo. Betsy, how are you today? I'm doing fantastic. It's too good to join you in your podcast. Thank you so much for having me. This is like, this is like great. You know, it's fun. I love it. Love seeing you. We're going to have a lot of fun today.

[00:01:00] But before we get going in the fun, tell people a little bit about yourself and about HR Contempo as well. Sure. So I have been in the HR industry for over 25 years. I am the CEO and founder of HR Contempo. We are a boutique consulting firm where we help organization with human capital issues. A lot of our expertise comes with mergers and acquisition and as well doing compensation work.

[00:01:29] When those mergers and acquisition happens, I've worked in different industries and organization from technology, professional services, agriculture, energy. So you name it, right? We have touched it. So we are always here to help our leader be able to work in a more collaborative and a more effective way with the human capital, which is their people.

[00:01:53] Yeah. And by the way, Betsy is one of the most brilliant people that I've dealt with as a consultant as well as as a partner to her clients. And I have I have had the pleasure of working with her on several assignments and it's been a lot of fun. But Betsy, before we get into our topic for today, what's one fun thing that no one knows about Betsy? You know what? I love to travel.

[00:02:19] And the one thing that I think people don't know is when I travel, a lot of people like to, you know, go and do the tourist things. But I always like to sit back and see how businesses, even, you know, diners or bakeries or how they function, right? And I think that when you see other people, how they do their job or how they behave is very insightful for me.

[00:02:45] So I really enjoy a lot of understanding how other businesses are run and done as an, you know, entrepreneur myself. I love to see how other people run their organization. So it's it's like an intellectual curiosity about how work gets done in different parts of the world.

[00:03:04] And I've found myself doing the exact same thing, understanding the dynamics of pay, understanding dynamics of work outside of our comfort zone, outside of what we know and what we're expert in. Because you can't be an expert in everything. It's fascinating, isn't it, Betsy? Yeah, I love it. I love it. Especially if I go to Europe, it's so different, right? And even in the States, when you go to smaller towns, it's just that it's a different community.

[00:03:32] It's a different way of how people behave and lead people. So it's really, really energizing. Yeah. Oh, yeah. And as you said, you don't have to go to a different country. Sometimes, even inside the US. Yes. It's very like going up to I just went to Maine a couple months ago, actually last month. And Maine seems like a different world in some parts of it. And I've been to the Midwest and I've been to the West.

[00:04:02] And it does. It feels totally different. Very different. Very different. Yeah. I was in Maine like maybe four years ago doing a bike ride that I do every year. And I love that. It was so amazing. So great place to be. Yes, very much so. Actually, where there are more moose than people. And the mooses are just amazing. In fact, I went up there when I went up there, I tried to get a moose for my son, a little plush moose. And they're like, we sold out of them. Because I think anyone wants moose.

[00:04:32] Everyone wants plushy moose. So yeah, I have to go up again and find a different place. But today our topic is going to be a lot of fun because it's near and dear to my heart. It touched on compensation. And it's the compensation risk that most companies don't measure, which is pay compression in AI and how they're reshaping the workforce strategy. But we're going to get into that right after the bump.

[00:05:22] So, Betsy, getting to the first question, you work with organizations that are small, that are large. And when you think about compensation strategy today and the challenges most organizations are facing, what concerns you the most? You know, I've been working, like I said, with different industries and different companies.

[00:05:42] And I think the challenge that I see is that companies usually think about being competitive in the market or the annual increases or trying to retain the people. However, when I go in and try to help them, one of the biggest issues that I find when I go deep into the organization is that a lot of pay compression issues that they have.

[00:06:07] And again, this happened because they have merged, they have bought companies because of the hiring decisions, because the market. Right. And even now with the growing demands of technology with AI skills is the issue is, you know, compounding and they don't see it coming. And I believe that for me, that is in one of the issues that I have been seeing growing significantly when I'm working with my clients. But it just hasn't happened. I mean, this has been going on for quite some time.

[00:06:36] And I remember back to the pandemic when a lot of compensation decisions were being made, which had long lasting effects because we increased people's pay in some cases quite dramatically to hold on to them. And those decisions are coming to bite us today. Do you think this might have come from the pandemic or in that blip?

