Bill’s still on his trip to Tahiti.
Kaite’s still out running errands.
So today we’re delivering the audio of a recent webinar we did in partnership with The Predictive Index.
The topic was reducing pay inequality, and Payfactors’ very own Kim Taylor joined Jackie Dube, VP of Talent Optimization at The Predictive Index, to chat about the wage gap and associated audits.
Want to hear more on this topic?
Join us at CompCon on Oct 21-22 to hear the head of total rewards at Salesforce discuss their journey to pay equality.
And, as always, if you like what you hear, rate and review us on iTunes, SoundCloud, or wherever you listen to our dulcet tones.
For a full transcription of the episode, see below.
Thad: Hi there. Thank you so much for joining us today. My name is Thad Peterson. I’m the senior director of marketing here at The Predictive Index. We’re gonna be covering a really important topic, which is how to make sure you don’t let bias seep into your workplace in the forms of disparity when it comes to compensation. I want to start by introducing our two guests. We’ve got Kim Taylor who is the VP of compensation data operations at Pay Factors. She leads the strategic direction of Payfactors compensation database and oversees all client compensation assignments. Kim has partnered with hundreds of organizations to develop and refine their comp programs and Jackie Dube who is the VP of talent optimization at The Predictive Index. She leads our HR function and she oversees all aspects of talent optimization at the company, including talent acquisition, performance management, comp and benefits, and organizational design and development.
One housekeeping note. If you have questions at all during the course of the Q&A, just click on the little button that says “Q&A” and type your question in there. And we will try to get to it towards the end of the webinar. So we’re gonna start with a little bit of an unfortunate stat. Women working full-time earn about 80 cents for every dollar men make. Now, that’s progress. It’s better than it was 10, 20, 30 years ago, but clearly it’s not where it should be. Kim, I’m gonna start with you. From your standpoint why? And this is a big question. Why does the pay gap persist?
Kim: Well, I think first we need to think about a couple of different things. The first is that some of that pay gap might be legitimately explained by differences in jobs. Women tend to populate jobs that are a little bit lower compensated than men. Women tend to take a little bit more time out of the workforce to care for others, and both of those can have an impact on compensation. But I also think that women are often times socialized to be a little bit less forthcoming when it comes to negotiation. They’re not encouraged to negotiate their salaries upon hiring. They’re not really taught to, I guess, tout their own accomplishments when it comes to time to negotiate for raises or promotions. And I think that really contributes a lot to the gap.
Thad: And Jackie, you deal with these issues day in and day out. How do you see the pay gap manifesting itself?
Jackie: I mean, I would agree with Kim. And I think we do spend a lot of time and I personally spend a lot of time working with women in the organization, you know, knowing their value and having the confidence to ask for what they deserve. So I definitely think there is a lot of merit to that.
Thad: Kim, you work with a lot of companies dealing with comp issues. Can you talk about some examples where you’ve seen like real pay gaps in the workplace?
Kim: Sure. When I start working with a client, you know, we do a discovery phase where we talk about sort of what they expect to find over the course of an audit like this. And for the most part, they generally think that they’re pretty well equitable. They’re paying pretty fairly. And we actually find that across the board, that does tend to be true. When you look at the entire employee population, there’s usually only about a 5% or 10% difference between men’s and women’s salaries. But when you start really digging into the data, when you start looking at people in specific job titles, those gaps can be much, much larger, sometimes on the order of 30%, 40%, 50%.
Thad: It may be an obvious question, but how do you know if a pay gap exists? What data do you look at it? I could imagine it actually being somewhat tricky to figure it out.
