JC: Hi, good morning or good afternoon, everyone. Thank you so much for joining us today for our webinar, “Your Recruiting Ecosystem, Managing the Employee Life Cycle.” My name is JC. I’m a content marketing manager with PayScale. And I’m excited to you have you guys here.
Before we get started, just a couple of housekeeping items. All attendees are in listen-only mode. So, be sure to log in via your computer. But, at any time, if you have a question throughout the presentation, please use the questions box. You can type in the question. I’ll be monitoring all the questions. And we’ll have about 10 minutes, at least, at the end of the presentation for the speakers to answer your questions. The recording of this webinar will be emailed to you in one to two business days. And if you like to follow along, if you can’t see the screen at any point for some reason, you can download the PDF version of the slides right now by going to the handout section of your console. And then, also, this webinar is eligible for professional development credit from SHRM as long as you attend the entire presentation. We will send everybody the code to redeem your credit via email after this webinar.
So, our speakers today, we have two great speakers. The first one is JD Conway. He is the head of talent acquisition at BambooHR. JD has over a decade of experience in talent acquisition acting both as a third party recruiter for technical recruiting firms and as an in-house technical recruiter. His work includes managing talent acquisition teams in high growth staff companies and servicing Fortune 500 clients for the world’s largest recruiting corporation. From organizational health and development, through recruiting marketing and employer branding, JD has used his expertise to change the way that companies structure and view the function of talent acquisition. JD believes in empowering executives and HR leaders to focus on the human nature of human capital and in teaching through experience how a people first approach can dramatically impact their bottom line.
And then, we also have Brian Webber on the line with us. Brian is a Senior People Business Partner at PayScale. He’s been with us for over two years. Brian manages the compensation programs at PayScale and has advanced the communication between managers and employees on performance and compensation. As an HR professional, his career has been dedicated to developing people-centric organizations, fostering transparent conversations between employees and managers and building more inclusive workplaces. He has worked in a variety of industries including software, professional services, construction, retail, and nonprofit.
That are our two speakers. Hi, JD. Hi, Brian. How are you?
JD: Hey, hey, doing great.
Brian: Doing well, JC.
JC: And our first speaker today will be JD, who will kick things off for us.
JD: Awesome. Thanks so much, JC. And thank you, everyone, who is attending today. I know it’s a lot to ask to take an extra hour out of your busy day. Brian and I get this. We’re in the industry. We understand how busy you are. So, really thank you so much for taking the time and trying to become better at what you’re doing. It says a lot about you. I’m so grateful to be on here with Brian from PayScale. And one of those reasons is that PayScale and Bamboo has…we have a lot in common together. Our services focus on the important people aspects of the workplace that tend to get reduced to transactions, HR requests, pay reports, forms, and numbers, etc. It can be tempting to do whatever you can to take care of these concerns quickly and get back to more important things. And that’s one of our goals, is to help you do that. But as you think on how you can streamline your processes, it’s equally important to think of the strategy behind it. When it comes to recruiting, it’s not just about getting it done quickly, but also about doing it strategically and not falling prey to some of the common traps that happen in the recruiting process. And some of these things that we’re gonna talk about today are gonna sound very familiar. That’s why we’re chatting about them today.
And first of all, what I wanna do is chat about the law of unintended consequences. So, I don’t know if you’ve heard of this, but it’s a fairly straightforward idea. It’s that for every consequence you expect from a decision, there are two or three more that are harder to anticipate and you run into a lot of problems later on. Sometimes the drawbacks of these unintended consequences can overwhelm the benefit of your initial choice. So, I’d say it’s easiest to visualize this with examples from the natural world. I’ll give you an example. Before we knew better, there were several times when agricultural businesses tried introducing a foreign species into a local ecosystem. That’s what we’re talking about today, this metaphor of ecosystems, because they did it with a good intent to solve the problem of the day. Take the Asian carp. Wastewater treatment plants in the southern U.S. imported them as an inexpensive way to keep water retention ponds clear of plants and parasites. But when flooding released them into the Mississippi River, they spread like a plague. They were leaping out 7 feet out of the water, they were leaping over dams, laying tens of thousands of eggs at a time, squeezing out all of the native fish, they even were hitting water skiers in the face and giving them concussions, and eventually, it was threatening the $7 billion fishing and tourism industry in the Great Lakes. In most cases, invasive species get their start with what seem like one time decisions that set a precedent, like importing the Asian carp. Sometimes, it’s an oversight. Like you know, merchant ships spreading rats throughout the world or something. Other times though, the species overcome or outlast the artificial conditions that were intended to keep them productive. But either way, straining against an ecosystem’s equilibrium to get a short-term result can have surprising and often very detrimental effects down the line. And that’s what we’re here to focus on today. Your organization has its own ecosystem. And that ecosystem has its own equilibrium. So today, we’re gonna cover the effects of your recruiting and compensation decisions, the effects that they have on your overall employee experience, and how that experience is an equilibrium that resists quick top-down changes. We’ll explore some of those short-sighted mistakes that you’ll want to avoid, and cover some of the new research on what employees expect on the subject of raises, and what you can make lasting improvements in your recruiting ecosystem.