[00:07:00] Do you think this has been a long time coming and now the market dynamics have shifted so dramatically that it's happened quite suddenly? You know, I think that there have been three things, right? I think that definitely COVID compounded the issue. But I think that three things, you know, we have a lot of labor market pressure right now as companies are moving very quickly to fill their positions. Sometimes they lose sight of the employees that they have with the skills that they have.

[00:07:28] And they start bringing all these, you know, new employees into it, which is like compounded the issue. I think something that I have heard and have seen lately is like the big push on the data centers and bringing, they're going to really need a lot of trade skills, worker like plumbers and electricians, right? So I see the problem coming where you have electricians and plumbers that have been in the trade for over 25 years.

[00:07:56] And now they're going to bring all this newcomers into it, making very closely to what the skilled worker that have been doing this for many years are working on this. And now you're going to create this pay compression because they need the volume, right? They need the people. And in order for that, they're going to do that. So that's going to really be coming fast. And it's again, this is a perfect example of labor market pressure. Yeah, absolutely.

[00:08:24] We also saw this happen when the solar industry became really hot in the early 2000s, the mid 2010s. And it kind of backed off a little bit because of the legislation that changed, taking away the taxation favorability of solar in home. But we saw solar industries really change the dynamic a lot with electricians and plumbers because those skilled trades were in hot demand.

[00:08:49] I remember I had worked with a solar company, actually a couple of solar companies that were really kind of struggling to hire because they had to hire away from carpenters and electricians and plumbers. And we all know if anybody owns a house, how hard it is to actually find a plumber or electrician. The rates were through the roof and still are going through the roof. Yeah, so I think this is something that is coming.

[00:09:16] That is companies who are hiring these individuals or who have these individuals don't pay close attention. It's going to be a COVID phenomenon with the IT industry when COVID happened, where everybody needed IT people because everybody was working from home. So I see this as another snowball effect to the COVID era when we had to hire a lot of people.

[00:09:40] In addition, you know, when I'm working with my clients and we're doing a lot of integration and mergers and acquisition, I think this is where I see the biggest problem because companies spend a lot of time looking at the companies on the financial side, operational side, which, you know, again, that should be one of the main areas that they should concentrate. But from the HR side, we concentrate a lot on the benefits and the payroll integration, right?

[00:10:10] And we lose sight of compensation. And I'm really advising my clients like, hey, you need to bring to the attention of the leaders this compensation issue. Make the studies, look at your pay compressions. Because once you settle the organization, you're going to come back and see that you're going to need half a million dollars or one million, million and a half in order to get people pay consistently through the organization because it's all over the place.

[00:10:37] I believe that, you know, with your expertise and compensation that you, you know, have seen a lot of this phenomenon happen as well. I have, especially I've gone through mergers, very, very large mergers where the work wasn't done effectively, to your point, about the changes in the organizations and how they fit together.

[00:10:58] I actually will kind of go back in one step, though, Betsy, and say that I think one of the problems at that point was we didn't do enough due diligence on the jobs themselves and do enough, I guess you could say, job description management and organizational design. Because when you just try and fit like titles together, it doesn't really work.

[00:11:21] But when you look beyond the title and you look underneath and look at what the people actually do, then you can kind of look and mesh the companies together because then you'll see what the people actually do and whether or not there are actual differences in pay. Because way too often we just go, oh, the title's the same. It's a software engineer here, a software engineer here. They're the same. No, they're not. They're not. Definitely not. Yeah. And by the way, that work is expensive.

[00:11:51] It takes a lot of time and it takes a lot of effort and it takes a lot of, I'll use the word community. It takes a lot of bringing people together that don't know each other, may not even trust each other given this acquisition or this merger has happened. And they need to figure out how they're going to work together. And this kind of becomes that first way of figuring out how to work together. Yes, for sure. Sure. Right.

[00:12:17] And technology and how companies are willing to pay more for people who know how to use AI because they want their business to work faster, to make better decisions, to improve results. But when that comes is that you're going to have now employees who are doing the work, right?

[00:12:40] But they don't have the expertise with these AI tools or how to automate reports, how to provide faster insights into the organization. And the companies are looking for that skill set, bringing those individuals with this skill set coming in to try to help them move faster, the organization. But we cannot forget that institutional knowledge that these other employees are bringing to the table. And I think that's a challenge.

[00:13:37] Those who they're going to have the tools who are going to be able to absorb the new AI functions and they're going to be able to adapt very quickly. But you're going to have another side of the organization that they're afraid, right, of technology, that they're not going to be able to embrace it because everybody has the fear, oh, it's going to replace my job. Which, again, if you are not in front of it, yes, it's going to replace you. But if you are ahead of it, it will not replace you.

