Are You Making The Pay Mistakes Experts Avoid?

[00:00:00] Compensation is one of the few things every employee thinks about and almost no company gets completely right. Leaders think it's about budgets. Employees think it's about their value. HR gets stuck in the middle trying to explain both sides. And the reality is that compensation isn't just a pay system, it's a trust system. Because the moment employees stop believing compensation decisions are fair, every conversation about engagement, recognition, performance, and retention just gets hard.

[00:00:30] My name is Noah Mithrush and today we're joined by Matt McFarlane, founder of Startup People Summit and a longtime people operations leader who spent years helping organizations figure out compensation, pay transparency, and what I think is frankly the messy reality of how people actually experience pay at work. So Matt, before we dive in, what led you to where you are today? What makes you passionate about the sexy world of compensation strategy?

[00:00:57] Well, it definitely is a sexy world to me. It's, gosh, how did I get here? My background is actually, it's people ops, it's people operations. It's a pretty unusual path into compensation. But the reason I love it, the reason I found myself here is that it's a space that is always, it's kind of, it's going through, well, it's going through a bit of an interesting period at the moment. There's a lot of change, a lot of evolution.

[00:01:24] It's just always been a space that I think people have grappled with, whether it's employees, whether it's employers. It's just a very like evolving space. I think the things that really appeal to me about it is on the one end, like it's obviously hyper commercial. It's often one of the biggest costs, one of the biggest line items for a business, which means it's something that's analyzed a lot. It's obviously very important to organizations.

[00:01:50] But then on the other end of the spectrum, the other thing that I love about it is that it's like a deeply human thing. We all process, we all receive, we all interpret pay differently. It's a very emotive topic. And I just, I love that it's a part of the people up space and the remit that kind of blends these two things that I just find like extremely fascinating. No, I think that's a great segue into like today's topic. We're talking about all things compensation.

[00:02:17] We've dubbed this the topic of your compensation, your compensation strategy isn't the problem. Trust is, which I think that's a really great way to frame it because there's varying expectations that we deal with when we talk about compensation. There are the employees that are on payroll that they have their own expectations. They have their own things going on in their personal lives.

[00:02:42] And then you have the business side of it where there are specific goals and there are specific roles and tiers and a lot of different variables that play into compensation. And then there's HR that gets stuck in the middle, right? We get the fun role of trying to make these two worlds come together in a way that makes sense and everybody's happy. Not sure if that's actually possible.

[00:03:09] But what is the main challenge that HR, payroll, people that are involved in those financial discussions around compensation, what are they facing on a regular basis? What are you seeing? Yeah, it's a good question. I think you're hitting on like the crux of the issue around pay and like why it's so often is a real sore point for both sides of the equation, the employer and employee. But it's not this like zero sum game.

[00:03:38] I think where companies really struggle, and I do think the onus is on the company to really to be the leaders in this space and be the ones that are kind of leading on the change, is that there is like two very different context windows that like your employees have and the way they think about pay and that your company thinks about pay and how it should work. And I think where companies often go wrong is that they don't try and help to meet in the middle. I think that's probably what we're going to explore in a lot of detail in our conversation today.

[00:04:07] But for me, that's a lot of what pay transparency tries to solve, right? It's like we've understood you're looking for these things. We as a business are trying to hire and retain and motivate this person. And here's how we think we're going to do it. Here's the constraints on our side. Here's how we think about pay. Let's meet in the middle and actually like talk about it. Let's have a conversation. I think that needle is obviously moving a lot. Pay transparency has been sweeping the world.

[00:04:34] I mean, it just went live, you know, recently in Europe. So it's evolving a lot. I think it's changing. But, you know, there's still so many companies that could be doing so much better here. And, you know, the ones that aren't, I think, are still grappling with the fact that the world has moved on and that people do have these different expectations. I mean, I can speak about, you know, here in Australia where I'm based. We only very recently, not last year, I think the year before, outlawed pay secrecy.

[00:05:03] So companies putting into contracts that you can't speak about your pay with other people. That's crazy to think that a country like Australia has only just gotten to that point. But it kind of is a change that realistically has been happening anyway, right? Like everyone speaks to everyone else around pay. And there's all of these amazing websites and tools now where people can look up what they should expect to be paid for a role like theirs.

[00:05:29] So the information that people have to understand and think about pay has moved a lot, even if the company doesn't try and do anything. And so I think it's now creating a lot of pressure for companies to play catch up because that baseline and that standard has just evolved and shifted dramatically in the market more broadly.

[00:05:47] Mm hmm. So that brings up a question in my mind around, you know, right now is a very interesting time in the world of work because we have what I've heard before dubbed, you know, like we have the most generational diversity that we've ever seen in the workforce. And I think, you know, when you break it down by generation, there's a lot of different expectations that people have.

[00:06:15] And one that we all find very interesting is Gen Z and their expectations. And I think their expectations around what they expect out of the workplace from their managers and from a business is very different. So looking at Gen Z, what are you seeing as their expectations around compensation and what they expect from a business? Yeah, it's a good question. We love to talk about Gen Z.

[00:06:44] We love to love to rag on them a little bit, the incoming generation. It's I mean, the environment it is. It is. The environment for them is super fascinating. I think what I hear, look, I'm a big pay transparency proponent, so I'm loving the way that this is going. I think, you know, part of it is sort of dubbed entitlement. But I think part of it's also like these people are just they've never been more comfortable speaking about pay than any other generation.

[00:07:13] I mean, there's Instagram, TikTok reels of like people on the street walking around with a microphone, literally just point blank asking them what they're being paid. So the taboo around pay for this generation does not exist. It just it isn't a thing. And that's translating very cleanly to the workplace. They're coming to the head of HR, the HR team, or they're going to their leader and they're saying, why am I being paid what I'm paid?