So to start, let’s examine the current recruiting environment. The long-term trend is seen as greater and greater competition for employees. And in fact, we’re all feeling this. Prior to 2015, there was a period of more than 15 years where the total number of job separations, this is both in resignations and layoffs, was consistently greater than the number of job openings. In today’s market though, that balance has shifted. And again, we are all feeling this, and there are more and more job openings than there are separations. This means that your candidates have more options than ever, for finding a job that meets their needs. Well, this is good news for people looking for work. It’s easy to see this as a costly situation for your organization. And many organizations are feeling this. SHRM estimates the average cost of hire at $4,129. That’s the average. It could be much bigger. And the longer it takes to fill a position, the more time and money your organization will need to spend on this recruiting process. It’s no wonder that recruiters and employers want to speed up the process by making their organization as attractive as possible while improving retention rate so that they don’t have to continue replacing their employees. The thing is some of these recruiting techniques focus on making special cases for individuals and groups that don’t match the experience and the rest of the organization. It’s tempting to try to stretch for a new top talent without increasing the cost to the status quo. But these strategies are a lot like thinking you can keep the Asian carp in a separate habitat without anything getting out.
So, what are these short-sighted strategies? So, you’ve probably heard of the golden handcuff strategy. This is very common for a lot of businesses. It’s the recruiting speak for offering a salary and offering a salary that’s well above the local average to help out with retention. These salaries are often offered as a compensation. And people will stay even in poor work environments because they’re stuck there. They are being paid well above market average at that company, but if they tried to move anywhere else, they’d have to take a pay cut. For the highest level positions, golden handcuffs sometimes it’s tied to legal agreements like stock payments or something like that. Of course, not all recruiters, not all of us have these resources to extend offers at the top of salary ranges. But every recruiter, no matter who you are, is going to face pressure to reach outside of our normal compensation ranges to land a promising candidate. It could come as sweetening the deal when the favorite candidate asks for more money or it could come as haggling when the favorite candidate’s requested salary is just over your recruiting budget for that position. And then you’re talking to people and saying, “Well, you’ve asked for, you know, 75. Will you go 65?” This haggling sometimes can be a trap. And sometimes this artificial comp mismatch ends up extending to a whole department as persuasive managers make their cases for recruiting budgets. And I don’t know if you guys have seen this, but this is pretty common where you can look around at some of your local companies and see, “Wow, this division of that company or these departments of that company are well above market or way above market in their compensation ranges.” They’re above everyone else around them. And you can look at it and say, “Well, this might happen because somebody inside that department was very persuasive to a CFO or something like that.” And it extends further if somebody knows somebody in the executive teams or just happens to say, “No, we need it more, we need this compensation more than other divisions or departments.” However it happens, comp gets a one-time shift to accomplish a recruiting goal. The consequences are gonna catch up with you if that happens. Because employment and compensation isn’t a one-time deal revisited every year, it’s an integral part of the employee experience, one that more and more people are sharing with their friends, co-workers, and the world at large. So we’ll cover more on how to solve these issues when we talk about extending offers later in the webinar.
However, one example of a toxic culture element is the effect of pay disparities that these short-sighted techniques create that I just mentioned. If you have these pay disparities, then they’re gonna come to light at some point. If men are more successful at arguing for salary increases than men you say, or if you use referrals to fill the top paying positions and end up with a group of the same race and gender, then you’re gonna be looking at damaging your reputation if not having legal actions. But most importantly, with these pay disparities, you’re gonna set up unfavorable comparisons in your employees’ minds. So, Harvard Business Review researched from companies that tracked their employees’ behavior to see if they wanted to leave their jobs. This is an interesting study here. They hired analytics companies to develop a “likely to leave score.” And it was using a sophisticated analysis of their electronic footprint. It included monitoring behavior like checking LinkedIn multiple times on a company computer, analyzing social media posts and contacts and badging in and out of the parking lot at odd hours for possible interviews. Very interesting that they took this kind of effort to examine this. A little strange in some ways, but then you go, “I totally understand why they would see that to understand what causes…or when are some seasons for people to leave.” An analysis of the data shows that employees are 6% more likely to quit after a work anniversary, 9% more likely after the anniversary of their most recent promotion, 12% more likely after a milestone birthday, this could be, you know, you turned 30 or 40 or 50 or so on, and 16% more likely after a peer gathering. So, like a high school reunion. We’ve all been there, right? Where am I? I gotta examine my life here. What have I done with my life? All these other people. So these life milestones like these are often accompanied by these epiphany moments, moments that leave us reflecting on our choices including our job situation. So, if your employees have an epiphany moment and realize that their compensation isn’t aligned with their contribution or that their experience at your organization does not align with what they want in a career, there’s a real danger that they won’t decide to continue with your organization. However, you can prevent every unintended consequence of your pay strategy by developing a consistent database comp plan for your organization, and developing that can make all the difference. It’s the first step to showing your employees that you’re dedicated to providing a healthy, balanced, fair work ecosystem where they can do great work today and improve their skills and life situation for tomorrow.
So, the first question is this, what does it take to create a database comp plan? And for that, I wanna make sure I’m giving some time to the expert, Brian Webber.
Brian: All right. Thank you, JD. Yeah, so, a compensation plan really has five key elements. And those are… It starts with a pay philosophy or a statement of what are the high-level goals that the organization is looking to accomplish with its compensation budget. We all have defined budgets, and we need to figure out a way to use those dollars most wisely. And a defined strategy that would define the talent markets that the organization is competing for talent. You’d make a decision on how competitive you want to be in regards to others in your talent market. It includes deciding what your organization wants to reward, whether that’s specific skills, performance or tenure. Pay ranges also have to be decided. It is important to have these. These are guidelines for paying people based on the market and the value of their job. Policies are, well, we live in policies at HR, and these are to ensure that comp plans are carried out as intended. How often do you review your salaries? How do you give raises? What are the responsibilities of managers in the salary increase process? And what’s the timeline? What are the effective dates? And when can employees expect to see increases? Is it on their anniversary date? Or is it on January 1st or July 1st? And all these things are important to clarify these processes and provide communication to your employees as to what to expect.