[00:14:03] It's going to be a tool that you can use to help you with that. So I think the organizations and a lot of organizations are doing a lot of assessment of how open their workforce is to adapt to this new AI technology so that they can make a decision, hey, we're going to invest on these employees and on these others. Unfortunately, if they cannot come along, they're going to disappear on their own because they're not going to be able to keep up with their organization, right?

[00:14:32] It's a lot of organizations trying to do that rescaling model, but unfortunately, some of the workforce might not be able to, you know, keep with the pace and the fast pace. The organizations need to move these days, right? They cannot afford to take a long time to get up to speed and they're going to have to do it. It's something that is, you know, has to be done, but you have to really think how you want to do it.

[00:14:56] Most of the organizations I talk to, they believe in what you're saying and they are trying to invest throughout their populations in education of their employees and providing them with the right tools.

[00:15:12] We've seen some examples just recently in the media where organizations had put in place kind of strict guidelines about productivity where they were looking at the amount of credits that you were using instead of looking at your outcomes. They were looking at the number of credits and it kind of backfired because first of all, it cost a lot of money. Second of all, what they found was the results that people were getting weren't exactly what they were hoping for. They weren't looking at, they weren't getting customer problem solving.

[00:15:40] They were just getting busy work getting done by the artificial intelligence and that's not what they were hoping for. But to get to your other point though, the outcomes matter and helping people understand how to get there in a useful way for their jobs means that you need to educate them on what are the possibilities here and how can they take advantage of these unique opportunities.

[00:16:07] The way we like to say it on this podcast is AI won't replace you. Someone who understands AI and uses it as a tool will replace you if you don't. That is correct. I think organizations are being more mindful. Like two weeks ago, there came a report where Walmart was one of the leaders out there doing the self-checkout, right?

[00:16:29] So they took a lot of their 600 stores, they converted in self-checkout because, you know, they felt like, hey, we're going to really reduce the cost of doing business. And what happened was that after they did a study, the amount of money that they were losing was at 4% versus when they have humans behind this self-checkout, it was at 0.2%, right?

[00:16:54] So sometimes, you know, you really need to think of what is it that you want to accomplish and how you want to accomplish and how that human element needs to stay, you know, within in order to be able to continue, you know, doing business and be effective. So it was a double store and now you have companies like Target and Walmart going back to their old ways of having a cashier, right? That to have the self-checkout because it was an AI, right? It was a rush.

[00:17:24] And guess what? It backfired organizations. I think some of the backfire also came from the communities who said, we're not ready for this totally. Don't do this to us. We need that interaction with the person. We need them to help us. There are lots of populations that can't figure out those self-checkouts. And even though they have a person stationed there, you're not going to get the throughput.

[00:17:46] And could you imagine, you know, like Black Friday shopping with or, you know, holiday shopping with, you know, just going to a self-checkout? That would be an utter nightmare. Betsy, all the changes in pricing and all the, you know, potential for theft and things like that. You know, I hear you on that loss percentage. That would be a dramatic, horribly dramatic, worse. Yeah.

[00:18:14] Companies need to understand, right? Companies need to understand. And us as HR leaders, right? We need to be that sounding board for leaders, right? They concentrate on how are we going to cut the cost of doing business. But for us, it's being a leader on, hey, this is what we believe will be more effective. And when we talk also, you know, bringing back the pay compression, it's like, let's look at when we do a merchant acquisition.

[00:18:43] Let's run reports, right, of new hires versus tenure employees. Let's do comfort ratio analysis so that we can see, hey, are we paying, you know, at market? And the problem that we see, and I know we have worked together, is a lot of organizations has very strong compensation programs. But the majority of the companies, even big companies, they don't have a good compensation program.

[00:19:08] And that's where the whole hurricane, right, the perfect storm comes together. Because they don't have the guidelines, the procedures, the policies in order to make, you know, the new employees with the existing employees work together. So let's talk about what compression is, because I think we assume that people understand what the word is. It's a compensation in HR term. But what does it mean to you? What is compression?

[00:19:38] Yeah, pay compression is when you have employees that are doing a job, right? But they have, they're being paying similar when one employee brings significantly better, you know, knowledge or expertise, skill set, tenure. And now you bring another newer employees doing the same job, but with significantly less knowledge and experience and expertise and skills.