[00:07:37] Or why am I, Jeremy, being paid less than, you know, Janine or someone else? Like, help me understand that because the conversation is absolutely happening. They understand what, you know, where what the pay environment looks like because they're so social about it. And I think this is where, again, that pressure is on companies to play catch up and to be able to actually articulate a paid position if they have one.

[00:08:03] And really be able to, like, tell or explain to people and make it defensible why they're on what they're on. It can't just be like a hope and a pray. You can't just say, well, that's just what we talked about when you when you joined the company. What do you mean? Like, you know, that's that's just the salary. You need to really be able to articulate, you know, a lot of the language around compensation. Why did we land on that? You know, what's that based on? How did we determine it? How often is it updated? You know, all of these sorts of things are where people's expectations are going, especially with with Gen Z.

[00:08:32] And so companies are now having to play catch up. But yeah, pressure's on at the moment. So where does that leave a company? Right. So with Gen Z coming into the picture with different expectations, how does a company create a strategy, a compensation strategy that works across different generations and their expectations? Like how do how do you make that conversation normal?

[00:09:00] Yeah, it's a good one. There's I mean, there's there's a comp philosophy and there's a comp strategy. I mean, the thing that a lot of companies don't realize is that they have a comp philosophy, whether it's written down or not. Like everyone's being paid. There's already these like unwritten or unspoken norms that kind of happen in the organization that even as a formative step from a pay transparency perspective, they could just write down and say, hey, employees, here's how we think about pay.

[00:09:24] Let's, you know, let's put this in front of you and make sure that we're clear about how we pay and start to embrace some consistency. When it comes to pay strategy, though, this is something that can can sometimes be seen as a little bit contentious is like often I don't see companies actually involve the very person that they're trying to attract and retain and motivate into the conversation around pay. Like why are we why do we pay salaries? Why do they exist? Why do we have benefits? Like what are all these things in aid of?

[00:09:54] Ultimately, they're designed to bring a set of skills into the workforce and help like, you know, run, you know, a series of responsibilities so that we can as a business make money and be successful in whatever it is that our mission is going to be. You know, we need to be thinking about how it is that we're actually co-designing that with the very people that it's trying to actually work for.

[00:10:17] So, you know, running, running interviews, things like that with with those people and those talent segments and actually making sure that they have a place rather than just trying to rely on, I don't know, heritage or what we think is right for the organization or sometimes just reports and things like that. I think, you know, at the end of the day, the people are there. Why not speak to them? Why not invite them in and actually make them feel like they're being seen and heard as part of this thing that's ultimately meant to be in service of them. Right.

[00:10:44] Right. So one of the issues that we often see, right, is that a manager has their team of employees and have a generation that's very open and willing to talk about it. How can businesses set their managers up for success or the people that are meant to support their teams and like their employees and be ready for these types of conversations that often we see don't, you know,

[00:11:14] get the short end of the stick and they don't often get the support they need. What is like the starting point? Where would you recommend a company say, OK, like we need to support the team with this type of language or these talking points in order to, you know, support these conversations? Yeah, you can you can run, you know, pay is a big topic. It's funny. When I first got into this space, a lot of people like, oh, it's like it's really interesting niche.

[00:11:43] Even compensation as a as a field is such a diverse, deep and technical space. And there's terms like comp ratio. There's, you know, don't even get me started on equity and things like that. Like it's just it can be so technical. And I think where a lot of companies get unstuck is expecting their managers to be able to pick up all of the language associated with something like that and be able to repeat it verbatim back to their employees or to be able to advocate for a paid position.

[00:12:11] Like, you know, we pay 50th percentile. What does that mean? Percentile of what? Like, you know, help help me help me understand it in the context of my role. So often the very first step that I'll work with companies on is trying to help their leaders not feel like they have to have the answer straight away. I think this is often a really like a challenge they stumble upon is that, you know, someone comes to them and you also have to think about the context they're coming to you in as well. Right. Like it's hard for people to talk about pay.

[00:12:40] It's often people can find it really challenging to advocate for themselves when it comes to, you know, getting a pay increase and fighting for what they're worth. So they often put it off, which means by the time they're coming to you, they're probably a bit emotional about it. They've been thinking about it for a long time. They've maybe been suffering about, you know, an increase in rent or something like that in their own life. So the circumstances that they're coming to you are probably already going to be a little bit charged.

[00:13:04] And I think that can often put a manager on the back foot and feeling like they have to answer the question and solve the problem in the moment, which is often just a recipe for disaster. This is where we see managers make promises that they can't back up. Then they come to the HR team and say, hey, I've just promised, you know, so-and-so a pay increase because they're really feeling it at the moment. I can't lose them. And then it just creates this whole issue, which creates pay inconsistencies and it just all goes out the window.

[00:13:28] The thing that I try to help instill in organizations and for their managers to understand is that they don't have to have an answer in the moment. What they need to do is really play the role of two things. Someone who first and foremost understands and recognizes and helps that employee feel seen for what it is that they're going through because it's very real. The other is being a bit of a guide through the process. Hey, you know, we've just gone through pay reviews.

[00:13:54] So I know that that's often the one main cycle in which we try to address some of these problems that you've raised. But there may be other pathways. Let me go away and come back to you with a way for us to solve this. And whether it's coming back and saying, hey, actually, I've spoken to the HR team. I've gone to that. I've advocated for you. We've been able to get you this pay increase. Or it's actually to be able to say the way in which we reward roles here is through performance or through promotion or something like that.

[00:14:22] Let's sit down and work on how we can actually make one of these things true for you. Let's work towards that as a goal and to secure that pay increase if it is something that's really important. Not to be the arbiter and the person who makes the decision or feels like they have to kind of say, hey, you can't have this because HR said so or something like that. It's like, let's sit down and go within the system. How can there be a guide for you and help you actually get to the outcome that you're trying to achieve?