Kim: It is, and you know, unfortunately, there’s not really an easy answer to doing one of these audits. You really have to get into all the data that you have at your disposal. Sometimes you have to pull historical data. You have to go back to resumes or applications to get the data you’re looking at. But at the most basic, I think, obviously, you need to know what you’re paying your employees and not just from the base salary perspective, but you need to look at their bonuses, their commissions. You should look at benefits if that’s something that varies, but you also need to know what your employee demographic looks like. Obviously, who’s male versus female? What are their performance scores? How long have they been with your organization or how long have they been in the workforce in total? All of that information can impact how much somebody is being paid and you wanna make sure that you’re taking all of that into consideration when you’re conducting an audit like this.
Thad: Jackie, I wanna kind of loop back to something that we were talking about before. You talk to a ton of candidates when they’re on the verge of making a decision about whether to take a job these days here at PI, but you’ve done it at other companies. Have you noticed a discernible difference between I guess I’ll say, how assertively men and women will negotiate around salary?
Jackie: I think I have and I would say I believe that for me, the experience, the negotiating skills differ as you get higher in the organization where there seems to be more negotiating, more assertiveness in terms of compensation and asks. And, you know, I guess that’s where I would see the most of it.
Thad: So what actions should accompany take if there’s a pay gap? What are the best practices for communicating it out to the company? What do you have to say on that one, Kim?
Kim: I would say that it’s important to be honest with your employees. Be honest about what you did and why you did it, why you undertook this audit in the first place. To an extent, maybe be honest about the findings. When you’re rolling out any increases that you’re making as a result of this audit, explain to the employees why you’re granting those increases. I think that they tend to value that level of communication. And I think that most employees feel like they want some transparency in the compensation process, whether it’s overall or specifically with respect to equity.
Thad: We recently went through something here at PI. We went through an audit of our comp. And I’ve worked at quite a few companies, pretty enlightened companies at that, and maybe I just haven’t been aware of it, but I haven’t actually haven’t known a company to do this kind of audit before. So Jackie, you kind of spearheaded that. Walk us through. Let’s start with like what prompted that to happen in the first place.
Jackie: Sure. There were actually two things that were the impetus for us embarking on that. And the first was I went to a conference and there was a bunch of HR leaders in the room. And Patty McCord of Netflix Nureyev was leading the talk and we were talking about the gap. And, you know, she basically said, “You cannot complain about this. You’re the people that are accountable and responsible for changing it.” And I left that room like, “I better go do something and make sure that we’re not a part of the problem.”
Similar timing, our CEO had gone to a group of his peers that he meets with regularly and this was a topic of conversation. And he came back to me pretty passionately wanting to know like, “Do we have a problem? And if we do, we need to fix it because that’s not the kind of company that we wanna run.” So there was, you know, two very forceful forces that really embarked on that journey, so…
Thad: Walk us through the details of what you did. And I’m sure people who are listening to this are kind of…would be worried about how big of an endeavor this is to go do like a real audit of comp. So talk about what you didn’t also talk about how much time did it actually take you.
Jackie: Sure. So for us, at the time it was about maybe a year or a year and a half ago, and we were much smaller at the time. So I think having even larger we are now, I’d probably work with someone like Kim. But we really went through all of our employees. And just like Kim had mentioned is we looked at experience. We didn’t have a lot of people in the same job. So we did have to look at, you know, a lot of similarities across types of jobs and promotions, increases, how long they’ve been here. We put all of those in things into or looked at all of those things when we were, you know, assessing our situation.
Thad: And so, especially at smaller size companies, oftentimes people, the HR team, is an understaffed and they’re stretched really thin anyway. So taking on something like this can be kind of daunting. How much time would you say it’s took all in?
Jackie: Yeah, I would say all in between the discovery, the conversations, the corrective action plan, communicating to employees, and making the corrections, it probably took 20, 25 hours total.
Thad: And you had mentioned there communicating out to employees. Talk about that, how you handled that piece.
Jackie: Sure. So, you know, we didn’t wanna hide the fact that we had this discrepancy. We were actually pretty proud that we went on the proactive stance to look and really discover are there any inequities. And we simply sat down with employees and said, “We wanna make this correction.” And we talked to them about it and they were actually super appreciative because it was unexpected. And so, you know, communicating from that standpoint was not an issue.