Now, your comp strategy needs to answer questions about your talent market and how to be competitive or how you want to be competitive in that market. Talent markets are defined as the combination of industry, size, location, and organization type. The markets that you select should reflect where you compete for your talent, not necessarily where you compete for business. You may want to use more than one labor market to cover all of your jobs. For instance, in PayScale we use multiple labor markets in each of the locations that we’re located. And that’s for a variety of reasons. Because we compete for talent with different types of companies depending on the position. A common misstep is using market data and thinking it’s either right or wrong. Market data should be interpreted in context of what you’re trying to accomplish. When you look at market data, think about how you want to apply it as an organization. You can deviate from this, and there’s definitely times where you should, but that should be a conscious decision to deviate from that market data. Maybe it’s that your organization values the position more than the market or that you want to ensure that a position is valued equally to another with regard to internal equity. Some jobs may be hotter than others, so decide on the percentile that you are willing to pay for certain positions you hope to keep and attract talent. Review your strategy regularly and stay current with your goals and market trends.
Now, with having accurate job descriptions, this is where we really start in terms of benchmarking jobs. So the job analysis is the starting point, and often the most dreaded milestone in a compensation planning journey. If any of you have been a part of a re-organization where you’re creating a bunch of new jobs, you know that this can be quite painful. If your job descriptions are not accurate, you may not be attracting the right talent. If you’re recruiting and the hiring manager are not on the same page about the skills and the level of experience required for a job and how much weight is placed on each factor, you may be getting the salary range for the job wrong, and leading qualified candidates to reject your offers. If you don’t ensure that the skills listed in your job are really the ones that you need in order for the candidate to be successful in that role, you may risk bad hires. According to a survey by Robert Half, 36% of 1,400 executives felt the top factor leading to failed hires, aside for performance issues, is poor skills match. The second most common reason, at 30%, was unclear performance objectives. And those can be defined in the job description to make sure that you are getting the right talent. Having accurate job descriptions helps to make you confident in your pay decisions to price your jobs competitively. You’ll need to know the compensable factors or skills that affect pay for the job which should be listed in the job description. Benchmarking, grading level requires clear understanding of the work that people do and creating an equitable salary structure is very important to employees because it helps ensure that they feel that they are fairly paid and can advance within the organization. Having a clear understanding of the role is essential to create a career ladder and pay compensation ranges to levels and grades. Having accurate job descriptions also helps you evaluate employee performance effectively. For employees to be engaged, they need to be successful in their role. Accurate and detailed job descriptions help describe that success and have an impact on the employee’s ability to succeed. Last but not the least, accurate job descriptions will ensure you covered the legal basis, taking the time to analyze jobs you [inaudible 00:21:20]later when it comes to benchmarking and legal compliance. It gives you a chance to take stock of whether the job summaries still reflect actual employee responsibilities. And to get there right, HR and managers need to work together to create job descriptions and make compensation decisions together.
JD: I’m so glad. Audience, just so you know, when Brian and I were syncing together on this and synchronizing our research and efforts, so grateful that we were able to both jump into this consistent problem that everyone has in building job descriptions. Too many times, job descriptions are old ones slapped together because we have very little time or we don’t really do an audit and examine these things when we should. And there’s, sometimes, a disparity between a job description and the job ad, meaning the job description focusing on those core functions and focusing on the detailed description of the job, which is often very different than that piece of marketing content that you would put online or different places, that is the job ad. So, I wanna talk about that nomenclature difference, and make sure I address that.
This job description is so vital, and it’s not always the thing that you’re gonna be posting but it’s where you map everything else from. And it’s especially important to help hiring managers understand that difference between the job description and the job posting. And that’s why it’s important to base the posting on the job description, not on actual perceived ideal candidate. We’ve run into this before, right? There’s people building up this candidate in their minds that isn’t actually mapped to a job description.
So let’s walk through some ways that this plays out. Let’s say you’re hiring for a brand new business like Brian talked about, and that brand new business, you’re creating all these things from scratch, and it could be painful there. The hiring manager outlines the basics for the position in the job ad, you put it out on the market, and they end up with a great catch. We’ll say this person’s name is Lance. Not only does Lance meet the basic requirements, but he grows into the role. His unique talent starts to make a difference in his department and in the organization as a whole. So the hiring manager for Lance’s team decides that she wants another Lance. But she can’t put, you know, basically, another Lance in the job ad and have everyone know what the heck she’s talking about. So, she updates the job ad and emphasizes some of Lance’s unique qualifications. In the picture, she paints of the position, and it’s not an exact picture of Lance, but it includes a lot of Lance’s nice-to-haves. Now, here’s the problem, candidates can’t see these underlying requirements of the job description, right? I think, too often, HR professionals, recruiting professionals, we don’t really put ourselves in the place of the candidate and our candidate personas. If we really do that, then we understand that they only see what we’re posting and not all of the underlying things that we’re alluding to. In this example, this caricature of Lance overemphasizes the nice-to-haves at the expense of clarity on the basics of the job description. Also, when the manager posted it, she didn’t pay attention really to where it was facing, right, which group she was posting it to or something. So based on what she emphasized and where she posted it, this manager ended up with a completely different species of job candidate. And while her budget called for less compensation than Lance, all of her candidates had much larger salary requirements. So, it was either re-open the position and start from scratch or start a new candidate at the top without any room to grow while setting up a salary compression scenario for Lance. The better you can translate the essentials of the job description into your job postings, the easier it is to find candidates that fit into your organization’s ecosystem, both the skills they bring and the compensation they expect. This helps avoid several recruiting pitfalls. Number one, you don’t have to go through several recruiting cycles looking for the purple squirrel candidate or trying to duplicate where Lance is now and all of his many great attributes, right? Number two, you don’t have to stretch to the top of your salary range because all of your candidates are overqualified. This is a continual question where “How come everybody coming in is extremely overqualified?” Right. Number three, you don’t have to redo a posting when you realize that none of your candidates have a skill that you failed to mention or hadn’t even considered. So defining the real job description is an essential part of creating a matching salary range. And sometimes, it takes going beyond the traditional job descriptions for a given field.