[00:20:07] And their pay is very close together. You know, as a perfect example, you have an analyst making $65,000 in your company, have been with your company for eight years. And now market pressure, you know, business pressure, you bring another analyst at $64,000 a year. You only have a gap of $1,000 difference when that other individual has been with you, have all this institutional knowledge. And they're getting paid only, you know, a gap is $1,000.

[00:20:37] That is what pay compression is. Yeah, I think a lot of people have thought that pay transparency was going to cause this because we are now echoing the world. We're now telling the world what our starting rates are for jobs. It's not just pay transparency that's causing this. It's market pressures, to your point. It's changes in legislation. It's also changes in technology. What else?

[00:21:04] What can people do about pay compression? Because you can't give everybody increases. Yeah, I think, you know, from a human capital side, I think we need to really look at our employees. And now with the big pressures that we're having with the cost of living, right, we need to really do more deeper analysis of how we're going to be compensated.

[00:21:30] We're going to be compensated our employees in a way that it really is reflective of the skill set that they bring and how we're going to be advancing them through, you know, through the journey with the organization. And not only, you know, sometimes, you know, we throw a lot of money at people, but sometimes people want more, something else more than money. It can be, you know, it can be, you know, stock options. It can be better benefits, better, better, how you say, professional development, which everybody's craving.

[00:21:58] Now with all these new AI technology, you know, offering people higher education for them to be able to get up to speed and that will allow them to get to the next level of an organization.

[00:22:11] So we really owe to our organization and to our employees to really look at the entire, you know, workforce and do deeper analysis with all the data analytics that we have in our hands these days to really understand, you know, who, where are the pockets of people that we really need to bring, you know, up? And who are the ones that are being paid competitively? And again, what are the skill sets that we need as an organization?

[00:22:38] I have a plan on how we're going to bring together a plan together for the leadership so that we can move the organization forward. So you're talking like total rewards, which includes career development and as well, all the other benefit programs and the prerequisites beyond just base pay. So that's, it's not something we tend to think about, especially when we're going into merit increased time or we're going into a merger.

[00:23:05] From your experience in doing mergers and acquisitions, is that one of the things you think has been missed, which is looking at all of the aspects of an employee's relationship with the employer? Or do you think that some companies do it well? I think it's a mix, right? I see companies that are acquiring others that have very strong total compensation packages.

[00:23:30] And when they bring another organization that hardly has anyone, it's like a shock for employees because now they're getting so much more that they have never got. So they're trying to understand, right, what is all this means to them. And you have organization that they only bring, you know, your normal base pay and the minimum benefits. And that's where you have the issues, right? Because now people are looking for more than just the base pay and benefits.

[00:24:00] And again, people feel that benefits is something that the company needs to do by law. And it's not, right? It's something that the organization now has done because it's the best way to attract talent. An organization now to think outside of the box of what is the total package that they need to create to be able to attract employees. And a lot of organizations miss the bus on that.

[00:24:23] But I think people, when we go into organizations, you and me and other consultants, and we try to explain, hey, this is what employees see as, you know, the total package. Then they're like, oh, I didn't know that existed, right? Sometimes leaders are not even aware of those areas, not because they don't want to. It's because they have not maybe been in that position to understand, you know, the scope and the magnitude of what a total compensation package means to employees and the workforce.

[00:24:53] And anytime that we talk to, and I know you do this as well, anytime we talk to organizations, we tend to try and get those organizations to over-communicate that total package. Whether it's through total compensation statements, whether it's through the once, twice, four, five, six, 10, 20 times a year that they have conversations between managers and employees.

[00:25:18] We try and give them the tools necessary to be able to be more effective in that communication. Because really, you can't over-communicate how that total compensation package and those total rewards are meaningful to that person. And I think a lot of organizations tend to believe that people just know. They get it.

[00:25:40] When I think employees are much more easy to read, where if it's not in front of them, we're in a squirrel environment where we get distracted by so many, you know, flashing things that are happening all around us. And if it's not on our screens every day, we tend to forget it. But so, you know, I guess what I'm trying to say is, to your point, we need to over-communicate this stuff, right? Correct. Yes, I think.