Thad: Kim, what do you do when people aren’t aware of the problem and what do you do when there’s concern about not having enough budget to fix it?
Kim: Well, I think sometimes when you say that, “We’re not aware of a problem,” what you’re really saying is, “We don’t discriminate.” And I don’t think that anyone’s saying that companies are specifically underpaying women or specifically discriminating, but I think that the data that I’ve looked at anyway does show that there is a disparity. And so just because you don’t think there’s a problem doesn’t mean that we can just trust that there’s not a problem. So I think you really need to dig in. And if there’s not, that’s great and then you don’t have to worry about anything. But if there is, then at least you know what you’re dealing with.
Thad: And what about the budget issue? Like, not too many people wanna poke and prod to find new ways to spend money.
Kim: Yeah. And you know, sometimes the results of these audits can seem very costly. And usually, I counsel my clients that at least you know what the problem is, you know how big it is, you know what’s gonna take to fix it, and you can develop a strategy to fix it. And it doesn’t necessarily need to be all fixed right away. Maybe you carve out a certain segment of your employee population and you take care of those inequities in the first pass and the other two or other populations we handle over a two or three-year cycle. At least you know what your problem is and then you can decide how to fix it over the short and long term.
Thad: So I know this is difficult to answer because my understanding is that it varies from one state to another. But how costly can it be to not address the problem?
Kim: It can be very costly and like you say, it really does depend on the state laws. But at a minimum, I think you’re usually on the hook for bringing employees up to an equitable rate. In some cases, you can be on the hook for back wages and I believe sometimes damages as well.
Thad: Got it. Okay. So as we alluded to, we did this audit about a year ago here at PI. Kim, in your estimation, how frequently, how often should companies do this kind of audit or an assessment? When should PI do its next one?
Kim: Well, I guess ideally you are thinking about this continuously. Every time you bring somebody into the organization, every time you have a pay action, you’re looking at how that sits with respect to the rest of your employee population. So in theory, you should be staying on top of it on an ongoing basis. With respect to how often you do a complete audit, I think that’s probably gonna depend on how much movement you have in your employee population. I probably wouldn’t want to go more than three years though.
Thad: Okay. And Jackie, along those lines, I know that you try to do some things on an ongoing basis to make sure we’re doing our part on this front. Can you talk about some of those ongoing maintenance things that you try to do on our team here?
Jackie: Sure. And, you know, once we went through this process is we changed our entire practice around hiring and pay actions. One, we brought in a coach for our executive team to understand the differences in how people communicate and negotiate to really enlighten the conversation when this happens across the organization for pay increases or promotions. And then we trained our people operations team for hiring and really changing how we ask the questions when looking to find out what people are looking to be paid. And so typically maybe a year ago you’d say, “What are your salary requirements?” And now we start with what we pay for the job and so versus, you know, where we ask the candidate first is we’ll let them know what the job pays. So it’s regardless of who the person is necessarily. It’s like what we pay for the job. And then we ensure that we’re hiring the right person for the job that we wanna pay. So we really changed the way that we hire.
Thad: So something that’s going through my mind as you’re saying those things is that, you know, there’s what’s within your control as a recruiting team. And then there are so many things that aren’t in your control. You can have a hiring manager who’s just desperate to fill the position. You can be dealing with one candidate who has a job that pays out a certain amount right now and isn’t willing to leave for anything less. There are just a lot of extenuating circumstances. And it seems like comping fairly when there all these things outside of your control could be close to impossible.
Jackie: Yes. So when we go outside of what we’re expecting to pay for a job, we look at it with the lens of equity. So our recruiters understand that we wanna make sure we maintain equity since we’ve gone to this process. And so we do look at things that, you know, specific skillsets that maybe are in high demand. Do we need to pay a premium to bring that in? So there are things outside of what you would normally expect to pay for a role. But we always look at it with the lens of why would we go outside of our, you know, dedicated range for that role?