So, let me give you an example. At BambooHR, we found that our sales department had a spike in turnover a while ago and we were having a problem with retention. Well, for us, because we have some pretty good retention numbers, but we noticed a spike in that group, and we’re really concerned. So, we took a look at why and didn’t just stop at the numbers on the paychecks. We looked at several things. We recognized that our sales team is different than many other sales teams. It’s a lot more collaborative, it’s less, you know, trying to become the top dog and everything like that, and it’s very education focus. We really wanna educate our clients and just help them make the right decision for them. So, some of those things can be nontraditional for sales teams. So we found, though, that we were advertising for a typical sales position and really examined and did kind of an inventory of that. We ended up with a typical proportion of sales applicants from many years ago, right? Only one female in 10 applicants. This was very concerning. So as we, kinda, did this audit and looked at what we could do and what we could change, we examined some of…not only the wording of the job description, but really who are we focusing this on and how can we open it up. And if we’re advertising for a traditional sales role…sorry, if the job description is different than a traditional sales role, then why is this ad reflecting something that’s not congruent with that? So, we changed our target and focused on hiring people with a background of HR professionals and recruiting professionals. We were open to other candidates with good backgrounds, but we wanted to focus on that HR professional, recruiting professionals, given the kind of job that was a job differentiation we had on the sales team compared to other sales teams. Changing our target helped us hire a much more diverse group of people, not only in characteristics like gender but also in background. We ended up improving our ratio of female applicants to male applicants from 1 in 10 to 4 in 10. That’s a good step in the right direction. And we had candidates and new employees that had greater job satisfaction, and that’s kind of the key to go back here, is they had greater job satisfaction in working within our unique, out of the norm sales environment.
So, speaking of some things that may be a little bit different than other places, BambooHR has two values that help address putting the job description in its proper perspective. The first is grow from good to great. In a nutshell, this means that there’s always room for improvement, whether you came in on an entry level capacity or whether you were passively recruited to head the marketing team. The second is lead from where you are. And it helps provide a perspective that helps people grow from good to great. Because in the end, it’s counterproductive. When employees feel that the only time growth can happen is when they add a “senior” in front of their job title or when an employer send the message that the only way that employees can progress in their career and earning potential is to take on management duties. Effectively, that limits growth to a single member of each team, right? If you’re only focusing on, well, the only way to grow is by becoming a manager. But when your strategy for employee training and growth is matched up with a market-based salary range, you set the stage for lasting engagement. Whether your employees make their way into the management track or continue to lead from where they’re at, it doesn’t matter, you’re continually giving them growth opportunities. So, as you consider new positions, take the time to fully define your job descriptions and the salary range. This includes doing research on both subjects as part of your compensation plan. And again, we’re gonna bring in Brian’s expertise from here.
Brian: Thanks, JD. Yes, so now, you need to go back to creating this compensation plan and starting with the right data. Contrary to popular belief, not all data is created equally. It’s important to understand the accuracy of the data and accurately interpret that data. That goes to understanding the underlying methodology at how that data was curated. We believe the most credible data is produced by reputable firms with reputable methodologies and transparency in their approach to gathering, analyzing, and reporting that data they collect. When using compensation surveys, it’s critical to understand how the statistics were established in order to ensure that data is valid and meaningful and defensible. So, compensation is a mix of art and science. The data is the science, and the story that that data tells and that you’re able to apply to your employee population and the market trends you’re seeing, that’s the art. And CCPs in the audience know, you should use multiple data sources as a single data source may not meet all of your needs. We’re not talking about buying two, three, five surveys. To us, or to me, I really think about that as a single source. We’re talking about buying unique data sources that have different things to offer.
So, let’s talk about the multiple kinds of data sources that you can use in creating a compensation plan. Given all the data sources’ pros and cons, often, the answer will be to use a variety of data sources as part of the compensation strategy. That way, you can take the strengths of each to empower your ability to remain competitive, establish transparency, and be credible with your teams. So, taking a look at the example of using both the employer source data offering such as traditional compensation surveys and crowdsourced data offering, the employer source data you’ll typically have a well-understood methodology that is easy to explain to noncompetition people. You may have insight into the salary structure design as many surveys are owned and operated by compensation consulting shops who specialize in this very thing. You will have the power to define your peer group as well to ensure that you’re utilizing data from those that you compete with for talent. Now, you may be able to define those in a multitude of ways, whether that be revenue, industry, location, you can slice and dice that any sort of way. Now, with the crowdsourced data, you’ll have insight to fast moving jobs that are ever changing and are in high demand. You will be able to understand how different skill sets set the jobs apart and impact compensation. You’ll be able to monitor labor market trends, what’s hot, what’s cooling down, and where you should focus your strategy? Additionally, crowdsourced data can provide bullet points and insights into feelings, thoughts, and sentiments of employees. Now, one of the things that you need to take into account with regard to the sentiments of the employees is they want multiple career paths. It’s no longer the climbing the corporate ladder, it’s more of climbing the rock wall and taking different routes to achieve…growing their earning potential. So the decisions that you make regarding your salary structure and pay ranges can impact the employees’ career progression, their level of satisfaction with their pay, and their work.