[00:14:50] Looking for a scalable recognition program that works for your organization's specific needs? Book a demo today and speak with Gusto's recognition experts about our flexible programs. Go to gusto.com to get started today. And kind of a question that comes to my mind as we're talking through this with the different expectations.

[00:15:13] But there's also sometimes those imbalances of these companies, they want the top talent, but they just aren't at the point where they can pay for that top talent. And I think back at previous lives that I've in companies I've worked with, right, where even if we're at the startup stage and we need somebody who can help us build this.

[00:15:37] But we need really good talent and or, you know, but we can only afford mediocre talent, whatever that might look like. Right. But let's say a company can't afford to be that top player. And, you know, they're trying to figure out what to do, how to make up that gap. Are there other ways that companies can do this, whether it be through their rewards, through their benefits, the flexibility of work?

[00:16:05] Can that all move the needle or some of these companies actually just using these rewards and benefits and other things just to, you know, hide the fact that they actually do have a very deep seated compensation problem? Yeah, it's. Yeah. I mean, look, a lot of companies. Yeah, it is a big question. It's a big question.

[00:16:29] One of the things that I think can unseat companies when it comes to this, like, concept of paying for top talent or high performance or whatever is like a lot of them don't spend the time actually thinking about what that actually means to them. And I think it's very easy for them to conflate performance or talent with the company they're coming from.

[00:16:52] And so, you know, we've all seen or worked for startups that were like, we need to hire from Google or from Facebook or from, you know, and they've just assumed that really what they're trying to do is they're trying to outsource creating a great recruitment process to a company that they assume has created a great recruitment process because they're highly profitable. And so they're actually kind of bequeathing that to them and just going, well, if they've worked at those companies, therefore, you know, they've got an incredible pedigree and we should hire them.

[00:17:20] And of course, then comes the issue of pay. So I think companies need to sit down first and foremost and actually think about what's the job to be done, what are the skills required to do it and what throughput do they expect it to be delivered at and actually sit down and do a proper, like, you know, role design and a proper brief with their recruiter for who it is that they're trying to go to market for. But I think the other piece you're hitting on is like, is pay for performance, right? It's like when companies say that, do they truly mean it? How does it show up?

[00:17:50] All of those sorts of things. And you're right that a lot of companies say they pay for performance, but then the way that they bring that to life is that they have a merit cycle and the person, you know, that the manager is closest to or most recently saw did good work, you know, they get the pay increase.

[00:18:07] And so it's very much like they've, again, kind of given this pay performance, that pay for performance, the remit for it to their managers and just hope that that's going to be done in an effective way. Of course, we know very often that's not the case. There's biases. There's all these other things at play. Maybe they haven't seen someone's work being done in a way that actually is valuable.

[00:18:30] And then often it leads to a loss of trust because it's not being done consistently or it wasn't clear that this was actually what I should have been doing all along, all those sorts of things. So, yeah, it can be a really tricky thing. But I think at the end of the day, it all comes back to like as a company, we really should be sitting down and going, what is pay? Sorry, what is performance for us? What does great performance look like? How does it show up? And how can we make sure that people understand that and that it's clear across the business?

[00:18:55] Because, you know, no one hates it more than getting to a pay review and then finding out that actually your performance over the past six months hasn't been deemed that great because of something that you did or should have been doing. But you were none the wiser to it. Mm hmm. And, you know, you hear the horror stories of when people are like employees, obviously, like you mentioned before, they talk to each other now and there's a bit more like you can't help that these conversations are happening around the water cooler.

[00:19:23] And, you know, employee A talks to employee B and they have the same position. They're doing the same thing. They have the same list of responsibilities, yet one is making five to ten thousand dollars more than the other. And they find this out. How the heck does that happen? And why does that happen? Yeah, this has traditionally been called the printer test. I don't know anyone that prints out salaries anymore. So maybe we need to come up with a new name for it.

[00:19:53] But you're right. Like, again, this comes back to two people should be able to talk about pay and what they're earning and not feel like they've been wronged or they've been disadvantaged or something, you know, something wrong is happening here. And I think, again, it comes back to as a company, we need to be able to think about why we pay the way we pay, how pay changes within the organization. And we need to be clear with people around those things.

[00:20:19] We don't need to necessarily say he is, you know, we don't need to go full pay transparency and say he is everyone's salaries. But the criteria around how that pay is determined, that's ultimately what people are looking for. They just want to know, hey, is this being dealt with fairly? Is this being done in a way that I don't have to be thinking about it all the time? Because I think that's the opposite of what is true when you have a great comp philosophy and approach to pay and pay transparency is that people spend an inordinate amount of time thinking about pay. They're asking questions about pay.

[00:20:48] Managers are having to field those queries. They're coming back to HR. It creates such a huge overhead. Whereas if you can be on the front foot and share with people, actually, here's how we think about pay as an organization, you can really take a lot of that overhead away from the business. And people can just rest comfortable going, I'm paid what I'm paid. If I want to get a pay increase, I know I can go and do these things.

[00:21:07] I know that people who are in my role are paid at or around the same level, and these are the reasons why they might be different, whether it's tenure or it's performance or whatever it is that the company ultimately finds is valuable. Those are the basic things that people really expect from their companies these days. So I'm curious with your background and experience in this space.

[00:21:31] What's something that you've seen may be the most common or like the biggest mistake that companies are making that maybe it seemed like a good idea, you know, look like a reasonable idea on paper. But then when put into practice, it just completely blew up and backfired and, you know, either diminished trust or, you know, just retention went through the roof or, you know, their retention. Through the floor. Absolutely.