Thad: I wanna ask you both a kind of similar question. Jackie, on your end, do you make an effort to educate managers on the differences in how people communicate and how they negotiate? And then Kim, also, like when it comes to educating managers, how do you educate managers about these issues of gender equity when it comes to compensation? So, Jackie, maybe we can start with you.
Jackie: Yeah, so we definitely have done training across the organization on implicit bias and we all have it and we need to be aware of it. So we have trained managers. I mentioned we brought in a coach for our executive team to talk through that. On the reverse side, we are bringing coaches in fact in two weeks to help our employees with empowering themselves to speak confidently and to learn how to negotiate for themselves. So it’s a two-fold process in order to, I think, solve that problem and get people to be able to talk confidently about what they think they deserve.
Thad: And Kim, how about you? You do a lot of organizations when…and comp can get really tricky and really nuanced and there’s actually…when you get into it, there’s a lot of technical jargon. So when it comes to just educating managers, it’s…
Kim: Yep. There’s a lot of technicalities in common. It seems like a lot of math to somebody looking in from the outside. And so I try to try to talk to managers about it in a way that’s very, very simple using concepts that they can understand so that then they can have those conversations with their employees. So we tend to not talk to managers about salary structures or benchmarks or compa-ratios or minimums or maximums. We instead talk about an acceptable range of pay. We might talk generally about how somebody’s position, “Oh, they’re above average with respect to the market,” or, “They’re one of the higher-paid employees in the organization.” So we try to get away from those really technical terms so that managers feel like they really understand what we’re talking about and they feel like they can have intelligent conversations with their employees.
Thad: I just had something pop to mind while you were saying that. I know you’re in Massachusetts. There was a change in the law recently, as I understand it, that you actually as…when you’re talking to candidates, you’re no longer permitted to ask them about what they’re compensated at presently because that can sort of perpetuate these inequalities in comp. Any other things that you would advise people to stay away from or just cautionary notes you would give to people about when they’re having discussions with candidates where they need to sort of watch where they prod?
Jackie: Yeah. I guess the way I would think about that is we encourage our managers not to have the comp conversations in hiring with candidates. And we try to keep that within our people operations team because we don’t want our managers to get themselves in a situation that they don’t even know about.
Thad: So leave that to the pros.
Jackie: Right. And so and we try and be as open and honest with candidates once we’ve established a baseline for what we’re looking for because, I mean, we tell candidates that we don’t want anyone to come into PI ever feeling that they’re underpaid or they don’t get paid enough for this job. So I think transparency in not only what they were accepting their job at, but what they can expect for raises and promotions and how our whole pay program works so there’s no missed expectations when they start.
Thad: Awesome. Anything to add to that or…?
Kim: I think she mostly covered it. I also…I would agree that the conversation should be driven by the HR department. And I think that it’s helpful for managers to understand that when we talk about equity, we don’t always mean just in their specific downlines, that we mean across the entire organization. And you really need your HR department to help you with that, to help you get…to have that visibility.
Thad: Okay. So for people who are listening, let’s talk about actionable steps, steps that anyone can take to ensure that the wage gap is confronted head-on. Kim, let’s start with you.
Kim: I think first I would say have an established and articulated compensation philosophy. Know how you wanna pay your employees and apply that across the organization because if you’re handling compensation on a one-on basis, that’s kind of the Wild, Wild West. You really don’t have any control over what’s going on in your organization. So know how you wanna pay people and make sure that your managers understand that and feel like they can talk about it to their employees.
