Why Do Corporate Pay Practices Feel So Broken? They Kind Of Are.

April 29, 2023 00:22:42
Why Do Corporate Pay Practices Feel So Broken? They Kind Of Are.
The Josh Bersin Company
Why Do Corporate Pay Practices Feel So Broken? They Kind Of Are.

Apr 29 2023 | 00:22:42

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Show Notes

In this podcast I introduce our new research on pay and rewards. This enormously important part of business needs a transformation, and our new research on "Systemic Pay and Rewards" explains why. I give you an overview of why pay systems are so brittle, what really drives results, and how we can dramatically improve these important parts of our companies. You'll hear about how to implement pay equity, what to do about performance management, and why "total rewards" is just not the total solution to the problem. In an economy where skills are constantly changing, employees are burned out, and the job market is incredibly competitive, it's time to rethink your approaches to pay and put together a high-value, strategic, "systemic" approach. Additional Resources Why Pay Practices Are Broken (article) Systemic Rewards: The Research The Definitive Guide To Pay Equity Solving the Complex, Important Pay Equity Problem Wellbeing Evolved: Building A Healthy Organization How to Solve Pay Equity: More Important than You Realize (podcast)  
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Episode Transcript

Speaker 1 00:00:05 There's a lot going on, as you know. And I spent the week at the Unleash Conference in Vegas and talking to lots of clients and lots of vendors and lots of things to talk about. But the thing I want to focus on first is corporate pay. Because this coming week we're going to be launching a research study that we've been working on for about a year on pay practices around the world. And what we discovered is that they have fallen way behind everything else we do in HR and business. And let me tell you why. If you think back about the way pay has been administered for many, many years, certainly back my early days as a young employee in the seventies, we organized our pay strategies around levels, bands, and promotion. And for those of you that have been in the pay, it's usually a super secret process that nobody really understands. Speaker 1 00:00:58 But under the covers, every job has a level. And within that level, there is a band based on the demand for that job. And you as an employee, work your way up through that band, through the performance management process year by year until you reach the top of the band and then your manager says, well, um, we really can't pay you a lot more until we get you promoted. So let's work on a way to get you promoted. And we found that process has been around from the industrial age. It's another one of these things that's left over from the prior generation of business models as I talk about in my book. And meanwhile, while, while we're trying to administer this fairly archaic linear process, the world is going crazy. We have massive demand for wellbeing and extended benefits and flexible employee relationships. So we have this idea of total rewards and 50, 60, 70 new benefits are added up to about 30 to 32 to 33% of pay, including flexibility, vacation insurance, PET benefits, fertility benefits, wellbeing benefits, and on and on. Speaker 1 00:02:13 Second, we have enormous skills gaps in the economy as new technologies and new domains are invented. And we have to pay to get people who have those rare skills. So we oftentimes have employees in the company making X amount of money and hiring somebody on the outside of the company making 1.2, 1.3, 1.5 x simply because they have these new skills. A, that creates inequity. And B, what about the people inside the company who also want those jobs to develop those skills? The third problem is this issue of pay equity. Some very significant lawsuits have now been filed. Google had to pay 118 million for one of them by women who realized after years of secret pay practices that they never knew anything about, that they were significantly underpaid statistically over men. And so all of these little bands and levels that we've been working on over the years are gender biased because it turns out, as most of you know, women don't get promoted as quickly as men. Speaker 1 00:03:21 They're not considered to be leaders like men. There's all sorts of bias in that. And so not only do they not get promoted, but they make less money. In fact, the United States, I think the average woman makes about 18% less than the average man. And if you look at a statistical analysis of pay equity and you look at all of the factors that contribute to pay disparities in your company, as we talk about on the pay equity research we released a few weeks ago, you will find gender probably is statistically correlated to pay, which is illegal in in the eu and unethical and likely will get you sued if somebody decides to come after you. So we have to deal with this issue of equity. The fourth issue is internal mobility. Now that we have more fluid organizations and we have talent marketplaces and we have career mobility, Jason skills, tools, career pathways, how do you pay somebody who moves from a low demand job to a high demand job? Speaker 1 00:04:26 Let's suppose I'm a marketing analyst and I happen to be a math major and I decided I'm tired of marketing and I'd like to move into data science and we decide to send me to a course and a certificate in data science and I start working in data science in the IT department where the people around me are making 275, $300,000 a year and I might be