[00:22:02] Yeah, it's I'm sure there's a lot. Look, it's for me, it's like the first step is like is just not is not being clear about it. So again, like just not even documenting what it is that you do at the at the moment is often just it creates a real sore point for a lot of companies. I think, though, if you do take the step to actually go, hey, we are going to be a little more clear around our pay philosophy and around how pay works in the organization.

[00:22:29] I think the biggest where companies really get unstuck is when they inevitably come up with some reason that they need to deviate from that. So there's the counter offers. There's the unicorn employee that's come in that's negotiating this huge salary. Of course, it's not in our salary ranges or something like that. It's where we start to break this kind of like clear and consistent dynamic that we've we've ultimately tried to achieve with our pay philosophy.

[00:22:59] And we've stepped outside of that and we can't articulate why or we haven't been consistent about it. That's often where I see things go really wrong for companies. So, I mean, you know, the negotiating one is a big one. I think companies, even with amazing pay practices, deal with this on the daily, which is that, you know, they're hiring for a role.

[00:23:21] A candidate comes in and I don't know what it is about human brains as a like a behavioral thing, but we just tend to place more value on something that is worth more. So when someone comes in and says they want $200,000 and we've been thinking $150,000 was going to be right for the role, I don't know why. We just we naturally tend to go that, you know, there's like a there's a bias for it. I think it's called high end bias or something like that. But we naturally just tend to go, well, they must have something special.

[00:23:49] There's something special about them that's worth that kind of money. Maybe they're being paid at the moment, whatever it is. And so suddenly it becomes this thing, you know, this person that the manager has to have and they fight tooth and nail for it. And we make this one exception. And of course, they come into the business, you know, they start to talk with their peers or whatever. It gets out that we broke our salary range and suddenly we haven't really got a good reason why.

[00:24:15] There's really been nothing through the recruitment process that surfaced anything special or unique about this person. But the pure fact that they've negotiated that because maybe it's what they're coming from or whatever it is, yeah, has landed them this higher salary that's now kind of broken our whole structure. And we need to then go back out and rebuild the trust with our workforce because we've ultimately said we're going to do something and then don't actually adhere to it. Yeah. So you said a word that made me care.

[00:24:44] So the unicorn, right? What do you do with the unicorn then? If there's, you know, you have a structure in place, there's a strategy behind the compensation as a company, as a whole, but you do have the unicorn and you don't want them shopping for another job. They are instrumental in a team's success. How do you keep them if they're motivated by their compensation? Yeah. Yeah. It's an important question.

[00:25:12] I mean, first and foremost, let me say that, like, I'm by no means someone who advocates for having to stick within the structure of, you know, your salary range to the detriment of the business. At the end of the day, again, we're trying to bring people in who are going to perform a role that's going to help our business be successful. And pay needs to support that like anything else within the HR toolkit. But you're right.

[00:25:35] So there may inevitably be people that come and bring something that is very different to others performing a similar role within their team. And maybe the pay structure doesn't currently account for it. It doesn't extend that high or whatever it is to reflect the value that that places, you know, on that person's skill set. And I think that where companies really go wrong with this, to my previous example, is that maybe they recognize it and maybe they don't.

[00:26:04] But they ultimately don't articulate what that value is or why that person's skills are important to the business. So I'm not saying don't pay the salary if it's justified. But you need to justify it first because, I mean, at the end of the day, wouldn't we want more of those people as well? Like, wouldn't we want to replicate these unicorns and if we've got it defined and we've got these criteria and the thing that makes them so exceptional with their role, why wouldn't we want to sit down and go, actually, what is it that makes, you know, Jenny? I don't know why I'm just coming up with J names for all these examples.

[00:26:34] What is it that, you know, makes this person so amazing that we want to hold on to them? So I'm not saying don't pay the salary. Definitely pay the salary. And a perfect example of this is that the company that I worked with, actually, we created something called a unicorn, a unicorn max. And it sat on top of the max for their pay ranges. But it was precisely for that. It was to sit down and go, we know what the majority of our roles will look like in terms of their scope and responsibility and the skills that come with that.

[00:27:01] But there are a certain, you know, set of criteria that some people will have that we find incredibly valuable. And they will be able to go even higher in their range to this certain point. And again, if you can document it, you get to make it clear to the people who aren't yet unicorns what it is that we value and prize more highly. And then you're building your own unicorns rather than just trying to hire them.

[00:27:23] So it all just comes back to like having a conversation, being clear about what it is that we're intending to do, making sure that we're documenting it, try to be consistent. But it only creates positive outcomes from my perspective. Mm hmm. I think this is the perfect segue into a segment that we call the HR horror stories, something where, you know, the team from HR on the front line.

[00:27:48] We scour the Internet for horror stories from employees that we think are relevant for the topic of the day. You know, this is something that, you know, HR professionals will stare at the ceiling at 2 a.m. and wonder, how did things get this bad? So the question that we found today, which was actually really great, I'm going to read out the post first and then we can dig into it.

[00:28:12] Um, so I was an administrator at a manufacturing company, spending my days coordinating production schedules, uh, fixing order issues and basically being the human duct tape holding three departments together. I love that, the human duct tape. So one day the team found out new hires were making $10,000 to $15,000 more than those of us who have been there for years. I'm sure you've seen this more than once.

[00:28:37] Um, I guess this isn't uncommon, but the best part was that we were told there was no money, that budgets were tight and everyone needed to be patient. Apparently no budget only applied to the idiots already working there. I got so sick of hearing we value our people. Well then value them. Right. So I was pissed off every day. I had to be there. I started applying to other jobs out of spite. When I resigned, suddenly there was budget.

[00:29:07] Suddenly they could match my other offers. Oh, now I'm worth it. No, thanks. Says the employee. So you had two years to figure out that the only thing you valued was avoiding the headache of replacing me. All right. So who's actually at fault here and why do so many companies suddenly budget the second an employee is halfway out the door? Yeah. Yeah. Uh, this, this is, I mean, I've seen this time and time again, right?