Jackie: Yeah, so I think that those are the right things. When I think about, you know, correcting the problem if you have one, that it’s really important for your senior team or your leadership of your organization to have bought in, that, you know, this is not the kind of company or the kind of practice that we want to be a part of. And maybe that’s part of your compensation philosophy because then when, if a problem comes up or there’s a challenge you have with obtaining a, you know, superstar candidate or potentially, you know, you might be losing a top performer these conversations aren’t a surprise. You can bring that into the fold. So I really think that, you know, not keeping that conversation to just your HR team, but really the whole initiative to your senior team.
Thad: One last question and there are a bunch of questions that have come in from the audience, so we’ll get to those. Jackie, I’ll orient this question towards you. Hopefully, comp is not the only way you’re motivating your employees. So can you talk a little bit about how companies can do a good job of motivating their employees beyond comp?
Jackie: Absolutely. So and that’s part of our compensation philosophy. We talk about compensation, your actual paycheck as one piece, but there’s… You know, for us it’s challenging work opportunities, career development, and advancement, professional development, being able to provide a mentor. You know, it’s everything around your flexible schedule and can you provide work from home opportunities and more importantly, you know, recognition. Recognition isn’t always in a paycheck or in a bonus. There’s so much value in specific feedback on performance. That goes much further sometimes than, you know, a spot award or a bonus.
Thad: I think you may have actually touched on this. Is there a general consensus on what the reasonable threshold or acceptable difference between male and female, between male and female pay discrepancy? I don’t know if there’s an acceptable discrepancy. But it’s probably not reasonable to think that everybody’s gonna get paid to the penny the exact same amount for the same job. So what’s a reasonable discrepancy?
Kim: I think that is very much dependent on your organization and what you like to account for. You know, what do you feel like is safe as a pay component. Are you going to account for pay performance? Are you going to account for tenure, what have you? I generally focus on anything in excess of 5% to 10% to start with because I think, you know, like you said, it can be a little overwhelming to look for any tiny little gap at all. So I think a little bit of a threshold is a good place to start.
Thad: Great. Okay. Here’s a tougher one. What is your thought process when deciding how to prioritize different pain equities such as gender, race, ethnicity, religion, etc.? Which do you start with?
Kim: I don’t think you can start with just one. I think ideally you look at all of it and you correct all of it simultaneously. And I think realize that that’s, first of all, a lot of work to do and it can get very, very expensive. But, you know, to that questioner’s point, all of those are considered protected classes in a lot of places and you can’t pick one at the exclusion of the other, unfortunately.
Thad: Tough love right there. [inaudible 00:22:28]
Kim: And you know what? I actually… There’s one point that I think we probably want to make is specifically around gender. And that is that when we talk about equity and when it comes to gender, we don’t just mean having women paid as much as men. We also need to look for instances where men might be paid less than women employees who are in comparable roles. So it goes both ways.
Thad: And you’ve dealt with a lot of companies going through this. Have you actually seen that it cuts both ways?
Kim: It does. I mean, it does seem to be more common that the women are the ones that are being paid a little bit less competitively. But we certainly have found instances where the opposite is true.
Thad: Since bias seems to occur with decision making, do you have any advice on how to train the organization to make good decisions? What are flags to have them think holistically about making decisions to eliminate bias for reviews and making pay decisions? I guess I’ll start with you, Jackie.
Jackie: Yeah, so I mean, one is bringing awareness to the fact that there is bias because that’s, I mean, setting a baseline. And for all promotions, pay decisions that happen in our company, our HR team is involved. So we typically ask questions around, you know, if someone’s being considered for a promotion and their manager is like, “I wanna promote this person,” we’ll typically say, “Have you thought about other people in the company? Is there,” you know, whatever the list of questions is. But we definitely have a centralized place to make sure that we’re looking at the broader organization versus just one manager’s opinion of one employee.
Thad: Got it. Anything you’d like to add that, Kim?
Kim: I think that’s great and I would add you get input from as many people as possible so that is collective decision making. That way you can reduce, I think, the bias with anyone decider.
Thad: Is the pay gap ever adjusted by making cuts versus increases? I guess I’ll ask you, Kim, because you deal with more companies.