[00:26:09] I, you know, always advise my clients, you know, when it comes to marriage review process, just not talk about your base pay and how much money you're giving them. They present that statement, right? That total reward statement where they see the entire holistic, not only benefit the 401k, the, you know, the employee assistant program with all the issues that people having, you know, with mental health. You know, family members going through divorce, a lot of financial pressures, right?

[00:26:38] Sometimes giving the employee the entire spectrum of what, hey, this is what we are offering to you. And sometimes employees didn't know, right? Because we didn't do a good communicate, we had a good job communicating what we're offering. So again, having that total compensation conversation will be very, very critical to avoid, you know, a lot of the issues that we see when we do mergers and acquisition with employees. Yeah, absolutely.

[00:27:06] And beyond mergers and acquisitions, like to your point, it's not that once a year merit contribution. It's every time there's that interaction, we should be harping on it. And it's really important. What's your take on pay transparency? I know we brought it up a little bit before. Do you think pay transparency is moving the needle at all on equality or pay equity?

[00:27:32] You know, it's, I think organizations who are really embracing it, I think that they're moving the needle on the organizations. But I think organizations that are just doing it because legally they have to, but they don't give much more that that information isn't moving the needle, right? I think some organizations, unfortunately, are going to find loopholes of how they can manipulate the information so that they don't have to really be as transparent as they should.

[00:28:02] But there's some, you know, the majority of the company, right, have the good intention of being paying people fairly. And the good news is that employees are now very well educated, right? Very well educated on pay transparencies and what really is and how people can, you know, you need to get this information so that they know I'm paying competitively.

[00:28:26] I'm going to leave this job for another one when maybe my organization can really help me get to where I need to be if I have that conversation with my leader. But, in the other hand, are the leaders being equipped with the tools and the information that they need in order to have that conversation? Yeah. And I think that's the problem, right? Are we training our managers?

[00:28:51] Are we training our employees enough to understand so they can have thorough, fruitful, business-oriented, not personal, business-oriented conversations around it? Yeah. And I think, unfortunately, right, this comes from generation. Compensation has been taboo, right? Or we don't talk about compensation. Oh, no, you don't need to know how much. And I'm like, you know, now everybody knows how much people make. People just, it's okay. People feel it's okay that Mary makes more than me.

[00:29:21] I just need to understand what do I need to do in order to get paid? Same as Mary or higher than Mary if I bring more to the table, right? Right, exactly. But, unfortunately, that education piece is missing in organizations. And hopefully, we're going to see a push more on that so that organization can really have good, honest conversation with the employees and tell people, this is why you're being paid here.

[00:29:48] Or this is what you need to do in order to get to that financial number that you're looking for. And that piece right there, the communication, is the most understated part of paid transparency. It's the, you have to train your managers, you have to train your employees, you have to train your candidates on what all these things mean. And that makes compensation and benefits now educators as much as they are compensation and benefits people.

[00:30:45] That is true. We're hiding information when the information is out there now. Right. Well, let's hope that they get more thoroughly educated so that they can ask the right questions, they can be much more mature about it. And these business conversations can be much more fruitful between the managers and the employees. Mm-hmm. Rightfully so. They deserve the conversation. Absolutely. Absolutely.

[00:31:11] And, you know, having that good relationship with your manager means you should be able to ask them things and not have the manager go, well, talk to HR. I know. They very were, right? Talk to HR. And then we talked to them. Oh, why you talk to them? And I'm like, well, you know. But again, as HR leaders, right, we carry a big responsibility for the human capital that we have in our organization.

[00:31:35] And we need to serve as advisors and help the leadership understand what are the pressing issues that the human capital have in their forefront in order for them to be effective at work. At the end of the day, they just want to get paid so that they can go back home and have a good life. That's it, right? It's what everybody, every human wants to. Exactly. And Betsy, on that note, thank you very much for being on the HR Data Labs podcast.

[00:32:04] We really appreciate you. And we're going to have to have you back because I love talking. I could talk to you forever. I'd love to talk to you more. Thank you. You know, let's continue to have meaningful conversations with our leaders and our employees of how we can make the compensation topic be one that is a positive look and positive intent instead of a negative. Absolutely.

[00:32:34] Thank you all. Take care and stay safe. Thank you. Thank you for listening to the HR Data Labs podcast. Don't forget to hit subscribe and share it with your network. You can also check out the recordings on Spotify or the HR channel now on Roku and Fire TV. Thank you. Take care and stay safe.