[00:29:36] Like it is really symptomatic of exactly the kind of company that we've talked about, which is the ones that don't give a lot of thought and a lot of process to it. And obviously we're hearing just one side of the story here. Um, so when they said, I guess this isn't uncommon, you're absolutely right. It's so common that it's got a name. It's called, um, pain version.

[00:29:55] That can often be one of the big reasons for why something like this happens, which is basically what happens when a company starts paying and hiring employees. Um, and then there, maybe their salary ranges move on over time and they, they stay in touch with the market, but the rest of like your existing employees haven't maintained pace with it.

[00:30:17] So I've worked for companies where they have been hiring people new into the organization for much more because the market's moved and your existing employees haven't, they haven't been brought up to market as well. Which is, it obviously sends the wrong signal. If it's, if there's two people doing the same job and there's someone who's been there for, you know, one, two or three years, you would assume that they would be more valuable to the company. In fact, they often have what they call a replacement cost.

[00:30:42] You're not hiring someone in who has the same context, relationships, understanding of how the business works, you know, time in the seat, any of those sorts of things. Then someone who's got one, two or three years experience. So it's definitely a miss on the company side that they're, they're doing something like this and they need to think about how they're getting their existing employees out or above really their, their kind of, um, their entry rate for these sorts of roles as quickly as possible. That's assuming all of these, you know, we're talking about the same roles here and things like that.

[00:31:11] Um, I think the, the response there that they talk about getting that kind of like no money budgets were tight. That to me just screams like exactly the, the, the kind of position that a lot of managers get put into, which is that they don't know. They don't have, they're not kind of empowered. They don't have a budget to be able to solve this problem for their employees. They, they might just go back and say, Hey, I've got this problem. And they get told that there's nothing you can do. You have to wait or whatever it is. And they're kind of caught in the middle between a rock and a hard place.

[00:31:41] Um, so I feel for them as well in this, in this story, they probably haven't had a great experience. And then there's the counteroffer, right? There's the classic, another classic move. Um, I mean, it's probably like enshrined in the Bible or something, you know, really super formal and official these days that any counteroffer tends to get you about six months on your, your employees. Like they're, they're destined to leave because, you know, and this is the theme of the show.

[00:32:10] The trust has been completely destroyed, right? Like you didn't value me up until the point in time I was prepared to leave. And suddenly the fact that somebody else wants me means that I'm now valuable to you, but you couldn't determine that for yourself. This is just the opposite end of what we talked about before. When we're saying we only hire from Facebook or from Google or whatever we're saying, actually you're valuable because other people valuable, not because we value, we value you. So we, companies really need to be sitting down and go, what is it that we value about our people?

[00:32:38] What are the things, you know, if we're going to say we value our people as a, as a, um, as one of the values on the wall, what does that actually mean? How does that show up in reality? But ultimately this is, this is how companies are run and done when it comes to, when it comes to pay. And in that comment where, you know, there was the pay differences of 10 to $15,000, like how could the company have avoided that?

[00:33:04] My mind kind of goes towards, you know, the company at some point maybe thought that they were saving money and they were just going to wait until somebody asked for a raise or that, you know, maybe they won't notice. But, you know, I feel like in that instance, maybe the company's thinking, Hey, we're saving this amount of money by not giving the other employees this, like how could that have been avoided?

[00:33:29] And in that scenario, is that saving money or in the long run, are they wasting money because they have to hire more people and that's maybe more expensive along the way? Yeah, definitely. It's, I mean, it's, I mean, presumably that is the reason they thought, Hey, it's, you know, it's, it's long-term, sorry, short-term gain for long-term pain. They think let's, let's see how long we can kind of, you know, cash this in and not have to disclose.

[00:33:57] That's, that's definitely a very real reason that I've seen come up. I've also seen the fact is that they just don't have their eye on the ball with this stuff. They're actually not even aware that this is, is happening. And then when it's raised because they don't have the structure in place to understand the problem, they don't know how to solve it. And so the answer is just no, it's too big of an issue right now. We're working on other things. You know, the employee feels unheard.

[00:34:21] They feel like there's no avenue, but that can often be a, you know, a reason companies get unstuck with this as well as that it's just not something that they were even aware was a problem or that it didn't happen. And they just don't have a method to solve it or they're going to do it in a, in a piecemeal manner. Maybe. So, I mean, they, they said, what did they say? They said one, one day the team found out that new hires were making 10 to 15. So presumably there's other people here that are being underpaid as well. All right.

[00:34:46] Often I've seen this kind of, and I'm sure you've seen it on your site as well, it's kind of like squeaky wheel gets the grease, right? Like they come up and say, Hey, I've noticed that new people are getting hired at this much. I'm, I'm being paid lower than that. And then they solve it for that one person, but not the broader team. So this is where you really need to be putting in place some of these structures that you're going to allow yourself to actually mitigate from this risk actually, you know, happening for the, for the company and, and, you know, losing this employee ultimately and probably many more.

[00:35:42] Mm-hmm. You know, for the HR listeners that we have here today, how can they tell the difference? Yeah. It's such a, like, it's so unique to the person I often find. I mean, I, I, I tend to work in the startup space. It's mostly salaried employees. They're generally quite, quite lucrative salaries in that space as well.

[00:36:04] So, you know, you might see in that sort of an environment, a company that's prepared to give, I don't know, 50, 60 K more for someone than what they're making. I think when, when you start to see really huge sums of money like that, definitely it can be something that people leave solely for. Um, but often I find that when it comes to pay, it's, it's usually a contributor, but it's not the reason necessarily.