A few steps on building pay ranges, if you have different locations, be sure to identify the market differential, create different pay schedules to preserve both competitive pay to local markets and internal equity. When you choose your pay grades, the number of pay grades you choose should sufficiently distinguish difficulty levels of the different jobs. That’s if you choose to go to the pay grade route. There’s also the job based ranges route. When you build your pay ranges, consider how, why you should…your ranges should be. A general rule of thumb is that more entry-level roles that are going to be…employees are gonna be in for shorter periods of time, should have a tighter range than a job that is mid or senior in someone’s career.
So, another thing is is that salary ranges should be accommodating to that career growth. I think I talked through a lot of this already. Yes, the lateral moves and promotions. That’s one thing that I wanted to hit on and it sort of ties it into that rock wall idea that building a pay range structure, you’re really building out career paths for people and allowing for those lateral moves as some people will, especially this younger generation, will want to move from one thing to another and may not stay in that role for very long. We’re talking 12, 18, 24 months in one career path and switching to another shortly thereafter. Who knows, it may be after a significant milestone, birthday or a 10-year high school reunion.
JD: And Brian, I’m so glad you’re bringing up these points because, with these different kind of pathways and things to consider, there are many different data points we need to consider and take a look at. And it starts with arranging that comp plan. However, as you and I talked about and as we want you, the audience, to know you can arrange your comp plan perfectly. But if your employees also don’t recognize that the impact that it has on their lives, you’ll still run into some of the drawbacks of mismatched comp. Employees need to see how their compensation changes their lives for the better. Employees need to see how it sets the stage for satisfaction in their personal and professional lives. So, this can be a tall order to achieve with a compensation plan alone. It’s not that compensation is unimportant, far, far from it. But when it comes to human motivation, different incentives motivate in different ways.
This research comes from psychologist Frederick Herzberg, who found that incentives could be divided into two categories. One set what Herzberg called the hygiene factors, reduced satisfaction, sorry, reduced dissatisfaction, while a distinct set called motivational factors built from there to increase satisfaction. So compensation tends to be a hygiene factor when it comes to motivating your workers. If they don’t have enough of it, then their dissatisfaction increases. But after a certain point, this value can fade into the background. If they don’t have to ask, “When will I have enough?” then they’ll start to ask, “When will I have more?” In fact, PayScale’s research here found that 35% of workers who are overpaid compared to their market value, feel underpaid. Isn’t that interesting? So, if you’re not progressing in your career, it doesn’t matter whether you started at the top or the bottom. The comparison can still lead to an epiphany moment. Just like Brian hit on again there, an epiphany moment if employees don’t trust their organizations to take care of their future. It turns out that growth and recognition are more powerful motivators no matter where an employee is in the employee life cycle. The more you can demonstrate how your employees can grow, the more you can show your employees how much your organization values their total satisfaction.
Now, prospective candidates assess their potential growth before deciding to join your organization. You can show that your offer isn’t just a starting salary, but a career path with a salary range that you’ve defined in advance. Just like Brian talked about. This is also…these kinds of things also avoid major issues of the golden handcuffs. The fact that hiring someone at the top of the salary range leaves little incentive for them to improve their performance. In fact, studies have shown that adding large amounts of extrinsic motivation tends to decrease intrinsic motivation. Let me say that again. Large amounts of extrinsic motivation tend to decrease intrinsic motivation. Top paying candidates may ask, “Well, why should I do more for the same amount of money? Doesn’t my organization appreciate the valuable work I do every day?” So the thinking on compensation needs to shift from getting the right static salary to evaluating the path that employee needs to take to grow from good to great. Again, like Brian talked about so well there. When you can show employees this path, you emphasize the personal satisfaction that comes from good performance and show that you’re ready to support that performance with your compensation plan. You show them that your salary is more than just a trick to get them in the door. You show them that you have a real compensation plan. And that does more than just attract employees, it also helps them stick around.
Brian: Exactly. And one of the important things with that, JD, is communicating that compensation plan and the compensation strategy, and where an employee falls within that compensation strategy and their pay range and how their job is benchmarked to that. If they don’t know, then they’re gonna assume things, and those might not be true. So, I’d like you to show you some research that we are gonna be releasing here in the beginning of June. So, this isn’t out yet, but PayScale recently wrapped this up and we’re currently finishing up the data package to be sent out. But this research on how pay communication impacts employee motivation or workers’ levels of satisfaction with their organization. This table will show you that providing a credible rationale to employees for all your pay decision makes a big difference in how workers feel about their workplace. So, like I said, PayScale recently conducted this study, and it’s gonna be released here at the beginning of June, so be on the lookout for that. In this study, we surveyed 160,000 workers to find out if they have ever asked or they have asked for a raise with their current employer. The question was, “Have you ever asked for a raise with your current employer?” Pretty straightforward. We found that 37% of workers have done so. Out of those that asked for a raise, 70% received an increase of some amount. The remaining 30% of those who asked for a raise were denied. For workers denied a raise, we asked them, “What was the primary reason your employer gave for not giving you a raise that you asked for?” What you see here are some reasons that workers reported on why their request for a raise were denied. The most common reason by far is budgetary constraints. I get that. We all have budgets that we gotta manage to. And we got to stay within them. EBITDA is a big thing in finance. This was the rationale that was reported by half the workers who were denied the salary increase. And the second most common reason, a third of the people reported that their employer had provided no rationale at all for why their request was denied. On the next slide, it’ll show you our data on whether workers believe the rationale their employer provided, which was really quite surprising.