making $120,000 a year cuz of my marketing job. Do we double or triple my salary? Do we keep it a secret? That's another problem, <laugh>. And then of course we have the fifth issue is inflation. Some of us grew up in a very high inflationary period in the seventies, but most of you probably have never lived through an inflation like this. And uh, it continues to rage a study that came out from a d p last week, which is really worth reading a link to it, a found around the world that more than 60% of employees believe that pay is the number one reason they would change jobs. Speaker 1 00:05:25 And 40 to 45% of employees believe that the pay is not keeping up with their standard of living. And the statistics prove this inflation is now raging at a faster rate than wages. And despite the fact that Powell would like to reduce wage inflation, wage inflation is a reality of a labor market that is very much in a very competitive state where you have to pay more money to get people because people have options. And personally, I don't think that problem's going to go away, even if we do have an economic slowdown and it's beginning to look like we're not gonna have any kind of a big recession, maybe we're just gonna have a kind of a, you know, slowing period here. So all of those factors, plus the fact that we have part-time workers, gig workers, six generations of people in the workforce lead to all sorts of inequities and inconsistencies in pay. Speaker 1 00:06:20 And so we decided to study this and as in all of our big studies, we got all sorts of interesting information developed, a maturity model, and a lot of best practices that we wanna walk you through. Now, next week Kathy and I will be in Vegas at the H R E Health and Benefits Conference. We'll be introducing the research. Those of you that are clients and corporate members can get access to all the research and the tools. But let me give you just a couple of things We found, first of all, total rewards is only level two in our model. In other words, you have to go beyond total rewards and you really need to look at what we call systemic pay and clearly define what pay for performance means. And that's actually a very difficult thing to do. You have to have a philosophical discussion with your leadership about how we define performance, how we're gonna measure performance, and how we're going to communicate performance metrics and goals clearly across the organization. Speaker 1 00:07:20 So people feel that it's fair because pay equity is 13 times more influential than level of pay. In other words, as we found in the study that we produced a couple weeks ago, if you give somebody a raise, of course they feel better about their job, you know, for a little while. It doesn't last out long, but they, they're thankful and they appreciate working there. But if they find out the person nests to them in the same job with the same level of performances making 25% more, that raise has no value at all. They don't feel that things are fair. They don't think feel things are equitable and they kind of question the whole leadership, the strategy in the company. So we have to move beyond total rewards to a clear understanding and discussion and definition of what performance is. Um, and that's a philosophical conversation that isn't just about performance management. Speaker 1 00:08:12 It's what are we gonna reward? Are we gonna reward metrics or are we gonna reward collaboration, or are we gonna award innovation or are we going to reward profitability, et cetera. And then we have to communicate that extremely well because pay is becoming very transparent. You know, one of the things that if I observe the way the world works today versus in the 1970s when I entered the workforce, I remember very distinctly that everything that had to do with pay was a deep, dark secret. I mean, I didn't know anything about how I was getting paid or when I was gonna get a raise or why I got what I got. I was just told by my manager to just take it on faith that this is the way it works. Well, you know, we have pay transparency laws. When you post a position, you have to, in most states, not all states, you have to post the pay range of that job. Speaker 1 00:09:06 People are much more open about sharing pay information with each other. So if you give one person a raise and not somebody else, chances are they're gonna find out about it. So we have to focus on equity and we have to focus on what we call a systemic model so that as this information comes out, people feel comfortable with it and they stay aligned with their jobs. Because let's face it, if you're not feeling comfortable about your job and the performance that you have, it doesn't really matter how much you're being paid. And, and I have seen pay practices in some of the tech companies that are just kind of insane, to be honest. Honestly, I've seen HR people making, you know, a million dollars a year, three quarters of a million dollars a year because they happen to be in a high growth company and a particular role. Speaker 1 00:09:56 And I know most HR people don't make anything close to that. So these are all sorts of things that have kind of built up over the last few years. Now, statistically, one of the things that that we did in this study is we looked at big tapestry of framework of pay practices that include competitive compensation, generous benefits, health and wellbeing, support, flexibility, career purpose, pay equity, and then issues of philosophy and strategy, technology and analytics and change in communication. And Kathy Andrus led this research and you'll be hearing more from Kathy and the