[00:36:30] Um, I think that's, you know, a lot of, a lot of the, the, the discourse that I have with people in this space is that there's no, there's no perfect salary. I mean, you can certainly pay more than anyone else in the world, but I know I've been this person and I know I've spoken with so many other people where like the day you get the pay increase letter or whatever it is, is like, is exciting. But the day after it, you've kind of forgotten about it. You don't really think about it. It's a very like, you know, it's an extrinsic motivator.

[00:36:57] It's something that is, is, is interesting in the moment, but it's not otherwise something that is, um, is, is kind of going to hold your attention for too long. So I think it's something that's important. It's important to get right. It's important to be able to explain it. And it's important to be able to, um, show your people that you've put some thought into it and, and understood where the market's at and, and, and why companies like yours are paying what they're paying. Um, but I don't often see it being the only reason that people will, uh, will go. Now I'm talking about my environment.

[00:37:25] You know, you might go to a, um, you know, an hourly environment or a blue collar, you know, sort of environment, something like that. We're actually, uh, potentially, and especially in an environment now with really heightened cost of living and some of the pressures associated with that. Even a small pay increase could actually be something that people will, you know, be, be prepared to move for. So it is ultimately this very unique thing. It depends on the circumstances, depends on the industry.

[00:37:49] Um, but often I'll see people want to, you know, join and stay at organizations in part for pay, but often because they want a great leader. They want to feel like they belong. They want to feel like they're working on interesting things. You know, they've got a great team, those sorts of things. Mm-hmm. Which, you know, that works perfectly with a question that I actually had written down here.

[00:38:09] Cause you know, in the tech space, you know, you are, you probably see this more often in the tech space or startup environment too, um, where you do your annual reviews and often within those annual reviews, which, you know, annual versus biannual and when feedback should actually happen.

[00:38:28] That's a whole other conversation. Um, but should that type of compensation conversation happen once a year or should that happen? Like, what is the, what is the answer to that? Like, should it be a once a year thing that the whole company goes through together? Mm-hmm. You mentioned something around a different, it varies by industry, if you will, like a lot of frontline organizations.

[00:38:54] It's not like if you're on the, you have a manufacturing plant and you're sitting everyone down for an annual review that doesn't often happen. You know, I don't think so. Like what is the secret sauce here? What's the right cadence? Yeah. I think, you know, I, I have never been anywhere or in any industry where pay isn't expected to be spoken about less frequently than a year, like a yearly sort of cadence.

[00:39:20] I think genuinely, if you can get your pay practices right and working for you and working effectively, I think once a year is, is totally reasonable and totally doable. And I don't think that a lot of people who understand why their company pays what they pay and understands their place in the pay system and how to move within it. I don't think a lot of people expect to have it revisited more than that, you know, that sort of frequency for the majority of people. In some spaces, obviously AI is a very interesting space at the moment.

[00:39:50] It's moving very quickly. I think the pressure is probably more on the company to revisit it more frequently because pay and equity and some of those things are moving quite quickly. And it's, it's, they, they wouldn't want to risk being caught out with a recruiter tapping one of their people, I think, and offering some stupid amount of money. And so I think in those sorts of environments, but again, like I think, you know, you need to, you need to understand the environment that you're in. I think you need to speak to your people about what their expectations are.

[00:40:18] I think you need to be able to make sure that they aren't coming to you with questions or, or, you know, requirements to, to change things more frequently. It also depends on the role a little bit as well. I mean, I know I've certainly had my fair share of, of organizations I've worked for where, and this is an example for, for one I worked for a few years ago, where like in customer service, it was a customer service, you know, profession.

[00:40:43] And they expected more frequent progression through the levels that they had. And I think we looked at something like a quarterly or a semi-annual progression because they were able to, you know, build skill and build capability in a role within a certain period of time and then progress to another, like a broader remit. And so their pay changed as a result of that. And so we would obviously have that conversation more frequently.

[00:41:08] So I think it just comes down to understanding your environment, understanding the roles you have and your people's expectations. Thanks won't cut it. And great job isn't enough to move the needle. Set your managers up for success with a clear, practical framework for recognition. Grab Gusto's free employee recognition blueprint at gusto.com.

[00:41:34] And speaking of environment, it's been changing a lot over the last handful of years with the likes of hybrid work, even in frontline organizations where a lot of office workers have then gone remote. But you still have, again, we'll use the same examples, people working manufacturing where they have to be physically on a floor somewhere. So you have companies, especially in the frontline space that have such a mix, right?

[00:42:02] And then you have the ability to hire people of different skill sets in different places to do these roles. And I'm just thinking back from conversations I've had where there's a mix of, hey, we want to hire for this one role. But because this is remote, you can hire someone from, you know, we're based in New York or we're based in one of the high in demand locations. But we can hire someone from North Dakota cheaper. How do you tackle that conversation?

[00:42:32] And is it best to, you know, focus on the cost of living and that's where you're hiring people so you're setting compensation expectations that way? Or is it giving the company or like the employee that's living in North Dakota the same compensation as somebody that's living in New York? Like, yeah, this is such a big, we could probably do like a series of podcasts on global pay for within a company.

[00:43:02] I know I've written and talked about this a lot. So, yeah, there's a lot of ways you can think about it. It ultimately comes down to what you're trying to achieve as a company. Like, what are your goals? What are your goals for hiring outside of New York in this example? Are we just thinking, well, maybe New York doesn't have all the best people in the world.

[00:43:20] Maybe there are actually better people and we want to broaden our talent pool and access, you know, other parts of the country or other countries around the world and see whether or not like an even stronger player in that space exists. And if so, we're doing it for those reasons, maybe more than necessarily the, you know, cost optimization or saving, you know, salary arbitrage or whatever fancy term you want to use to kind of determine it.