So, all up, only 23% of workers said that they believed the justification provided by their employer for why the raise was denied. If you look at the reasons individually, we found that those who were provided the rationale, we can’t give you a raise due to budgetary constraints, only 22% of those workers believed that rationale. I mean, you can flip that on its head and say 78% of them felt that they were lied to. So, with that, we also asked workers two questions to gauge their level of satisfaction with their employer versus how likely they are to look for a job. The question we asked was, “Do you plan to look for a job in the next 12 months?” Workers had yes or no as their selection choices. And whether they believe the rationale provided by their employer has a big impact on their job satisfaction and their intent to leave. When workers don’t believe the rationale or aren’t provided any rationale, they report lower rates of satisfaction with their employer. They are more likely to decide to quit. A full 72% of workers who don’t believe in the rationale, and 71% of workers who are provided no rationale reported that they plan on seeking new job opportunities in the next 6 months, versus 57% who believe the rationale that was provided. You can see that workers who believe in the rationale provided, a lower percentage of them said that they plan to seek a new job than workers who got an increase that’s less than what they asked for. That was also pretty surprising to me.
So, in this study, we also asked workers two questions to gauge their level of satisfaction with their employer versus how likely they are to look for a new job. The other question we asked was how satisfied are you with your employer, and they could rate on the scale of one to five, one being not satisfied or strongly disagree and five being that they’re extremely satisfied with their current employer. The percent column of highly satisfied with employer are those who rated satisfaction at either level four or five. Like you might expect with workers that are denied raises, their level of satisfaction with their employer takes a hit, just 29% of workers who did not believe the rationale provided and 27% of the workers who were provided no rationale reported being highly satisfied with their employer versus 55% of workers who asked for and received a raise. However, this is the surprising part. We found as long as workers believe the rationale, they are similarly satisfied with the employer as workers who received a raise. That’s huge. That speaks to the credibility and trust that your manager has with his or her employee, and the communication and trust there is critically important.
As many of us have heard throughout careers on retention, our careers in HR about retention, employees don’t leave employers because of pay, most often, it’s because of their relationship with their manager. So, in comparison with only 29% of workers who did not believe the rationale provided reported being highly satisfied with their employer and just 27% of workers who were provided no rationale from their employer reported to be highly satisfied. It is interesting to see, those who asked for a raise received one but for less than what they asked, they are less satisfied with their employer than those who were denied a raise but believed the rationale.
So, the key findings from these multiple studies, with research that was all about the way that the organization communicate information about pay, it’s critically important, especially if it’s negative information. In this new study that’s coming out in June, we learned that there’s no rationale…if there’s no rationale provided for why a request for a raise was denied or when the employees feel that they’re provided a rationale that isn’t authentic, they feel burnt, and they’re more likely to start looking for new jobs where their value is recognized and compensated for. However, employees who handle bad news and even use it as personal motivation to work harder, as long as it’s communicated in a way that feels genuine and reasonable, they’re going to stick around.
Our previous research has found similar results. In the Compensation Best Practices Report, we found that there are substantial gaps around how employees feel about pay versus their employers. Only one in five workers reported that they feel fairly paid. Meanwhile, 43% of employers, so you and I as HR professionals think that their employees are fairly paid. We have evidence that transparent communications around pay can move the dial on employee engagement.
In our 2017 study on the factors that impact employee engagement, we found how people feel about pay or the pay process at their workplace and whether they understand the hows and whys of that pay has a five times as much impact on their satisfaction with their employer versus how much they are actually paid. So that understanding how and why compensation decisions are made is a five times multiplier in how satisfied that employee’s going to be. Instead of feeling like you must choose between giving talented employees a raise when they ask or risk losing them all together, there’s a middle ground. You can take time to develop thoughtful communication and share your decision-making process with your employees. If you do this right and you’re consistently seeking out ways to show employees your appreciation, employees can take no for an answer and still choose to commit their energy and talents to your organization. Open and honest conversations about pay can move the dial on employee engagement regardless of how employees are actually paid.
JD: That’s a great take away there, and I’m so glad we’re jumping into this and going to this next step. I wanted to take it from what Brian talked about there in talking about performance on that side as well. So traditionally, compensation and performance management have been lumped together to an annual event that most of us dread, right? Because we didn’t have time to do both consistently. So, most managers would rather try that water skiing with an Asian carp than think any more time into figuring out an annual review all by themselves. Well, we’re here to help for this.
So it’s understandable that they might since without regular updates, it’s hard to remember performance details from that long ago, let alone make recommendations or updates to it. And since performance information already runs the risk of being highly subjective, asking managers to remember a whole year only heightens the probability that they’ll reward their favorites or slice someone who hasn’t performed as well recently. So, when these requests happen, like Brian was talking about with how employees feel, one of the problems is we’re not keeping performance notes and attaching it to compensation well. So, there are two steps to solving this issue really. Keys to effective performance management, first, encourage shorter but more frequent feedback sessions. These should include, in the moment feedback for managers to employees and vice versa. You should also encourage one on one meetings between employees and their managers where employees can share additional feedback without half of their team listening in, right? Frequent feedback sessions focused on employee growth, which should be the point of performance management. Too often, it is not. If a performance management program isn’t helping your employees grow, then why the heck do we have one? The second step to improving performance is to ask the right questions. Over the last 15 years, psychologists have done extensive research on what goes on when one person has to rate another person. What they found is that on average, 61% of a manager’s rating of an employee is a reflection of the manager’s experiences and attitudes instead of an accurate assessment of the employee’s actual performance. This bias, like most other biases, resists retraining. It’s hard coded into being human, it’s just part of it too often. So instead of fighting it, develop performance questions that focus on the manager’s personal experience instead of asking the manager to interpret the employee’s motivations and feelings.