podcasts and webcasts that we put out there. And what we've found, of course, is a couple things. First of all, if you're a compensation and benefits person or you're in that part of hr, you have to get out and talk to these other groups. Because paying rewards is not only about your paycheck, your ability to grow, the level of flexibility you have in your job, the way you're treated by your team is part of the reward system. Speaker 1 00:11:00 It's part of the deal. The deal that oftentimes we call it that, that we make with employees is bigger than the amount of money. And I know for a fact in our company, for example, from other companies too, that you don't have to pay the top of the market to get great people. If you have a great mission and a great purpose and lots of development and lots of flexibility and collaboration, people would love to come work for you for less money. This is what NGOs do, this is what public sector organizations do. Universities, sometimes even healthcare providers operate this way. So you have to think about this as a complete systemic approach to the rewards process, not just competing for this one person and paying them as much as you possibly can. Second thing relative to systemic rewards is if you look at those 1, 2, 3, 4, 5, 6, 7, 8 dimensions, what you find is that the ones that have the biggest impact on the financial and growth metrics of the company are pay equity by far. Speaker 1 00:12:04 Philosophy and strategy by far. And change in communication and flexibility, career and purpose, you know, issues like health and wellbeing, support, benefits, and even competitive compensation score much lower in the impact analysis. Now for those of you that understand how we do this, the way we do this is we have more than a thousand companies self-evaluate their level of performance and their level of effectiveness and their level of pay in these different areas. And then we correlate those practices to three kinds of outcomes to business growth and profitability. The financial outcomes to human capital, metrics like retention and engagement and brand. And then to growth and innovation. You know, is this a market leading company? And sure enough level of pay doesn't score that high. Now I know if you're a startup and or you're maybe a mid-size company and you're competing for the number one engineer on the planet who happens to have expertise in ai, you're gonna have to pay this person a lot of money. Speaker 1 00:13:11 Well, maybe, maybe so, maybe not. I know lots of very, very talented people. I know a lot of 10 X engineers were extremely sophisticated technologists who actually don't want a lot of money. They wanna do fun stuff, they wanna work on a company, in a company, on a project with a team that they love. They're not motivated just by money. Some people are, and you have to make a decision, frankly. Do you want people like that in your company or not? I think most investment banks would say yes, uh, that's kind of the way they operate. I think a lot of sales organizations might run that way, but I think in general that's not the most effective way to run a company. And when you look at the companies at the very top of our maturity model, and these are companies like Microsoft, s a p, Nestle, Cisco, others, they don't pay exorbitant amounts of money for individual superstar. Speaker 1 00:14:06 They obviously pay competitive wages, but they don't try to bid for people with very, very high wages. And I think that is a strange practice that emerged during the digital revolution where we were trying to find these highly skilled people. If you agree with us that virtually anybody can be trained to be a very sophisticated technologist or salesperson or marketing person through your efforts inside of the company, maybe you don't have to bid for people at that exceptional rate to build a rate organization. And that's essentially what the research finds. A couple of other things I wanna share with you. As you think about how this applies to your company, first of all, one of the things we found is that most total rewards teams are focused on optimizing this mixture of or blend of benefits to try to meet all the needs of every employee. Speaker 1 00:15:01 And that's a noble effort. And of course there's lots of value in that and a lot of times that is a strategy to reduce insurance cause improve wellbeing and so forth. What you actually find in our statistics is you don't get that much value out of it as a company. And I think we've over rotated to that. That's why we put total rewards at level two in the model. It's definitely something you need to look at cuz it's some point it affects your ability to hire. But if somebody doesn't come to your work at your company because you don't have generous fertility benefits or pet benefits, I don't think you're gonna really care that much if that makes a big difference. You want people that wanna be there. So that's one of the findings. Second thing we find is that when people don't know why they're paid what they're paid, and there isn't a clear statement about the pay policies and the pay philosophies and whether we want to be competitive or above average or below average, and why we're above average or below average, people are not sure what to make of the pay they have. Speaker 1 00:16:04 I distinctly remember an interview I had with the head of rewards at Cisco a few years ago and she said, we, we compete in Silicon Valley. Of course we know that we know the wages of all of our competitors, we know exactly where we fit, and we tell our employees that if you come to Cisco, you may not get the su highest salary