[00:43:48] In which case, I would say administratively, the easiest approach is just to go, well, we're in New York already. We already know New York is the highest salary market in the world. You know, there in San Francisco, probably the only two highest ones in the world. Do we really need to introduce more complexity to our pay practices and try to create a set of ranges for this new role that we're hiring in this new country? Can we actually just be like really generous and do that?

[00:44:15] Of course, there's one school of thought and there's one side of the spectrum, which is that that's probably a bit unreasonable. The company should try to find some way to make sure that it's localized to whatever the region is, you know, maybe it creates largesse or something like that, you know, whatever your perspective is. But then there's other reasons. There's other reasons why companies do it as well. And they're kind of reasonable ones too, which is that if you are based in New York, which is, again, one of the most expensive markets in the world to hire in,

[00:44:44] does that mean that you shouldn't be able to hire people in other countries for a salary that's closer to what their, you know, local salary should be? Now, my personal view on this is no. I think just because you're, you know, born and raised in New York and you start a business there and you want to start a global company doesn't mean that you can't benefit from or capitalize on salaries that are in lower cost markets higher in Australia or something like that. Again, that can be a contentious one as well.

[00:45:12] Some people would be like, well, if you've got two people, one in New York and one in, you know, the Philippines doing the same job, shouldn't they be paid the same salary? So we don't have to get into the ethical debate of that one, but that's a very live like topic that happens. And I think to your point, like, you know, should you change that salary based on cost of living? Now, maybe this gets a little bit technical.

[00:45:35] That can often be the wrong metric to use because cost of living is kind of this measure of, like, what are all the things you rent, your bread, your milk, all those sorts of things that, like, you know, come into play. And so I think you want to think about something a little bit more meaningful and related to the cost of labor. So whether or not you are able to buy salary data or come up with some other proxy for, you know, for how to track the market there. But, yeah, there's so many different ways.

[00:46:00] And this is really one of the ones where, like, you do have to be quite strategic as a business because there's a lot of different levers you can pull when it comes to how you pay around the world. And, yeah, it can be something that can either be like a really expensive exercise or it can be something that you get wrong and kind of, you know, you introduce the complexity of employing people around the world without any of the upside potentially. Mm-hmm. I think we're going to have to have you back for another conversation before we dig into this quickly. I think so.

[00:46:31] Because it is a big topic. But another one of my, like, leading questions off of that is, you know, for the HR leaders that are listening and they're looking for a place to start and understand, like, hey, they might know that something's not right today. But they don't know where to start digging into. Where would you say the first place for them to look is?

[00:47:00] Or what is the first thing to do to start this journey down a healthier compensation path for their business? Yeah. Oh, where to start. I mean, like, make sure, you know, if you're going to invest time and effort, like, make sure it's in pursuit of something first. Like, I think I've certainly been this person in the past in my HR career is, like, going down the path of, you know, some initiative because it feels right and feels like a good thing to do.

[00:47:26] I think when it comes to pay, like, it's a highly commercial analytical thing. So if it's something that you're hearing a lot of noise on, it's coming up time and time again in, like, feedback surveys or if it's you're finding that the salary ranges that you're using are not working for the candidates you're trying to hire. Like, I think you need to anchor first and foremost on what it is that you want to try and solve for within the pay space.

[00:47:51] But, I mean, you know, people ask me all the time, how did I get into compensation? How did I kind of, like, pick it up as a skill set? It was by doing, it was by learning from others who have been through this experience and have been compensation professionals before as well. It was by asking questions. It was by getting, you know, getting handy with a spreadsheet, all those sorts of things.

[00:48:13] But I think ultimately you want to let your goal or your cause be kind of the thing that guides you towards what it is you're trying to solve for. And then, you know, I think if it's just generally an area that people are trying to get more familiar with, there's some great books that I can probably provide after this that are, you know, helpful readers around how to understand pay and how companies think about pay and things like that.

[00:48:35] There's obviously lots of people on LinkedIn, like myself and others who talk about pay all the time and just how to think about it as well and navigate some of the challenges. But I think it's just a case of, like, immersing yourself in it and maybe even just looking within your own organization. Like, can you even know what your total payroll cost is right now? Like, understand what that is. Where does it sit? Like, what are the highest salaries? What are the lowest salaries? You know, simple things like your gender pay gap. Like, these are all things that are important things to understand.

[00:49:04] And I think every, you know, chief people officer, head of HR should absolutely have a really good handle and understanding the numbers around where one of the biggest costs of their business is being deployed. Does it look like it's being done consistently? Like, I think there's, you could probably go into chat GPT and say, ask me 20 questions about our current payroll bill that a CEO might want to know. And it would just start to get you into the mindset of, like, how to think about pay when it comes to your people and to your company.

[00:49:34] I have to ask, do you have any personal horror stories with compensation that, like, with previous lives that, you know, maybe kicked you into this line of work as well? I mean, yes. Oh, I'm trying to think of, like, what's one really prominent one? Oh, God, I feel like my mind's just, like, going crazy with them.

[00:50:04] Yeah, there's, like, there's, I've worked with companies before and I've seen this too, like, when I've been in-house where they've gone, they've gone for pay transparency and pay transparency where, you know, everyone can see everyone's salaries and not kind of put in the groundwork around how those salaries were determined. And now for me, that's like, in one way, it's really cool that as a company that you're like, you know, we just want to be totally open with how this, you know, how this happens.

[00:50:35] But it just, the horror story part of it is that because there was no structure there to kind of, like, dictate and determine how these pays were being set, there was a lot of rampant inconsistency. And so it just, you know, back to that overhead that I mentioned, the amount of time it takes up in people's minds because they're thinking, well, I can see everyone's salaries and I can't make heads or tails of it. But my manager can't explain it to me. It's not clear how these things happen or how I can increase my salary or why I'm being paid different to the person next to me.