I’ll give you some example here. In BambooHR’s performance management tool, we keep things real simple with just four questions. So, if my manager was rating me, she’d have to answer these questions that come right out and focus on her own perceptions of these things. So, if JD left the company, what would I do? Full transparency, she’d probably be excited. How engaged is JD at work? I don’t know, probably, too engaged. This guy is way too obnoxious. What are some things that JD does well? A big list there…or a small list there, and a big list on this last question, how can JD improve? She’s gonna have a lot to write about there. The simple accountability, though, goes hand in hand with more frequent feedback sessions. So hopefully, my manager’s been recognizing the things I’m doing well and providing insight on how I can improve well before this performance management assessment, right? Including similar reviews for self-assessment and peer assessment can provide important performance data points for your organization. This performance review process goes even more smoothly when it’s integrated into an HRIS, right, with formal reminders that deadlines for all types of performance reviews…this helps make sure that no one gets overlooked. After the five-minute assessments are completed, the data gets stored in the system. So you don’t have to ask your managers to email you their performance forms when you’re working on your compensation plan, right?
The biggest enemies of performance management are time, costs, and preparation costs. Using an HRIS, no matter what that is, helps overcome these barriers to frequent targeted performance management. It overcomes these barriers and makes frequent targeted performance management a reality. The performance review process goes even more smoothly when it’s integrated, right? And so, some of the biggest enemies of performance management are time, cost, and preparation costs. And when managers have polls on how hiring decisions affect their team, they can provide feedback to help recruiters retarget their ads for the future. We do that a lot over here, making sure we’re looking at this information, or maybe not the details of it, but the aggregate information so we can retarget our ads, reengineer some things, just like we did before…or just like we did with our sales team. Also, when managers are drilling down to the essentials in their regular performance management, it makes it easier to keep the job ad essentials as well. It helps avoid searching for what recruiters call, or maybe it’s just what JD calls, the shiny candidates, right? The ones with extra qualifications that often come with an additional price tag. Careful performance management and careful pay management are two halves of the recruiting equation. When you know your performance goals, you can set your pay levels. And when you set and communicate the pay levels, just like Brian talked about, in your comp plan, you help recruit and retain the right candidates. So, how much do you communicate about your compensation plan? A lot of transparency that needs to be put in there. Let Brian handle that.
Brian: Yeah, if any of you have been on a PayScale webinar before, you’ve probably seen this. It certainly was in our Compensation Best Practices Report, and what’s described here are some of the results. So, the Pay Transparency Spectrum is a tool that helps your organization figure out where you want to be in your openness about pay. It’s a great tool to get recruiters, managers, and all employees on the same page. Now, pay transparency is really a spectrum. It’s not an on-off switch. It’s important to understand where on the spectrum you want to be, and then share the appropriate information with employees around that. So, you’ll notice here that there’s a lot of movement from the one or two, more towards the three or four range. Not very many companies want to go to level 5. I, certainly, am one of those that does not want to go to level 5 because, well, we’re just not ready for that. But, in offering some communication tips, I think JD has got some really good tips for us in terms of how to communicate pay to employees.
JD: Awesome. Thanks Brian. So everyone, buckle up. I’m gonna go through these real fast. Offer communication tips. Today, we’ve gone through the entire ecosystem with careful plans for pay and performance, right? So, the next question is how we’re gonna go about communicating the plan to candidates and making sure that you’re only bringing helpful species into your organization, so to speak. Here are some tips to avoid some of those short-sighted recruiting mistakes we discussed earlier when extending offers to new candidates.
All right, some organizations are constrained on the salary they can offer, government agencies, for example, and when you’re starting pay is static and predetermined, you can make sure that employees understand the value that the position offers. This should be done early on, but done openly and transparently, just like Brian touched on there. Make sure we talk about other items that add value. So when you’re talking about offers to the people, we address company mission, benefit details, team culture, all these other things that offer value. Start with the search that you’ve actually already graded when you have a negotiable range here. You gotta help hiring managers avoid shiny candidates there above the job range. So this actually creates more harm than good and long-term job satisfaction or no or very little comp growth, like we talked about before, and pay disparities for the job if we’re getting to the top of the range. So, this doesn’t need to be done when you talk about an offer with candidates or talk about compensation. It doesn’t need to be done in the first contact with your company, but should never be something addressed at the very end of the interview process. Why? You gotta avoid the traditional negotiation tactics, everyone. We’ve fallen prey to this over time. These traditional negotiation tactics that pull hiring managers and recruiters into tough spots, right? Last candidate, oh, my gosh, everything else has fallen off. Last candidate, last option. I already told everyone else, no. I didn’t compare candidates to their salary requests throughout the process, so it never should be done at the very end. Also, never start these conversations with, “What are you making now?” Right? We have to get rid of that. Instead, try something like this, “Given what you know about the job and what we’re trying to achieve over here at X company, can you give me a comfortable range of what you’d be looking for at desired pay?” Next thing, be open with them if it’s high or low. Go over the job details and the details of the company, discuss the mission, value, culture, benefits, time off. Find out what’s important to them. This is something, I think, is really lacking in the recruiting industry, is we’re not listening enough. Find out what’s important to them, the candidate, and see how well your employee value proposition stacks up to this. This will allow them to see the total value of the offer. Use their desired pay as part of the interview or assessment process. They may be good, but are they worth the range that they’re requesting? Is it close to fair market value? If it’s above, do their hard skills and soft skills map to their higher desired pay than some of the other candidates? Always have reasons and quantifiables that equate to above or below market requests. And for that, I’m sorry, I’ll let Brian wrap up. I just wanted to rattle off [inaudible 01:00:52] details.