Kim: You know, I actually think there are some states where that’s not allowed, that’s not considered an acceptable way to remedy the gap. And then I would add too that pay cuts are very, very demoralizing, you know, to the person that’s receiving the cut and to the people who hear about that because other people are going to find out. You can’t cut one person’s pay and expect that no one’s gonna know about that. So I can’t think of a situation in which I would recommend that as a solution.
Thad: A company gives pay increases to make the workforce equitable. Are there legal liabilities for the company because they were not paying fairly to begin with?
Kim: I think there could be. That’s probably highly dependent on the state that you operate in. Every state’s laws are a little bit different, so I think that that’s a possibility.
Thad: You also mentioned that companies should have a formalized compensation philosophy. How formal should a comp philosophy be and how widely do you share it with your employees?
Kim: I think at a minimum it needs to be, “Our approach to compensation is that we’re going to target these companies as a competitive recruiting market and we’re going to pay at market, above, market, below market,” whatever the specifics of your philosophy are. Some get down to this absolute detail, “We’re gonna pay at the 50th percentile of market.” I like to see it shared fairly widely. You know, that doesn’t mean you have to go into detailed specifics. You don’t need to share your benchmarks or your salary structures. But just be able to explain to your managers and your employees how the organization perceives compensation as a part of the total of awards package.
Thad: Should the gap analysis be based on base pay only or total cash comp? How do you assess? So I should count for rewards that are based on personal performance.
Kim: I like to look at all of them, but I also like to look at them separately. So, you know, for example, when I’m thinking about bonus payments, I like to recognize that they are not guaranteed. And so I think you have to take that into consideration when you’re looking at the total rewards package. And what I mean by that is I specifically worked with one client who had one employee who had a $60,000 base salary, no bonus opportunity, and a comparable employee who had a $50,000 they salary and a $10,000 bonus opportunity.
We just looked at the total cash. We would say, “Oh, they’re paid the same,” but actually one of them has some pay at risk. And so there’s a guarantee, not a guarantee, that they’ll get that pay. And I think you need to look at all of the individual pay components individually and the whole.
Thad: Okay. So as if this issue isn’t tricky and thorny enough, we live in a world where you’ve got more and more distributed workforces, so people working in remote locations. In some cases I suppose, you know, across different parts of the world in different countries, we have a distributed workforce and have many issues finding accurate and reliable information about geographic differentials. Are there any tools you use to best account for both cost of living and cost of labor differences? How do you recommend assessing geographic factors as part of the whole comp design?
Kim: I’m gonna put in a shameless plug for pay factors. We have compensation data for a number of international locations all across the U.S. It can help you determine what the fair salaries would be in a market. Specifically, as it relates to pay equity, I do usually incorporate geography into my analysis. You can’t compare somebody in Atlanta to somebody in San Francisco. So when I’m carving out my employee data, I do tend to segment them based on where they work. You know, high performing or high-cost locations will be compared to other high-cost locations, lower-cost locations compared to other low-cost locations.
Thad: What if the company after finding pay issues cannot afford to address it in one fell swoop? Can it be done over time? And we can start with you Kim and then Jackie.
Kim: Yeah, I think that I do typically work up a multiyear plan. You know, two, three years is not uncommon. I would probably focus on the biggest, most egregious gaps at first and maybe also focus on the employees that I’m most concerned about keeping. Like any time when you’re trying to bring people to market or you’re trying to correct inequities, focus on the biggest gaps, the high performers that people you really are most concerned about.
Jackie: I would’ve said the same thing. We didn’t have an egregious problem, so we were able to correct ours fairly quickly. But before we knew that I think that if we were to say, All right. How are we gonna make a corrective action plan,” it would have probably been to address the most egregious first and put a plan in place.
Thad: Kim, thank you for coming in and sharing your expertise with us. Jackie, thanks for sharing your expertise with us. Have a great day.