What has shifted in compensation benchmarking? [0:03]
Compensation’s an exciting place to be. And it’s very dynamic right now. Currently, there are many new US players in the market — there are many startups that are competing for talent. And the other thing to say about the market data is it is really showing you the steady state pay levels. From the lowest to the highest paid, from the high performers to the low performers, to the newly hired to the long-term tenure, it’s a really steady state look.
What we’re seeing right now is many organizations are in growth mode. And in growth mode, you have to shift to the higher end of the pay ranges in order to see the appropriate range. So that the data itself at a midpoint is no longer as reflective as it should be. And there are many organizations, in particular, startups, that are frustrated that the data that they see is not necessarily representative of what’s happening in their recruitment, or even within their employees themselves.
So, you have to deconstruct the market data, go a little bit higher in the ranges, to really understand what’s going on because it is so dynamic and it’s so in flux at this point in time. Really looking at the ranges of pay that you have established internally relative to your external market, the market is defined by the first quartile to the median to the 75th percentile, and your salary bands should look accordingly. However, because we’re in such a flux, I would recommend that you move the top of the band a little bit higher to allow for those hard-to-fill positions, those key-to-retain positions, without calling them “exceptions.”
And many organizations have hiring budgets that they have to keep to and those budgets may be maintained by Finance and it’s sometimes quite prohibitive and a lot of HR departments complain about that. Well, push against that! I mean, really, truly, you see the reality, you know what the pay ranges are going to be, if we need to go above and establish range that is established by Finance, it’s really important in the short term to get those positions in. And you can explain to them that the ranges have been established by market data which may not apply anymore. So, it’s really important that we continue that partnership, but also have that other groups and other departments understand why it is important to be a little bit more in the gray now than we were in the black and white perhaps a couple years ago.
How should companies approach compensation benchmarking? [2:41]
The traditional way of looking at compensation is to compare like-to-like organizations — same size, same industry, same location — and really say, “how much do we pay for that that person?” But really, I think the idea now is we have to expand it in terms of not like/like organization, but, “where do we find and lose our employees to?”, which really broadens the definition of the market.
So, if you’re in technology and you are a startup organization, you are competing against midsize and larger organizations, especially for non-senior positions. And it’s really key to ask yourself the question, what exactly are those larger organizations paying? How are they paying? And how am I differentiating when we pay our staff? And accentuate those elements that are important to your organization. You won’t compete in all the elements of compensation; there’s certain things that larger organizations offer that you simply cannot. But for that you can, and that includes an excitement, and that includes opportunity and forward thinking that many organizations can’t offer, accentuate that.
So there is definitely a shift in that dynamic. And it’s really important to take advantage of the things that you’re really good at.
How can companies rethink compensation to be more appealing? [4:02]
One of the first things that you should really do is broaden your idea of what compensation is and really look at all the elements that are making it up. So base salaries. Base salary — we know we all have to be competitive. We know sometimes we have to go above the market on that. But base salary is really a bread and butter thing. But go beyond that to look at your benefit plans, your equity programs, the whole package. And don’t forget the things that really make employees stay at an organization — the sticky things.
So one of the very specific things that you can do to spice up your total compensation programs? Well, number one, don’t wait on an annual basis to provide pay adjustments or to do compensation reviews. Look at it more often. And quicker hits, perhaps smaller hits, will make a difference. You can take a look at your band structure, maybe even move it up a little bit on the top end to ensure that your critical positions are not exceptions. Nobody really wants to be an exception.
The other thing that you can do is again, take a look at your gender-based differences and ensure that in all your pay decisions, in your program designs, that you do ensure that you have diversity and inclusion as an attractive thing that you want employees to say. And finally, maybe put some money towards an employee referral program. These are all different examples that I’ve seen.
And perhaps one other thing is, as we all work from home a little bit more, don’t forget the remote work employees and the office set-up. And don’t ask the employees to pay for this on their own. People get resentful because they have offices that are paid for. So putting some money towards that is not an exception, it is not a cost. It is simply a transfer of the cost that you would have already spent and employees absolutely are appreciative of it.
How can startups approach compensation realistically but competitively? [5:56]
Well, startups have a reality of financial limitation. And there is a degree of relationship between what your revenue is or what your funding is, and what your labour costs can be. And to some degree, those two have to be decoupled in that you have to pay for what the market demands to get you to where you need to go and your growth patterns. And it’s really important to remember that, and as mentioned earlier, knowing that you’re competing against all sizes of organization, is something that’s going to help drive what you think the payment rates are going to be.
Now, having said that, startup organizations, they actually have a slightly different pay structure than large organizations. There’s generally more emphasis on base salary, there is a little less emphasis on annual bonus. And normally, equity is not as a sound element of the total compensation program, but it’s still there. So, knowing that and knowing that base salary is important, don’t be afraid to compete. Don’t be afraid to put the money where you need to to attract employees.
How do companies approach compensation in multiple locations? [7:09]
One more thing that startup organizations have going for them that really should not be undervalued. And that is the growth and excitement of opportunity of being part of something that is about the future. It’s a compensation program that is not about the here-and-now pay, but rather about the opportunity to make something big, to be part of that. As much as you can, promote that to your employees and promote that out there as you do your recruitment.
Compensation is now not necessarily about the market anymore. It’s really about the total cost of that pay, irrespective of location. But location does still count. I mean, I’m not going to fool you to say that there isn’t still differences across. We’re not quite fully there yet. So, when we look at the local markets, that also has to be coupled with the general philosophy and strategy of the organization.
So just because Winnipeg is different than Toronto, which is different than Montreal, it doesn’t mean that the general pay strategy — how well we want to pay, how we define performance, how we define career succession, what kind of benefits we offer, how frequent are the pay increases, what defines performance — should be really the same across all locations. We are still one organization, one general philosophy, and the only thing that should vary is the price point perhaps of that pay. But again, as we move more and more to remote work, that is going to diminish more and more. So it’s really important to keep a steady hand in terms of your general processes and general compensation practices.