Figuring out why your company pays what you do and taking a consistent and open approach to it — aka your compensation methodology — is fast becoming a post-pandemic necessity.
Not only has the rise of remote working raised doubt around the continued relevance of salaries being tied to geography, especially big city loadings, but companies are also facing more pressure to use salary transparency to help close gender and racial pay gaps.
According to Deloitte’s 2020 Global Human Capital Trends survey, 64% of organizations are currently revising their compensation strategies or plan to do so imminently.
69% say the changing nature of compensation expectations and strategies is key to their success over the next 18 months.
But with only 9% being “very ready” to address this, compensation strategies are “not standing the test of time, and redesign is becoming the norm,” Deloitte says.
In such demanding times, you might expect big companies at the forefront of remote and flexible working would be publicly setting best practices in compensation methodologies and salary transparency.
But it’s actually fast-growing tech companies, unshackled by institutional legacies and complexity, that are leading the way, says Ruth Thomas, a former senior HR executive at firms like PwC, Lloyds, and Credit Suisse, who co-founded tech platform Curo Compensation in 2010.
“Organizations have been struggling with the whole concept of pay transparency. Tech startups have been leaders in this with their open wage systems. The reality is that isn’t achievable for larger, more institutionalized organizations that have a whole load of pay history under their belts that they need to unravel to get to a point of pay fairness,” Thomas explains.
“When we talk about pay transparency from a best practice perspective, we say there is a continuum, which ranges from an individual understanding how their pay is determined, to everybody in the organization and in the public domain, knowing what someone is paid. And each organization needs to think about where it wants to fit on that continuum and make its own journey there.”
There’s still a lot of “reticence” from HR and reward professionals not wanting to share pay ranges, Thomas adds, because they “don’t trust managers to manage them effectively.” That’s a mindset that needs to shift, she argues, to enable effective pay decisions.
Small firms are leading the charge
Indeed, despite being recognized in the 2021 Remote Influencer Report as key voices in the remote working narrative, the likes of Amazon, Gartner, Microsoft, Facebook, Accenture, EY, and Slack declined to comment. Salesforce, Twitter, Trello, Loom, and Adobe did not respond.
From this previous UNLEASH article on listed companies embracing long-term remote working, Dropbox declined to comment, while Upwork, Spotify, Ford, Siemens, and Shopify didn’t respond.
“This work is hard — it takes time and puts power in the employees’ hands. Giving employee’s power has historically been a way to make sure you fork out more money – something we don’t mind doing, because it’s the right thing to do, but many other companies have different approaches,” offers Jessica Hayes, VP of people at Whereby, a video meeting platform which was founded in Norway but has had a remote-first policy since its inception in 2013.
Hayes has just released a detailed three-part blog series on how the company compiled its compensation methodology. She believes transparency through publishing salaries on job vacancies based on the formula — moving away from making offers based on the previous salary — will have a tangible impact on pay equality.
“This is absolutely crucial to fighting pay gaps across different demographics. We no longer negotiate. Our offers are transparent and focus on finding something consistent and equitable. This means we are able to finely control the impact on diversity and inclusivity,” Hayes asserts.
“60% of women say they’ve never negotiated their salary. The same tends to be true for minorities, while this is dependent on seniority. Juniors are much less likely to engage in a negotiation conversation, so we decided it’s best to not take advantage of those gaps. If there’s an area wide-open for disruption, it’s compensation,” she adds.
Salary transparency paving the way for inclusivity
“We realized salary transparency could help with our goal to create a more inclusive environment within the tech industry. Underrepresented groups are often paid less, which means salaries and job offers which are based on past earnings, really disadvantages them. In our research, we also learned women and underrepresented groups tend not to negotiate when they’re offered a job, compared with white men,” says Mercedes Bernard, Tandem’s VP of delivery.
“Making our salary bands public levels the playing field. Once we had defined those internally, we saw no reason not to share them, and walk the walk for the culture we want to build.”
Like Whereby, Tandem completed the undertaking with a small HR team, leading Bernard to consider why larger companies are holding back from weighing in on salary transparency.
“It would make me question what the values of that company really are and why they wouldn’t want to discuss this publicly, especially because a lot of big companies are releasing lots of content about inclusion and diversity,” she says.
“Creating an equitable interview and hiring process is the first step to building that kind of culture. Seeing a lack of large companies embrace pay transparency and an open conversation about compensation leaves me asking, ‘What don’t you want to share?’”
Spreadsheets prevail, so where does tech fit in?
Also like Whereby, Bernard led Tandem’s compensation exercise manually, mapping market salary data against their own company structures and other selected factors, using the tried and tested spreadsheet.
This mirrors Deloitte’s Global Human Capital Benchmarking data which shows this is how 57% of organizations continue to plan their compensation strategies.
Just 6% aim to use a third-party tech vendor, due to misconceptions about the specificity of their needs and lack of knowledge of new market offerings, the report suggests, despite the growth of platforms like Curo Compensation, CharlieHR, and HiBob.
“At the moment there’s no tech I’m aware of which makes this easier for startups. Compensation methodologies and frameworks have a host of legacy, bureaucratic, and ‘old school’ tools,” believes Whereby’s Hayes.
“I think this will become more a part of HR’s strategic focus, particularly in the world of remote working, because what could once be a ‘one stop’ solution now requires something much more complex, like an interactive calculator such as the one Buffer published.”
Similarly, Tandem’s Bernard didn’t have confidence in the compensation platform market offering for small businesses and is put off by the potential for AI to perpetuate systemic biases.
“We work in tech, and we know that with a lot of things driven by artificial intelligence, like there’s already bias in those datasets that the models are trained on. We wanted to make sure we weren’t placing our trust in something that might already be biased without us knowing it,” she summises.
Legislation as the tipping point
While Curo Compensation’s Thomas observes the US HR industry has made more progress on pay transparency than that of the UK, her conclusion is that widespread adoption of publicly disclosed compensation methodologies and salary bands will ultimately require legislation.
“Legislation will continue to drive the demand for pay fairness and transparency. Just because your pay has historically been lower, that shouldn’t impact your value for another suitable role. That’s the concept organizations are trying to move towards,” tips Thomas.
“If we’re trying to instill principles of fair pay, which the whole diversity and inclusion narrative is about, you can really only do that if you have established pay ranges.”
If key — or even new — tech players can overcome perceptions like those of Hayes and Bernard’s, platform demand may then follow suit — and hopefully accelerate progress in pay equality worldwide.