in the whole San Francisco Bay Area, but you're gonna have an incredible career. You're gonna have a chance to work with really, really passionate, highly performing people. You're gonna have a global opportunity for your own personal career and you're gonna get to move around and grow and learn and be credentialed with one of the most successful companies in the tech industry. And they do fine. I have a friend who's worked at Cisco for a long, long time. He used to work at one of the phone companies and he loves it there. Speaker 1 00:16:51 And I'm sure he is paid very well, but they don't, they don't chase pay. So explaining that philosophy, and I mean being clear about it is important so people don't second guess why they're getting paid what they are or or what they're not. The third thing that comes out of the data is when you look at our maturity model is that only about 9% of the companies in the study actually operate at this high level of what we call systemic rewards. They look at the total deal, they think about philosophies, they think about their pay relative to benefits relative to flexibility, relative to career, relative to equity. They focus on pay equity, they do pay equity analysis, they do conjoint analysis of benefits. So they don't have benefits that people don't really pay attention to. That's only 9%. So 81% of you, and I know why this is, we're kind of doing the basics. Speaker 1 00:17:47 And one of the things that gets in the way, way moving up the pyramid or the ladder is performance management. Because there's a belief system going back to again, the industrial days that your pay should be based on your performance appraisal. So then we have this issue of is the performance appraisal fair? How was it established? Is there a common process used amongst all managers? Do we have the right level of talent, transparency and talent reviews? Where I'm at with performance management, and we've been doing lots of research on this, is first of all, this is the most despised process in hr. Better Works. Just did an interesting study of this and found that around 70% of employees believe it's a complete waste of time, which gives you kind of a just a sense of how much effort we need to put into this and we need to think about performance management in a systemic way, just like we need to think about pay in a systemic way. Speaker 1 00:18:45 It turns out, if you look at many, many studies of performance in organizations, the people that drive the greatest performance are not only the individual contributors that hit their numbers, but they're people that collaborate. They're people that understand all of the systems and all of the processes inside of the organizations. There are people that can inspire others. There are people that come up with good ideas and help other people succeed. There are people that will contribute to the rest of their team or the rest of the organization. They're people that are willing to redevelop themselves and retrain themselves and learn. They're people that are good at listening, they're people good at leading. These are not things that get written down in a goal plan that you hit or don't hit at the end of the year. So one of the reasons that the reward systems or the pay systems tend to be brittle is the performance management system is brittle. Speaker 1 00:19:37 So when we talk about systemic rewards, we're talking about looking at things like what does performance really mean to us and, and therefore how are we going to communicate it and reward it and manage it and measure it? And then what is the impact of these peripheral benefits like career and culture and other topics like that on the pay system. The final thing I'll leave you with in this podcast, I encourage you to look for Kathy's video and download the infographic when we put it out next week. And frankly, join our membership if you really wanna get access to all the details of this is that if you look at the top 15 practices in high performance pay and rewards, competitive compensation is in there. But eight of the 15 practices have to do with equity, transparency, and communications. So as you probably know, if you've been in the employee engagement world, when you really look at what drives happiness and engagement and productivity and compassion amongst your workers, it does come down to these issues of trust, belonging, feeling like you're part of a team, feeling like you're part of a mission and those can be enhanced or possibly damaged from the pay process. Speaker 1 00:20:57 So as you read through this and you look at some of the things that come out of this research, I wanna remind you that spend more time talking to your talent management and career and development brethren because they have a lot of things going on that affect the reward system in the company. Anyway, lots and lots of things to talk about. Let us know if you'd like to have a personal discussion about this. The research also includes an assessment. So if you'd like to assess yourself against our maturity model, please let us know. We've just added some new resources to the Josh Person Academy on this. So you can also join the academy, you can get pieces of this, you can join our corporate membership program and get all the details. And Kathy, we'll be doing more communications on this over the next couple of weeks as we roll it out. And if you're coming to the Health and Benefits Conference in Vegas this week, please come by and see us. We'll be going through some of the details there. Have a great week everybody, and thank you for listening.

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