[00:51:04] All of these things start to permeate the business and ultimately distract you from what it is that you're trying to achieve, which is, you know, your mission. So, yeah, that's definitely one that I've seen happen. I've seen the pain version one a million times. That one's, that's a challenging one. So, yeah, where you've got your existing employees being paid, you know, less or significantly less than what you're hiring new employees for.

[00:51:30] Yeah, I'll have to, I should have, I should have dug up a more prominent example, but it's, I've seen a lot. There's been a fair few. What about you? What's one you've seen? I don't know how much I can, well, I mean, it's not like I work at these places anymore. So that's it. We can be anonymous. Yeah, I'd say one that jumps out to me from a previous life was early on in my career.

[00:51:58] I was quite ambitious and very money motivated. So I was with a company and I very quickly was climbing, you know, the ladder and getting promotions while I was there. But I was only getting promotions in terms of my titles. Right. So I was taking more responsibilities. Yeah. Yeah. And there wasn't a lot of compensation adjustments along the way.

[00:52:25] So when I tried to head that, you know, head that on with my manager straight on, it was, I guess, yeah, it wasn't really clear. And like, to this day, when I think about it, I didn't get the clarity I would have liked or maybe would have made me feel better about the scenario. It was more around, you know, like, I can't pay you that much because I only make this much. And that wouldn't make the manager feel good. Yeah. I guess. So that one.

[00:52:55] Yeah. I'm going to love it when your pay is influenced by how it would make other people feel. Hey. Right. And that's where it became very much more about, and it triggered in me where I was like, ah, that's an emotional decision. But how can that be an emotional decision? Because I'm providing something of value to a company. Now, in that scenario, I think it might have just been more of a manager that was not prepared to have that conversation.

[00:53:20] And maybe there was never even a conversation that was had with HR around how to handle that. So I don't know how you dissect that one. Yeah. It brought, it's brought the whole, like, the flashbacks for me happening as well within my own career. And it's like, maybe this can be, this can be my example of a pay horror story, but for my own, my own experience. And I think it's, it can be really hard for HR professionals as well, because we're like in the thick of it. We're like dealing with it.

[00:53:47] And we often have to, like, sideline our own pay when we're dealing, even though we might be dealing with it in the context of a pay review or something like that. So we're often in this awkward, this awkward kind of middle ground. But I do remember one time, and I was super early in my career, and similar to you, they just, they did not know how to have a conversation about pay. And I remember we were doing the, we were doing the salary reviews. And I think it was, you know, my manager had, like, done the mail merge or something on the letters that were going to be handed out.

[00:54:15] And I remember it was in, I was in their office and, and they were scrolling through the letters and then they just go, oh, and there's your pay increase. Just like, it was just on the monitor. And they just like spun the monitor around and just like kind of tapped at it. And they were like, oh, and there's your pay increase. And, and didn't say anything else. And I kind of like looked at it and I was like, I don't know how to react right now. Like, this is so it's, you know, it wasn't like, hey, you had a great year. It wasn't, there was no context whatsoever. And then I was like, oh, okay, like, cool.

[00:54:45] And then just kept scrolling and like that, I guess that was our conversation. Like, it was just the most, the most ridiculous thing. But yeah, it's, there's so much about pay is like, I think unfortunately, like people's experience with pay, the default just tends to be like, it's a shitty experience, unfortunately. So it's like, but it also means that the bar is really low for companies to help their people have these conversations and for it to not be a shitty experience.

[00:55:11] But unfortunately, sometimes we don't, we're not very good at that. But again, that's why there are people like you that are providing the support and the information and the guidance that it's needed because it's somewhat of an art form, right? Because there's a science to it, but it's also human psychology is, I think, a part of it. Like we talked about there's some emotion in there. So it's, like you said, there's, we could have multiple episodes on these topics.

[00:55:41] That's it. You mentioned there's a lot of books that you could recommend and other guidance for people if they wanted to learn more. So this is something that we always ask our guests at the end of our podcast is, you know, for the HR leaders who want to get smarter about compensation, pay transparency and the people strategy around that.

[00:56:01] What's one book or a speaker or a specific resource or person who you think has genuinely influenced your own take on this and that people can, can follow or listen to or read? Hmm. Yeah, it's a good question. There's one I've been recommending a lot lately. It's a book called What Pay Costs by an author and also a comp specialist. His name is James C. Churn. That's a, that's a great book. It's great.

[00:56:30] It's not like, it's, it's not very technical. It's easy to get into. It goes a lot into like the relationship between pay and performance, a lot to do with like the history of how it developed. I think we all know that a lot of our pay and performance practices are, you know, built on the kind of industrial era and the manufacturing kind of environment and, you know, line of sight supervision and those sorts of things. So it was a really great read around how those sorts of things birthed the pay for performance environment that a lot of our companies are still in.

[00:56:58] And then also talked about how other, you know, more progressive or modern organizations are adapting or evolving that into the kind of environment that we're in now, which is more collaborative. It's less like, you know, individual performance and it's more about team performance. So yeah, What Pay Costs is a, is a great book, very easy to read. And James is a good fellow on LinkedIn as well. Awesome. Awesome. Appreciate that recommendation. And Matt also just want to thank you for joining us today because this was an awesome conversation.

[00:57:28] We covered a lot of bases. And like I said, I'm already excited to have you back on to dig into a few more of these topics. Look forward to it. I appreciate it. Thanks for having me on. Yeah. And thanks for joining us in your evening and helping us take HR on the front line overseas from Australia. Conquer the world. Yeah, this has been awesome. Thank you so much. Love it. Appreciate your time.

[00:57:53] If you found value in this podcast and want to help others improve their culture, be sure to follow us and leave a rating and review. Better yet, help us get the word out and share this episode with your colleagues and peers. Until next time, stay classy, HR.