Brian: All right.
I love this cartoon here. It’s pretty funny. But the question is when an employee asks for a raise, how can we make sure that they don’t feel like this guy, where they’re kind of begging for money? So, the first thing is that you need to train your managers on the how to have effective conversations around a touchy subject such as pay, and being able to confidently communicate pay decisions to their employees. Next, when an employee asks for a raise outside of the salary review time and you can’t give it to them, be authentic and truthful about the rationale as to why. Maybe it’s that you don’t honor any requests outside that time frame or maybe it’s that, you know, we’re a month away from salary review time, we’re gonna delay this until then. The other thing is dig into why they’re asking the question. Oftentimes, it’s not just about pay, maybe a scope of responsibilities or depth of responsibilities that they are really asking for and they want to be rewarded for as well.
So, some final takeaways for us are compensation, performance, experience, and culture, everything really connects in your employee’s ecosystem. Knowing how to measure and communicate performance and compensation can help your organization be more healthy, productive, and thrive. Offer communications and fresh in the mind transparency to the candidates. Compensation figures are a hygiene issue. So compensation growth as a part of a well-understood comp plan is a huge motivator for those external and internal candidates. And treat your existing employees the same way that you treat an external candidate when they ask for a raise. They have more…or you all have more investment in them than you do on those new candidates. Pay needs to be perceived as fair and with…yeah, so, pay needs to be perceived as fair by your employees. And with pay being perceived as unfair, employees are five times as likely to disengage and search for another opportunity. I think I’m gonna throw it over to JC to see if we have any questions. I know that we’ve run up on our time, but hopefully, we can take a couple questions before people have to leave.
JC: All right. Thank you, guys, for presenting this. This is great information. We have a question from Cathy here. And it’s specifically about the pay raise study. It was on slide 31 where you were talking about the people who are planning to seek new jobs. Her question was, what was the percentage of people who asked for and received a raise and are still planning to seek new jobs? Cathy, that percentage for overall was 50%. That is 50% of those who got a raise they asked for are still planning to seek new jobs. But now, those who got the amount they asked for, that was 42%, but those who got an amount that’s less than they asked for, that is 59%. So, those people are a bit more dissatisfied. For both speakers, what do you feel contributes to this?
Brian: I really believe that it’s…or that employees feel that compensation decisions are made in a black box. And they don’t have an understanding as to how those decisions are made. And ultimately, when they get their increase, maybe it’s a Post-it note set on their desk, maybe it’s a piece of paper that’s folded in half, and there’s no real conversation around why they’re getting the increase that they’re given, whether it be 2% or 4.5%, or maybe they got a large increase of 10% or 11%. Who knows? The fact that the rationale and the opportunity is not being taken advantage of by their manager to communicate that and really harness that opportunity, I think is a huge miss for employers.
JC: Okay. Thank you. We have a question from Anton. What are the pros and cons of getting to level 5 of the transparency spectrum? Is reaching level 5 the ultimate goal or not necessarily?
Brian: I would say that it’s not the… With the transparency spectrum, it’s more about what’s right for your employee population and what’s right for your culture. It’s not about progressing from one to five, it’s about what’s right for your culture. I think some of the issues that make me concerned about going to level 5 as a company would be that employees, even here at PayScale, who know a lot about compensation, they aren’t emotionally prepared to know what their co-workers make. And it’s one thing when you’re looking at compensation for another company where you don’t have an emotional attachment to those individuals or to those jobs, but once you do and once you know what other people make around you and not having the full context, there’s going to be some emotional collateral damage. And if you’re not prepared for that as a company or prepared to really get into some messy, messy conversations, I don’t think it’s necessarily right for everyone. I would say, even here at PayScale, level 5 isn’t right for us. It’s not right for our culture. Level 4 is people need to know where their data’s coming from, how it’s used, what different resources that we’re looking at, how pay decisions are made and then communicating that back to them, and where they fall in that range. We also have no problem sharing what the pay ranges are in other positions. And I think that’s really, really transparent up until that part of really sharing what everyone makes.
JC: Okay. Unfortunately, we have a few more questions, but let’s just answer one more.
JC: Let’s see. So, this one is about pay disparities from Amy. How would you recommend going about a restructure at a company with large pre-existing discrepancies between pay, experience, and responsibilities?
JD: Oh, man, you’ve gotta [inaudible 01:08:11].
Brian: So, it’s going through and prioritizing what matters to you as a company. And you are not gonna be able to make everything happen in addressing those. So, there are some where is there a…number one, is there a legal exposure to the pay disparities that you have? If that’s the case, I would address those first. Second, then, go to the most recent performance reviews, and if people are paid at the highest end of the range and they aren’t having good performance reviews, then they probably don’t deserve much of an increase, and I would never suggest taking pay away from anyone. That is something that you’re gonna really look at, unless you want them to leave because they’re gonna be gone in the next three months, especially with where unemployment’s at right now. So, yeah, I would prioritize legal compliance first. But also, I would do that analysis under the guidance of an attorney so that if you find something that is privileged and confidential, and that you can address that accordingly rather than doing it under your own direction because that is discoverable.
Brian: Not that I’m an attorney.
JD: You’re hiding something, Brian. You’re hiding your other career. I get it.
JC: So, thank you so much for those of you who’ve taken even additional time to stay on the line, and you know, hear this presentation. Thank you so much, JD and Brian for joining us today.
Every one, like I said at the beginning, we will send you the recording and the slides via email as well as the code where you can redeem your SHRM education credit. Thank you very much. Have a good rest of your day.