More transparency is coming.
Andrey Popov/iStockphoto
January 24, 2022 8:39 AM EST

With the new New York City law requiring disclosure of minimum and maximum salaries for any job posting, companies are scrambling to sort out how to prepare for and handle the broader pay transparency that could bring. This comes as many businesses already need to adjust their compensation policies for remote workers and have to decide how to factor high inflation and retention concerns into their raise pool

“This is certainly the most challenging time in my career to do this work,” says David Buckmaster, who oversees pay and benefits at gaming company Wildlife Studios. Buckmaster last year published Fair Pay and is a former compensation leader at Nike, Starbucks, and Yum! Brands. We spoke with him this week to better understand what organizations, and individual workers and managers, should be doing right now. Here are excerpts, edited for space and clarity:

 

There is a new law in New York City that requires posting minimum and maximum salaries for positions, aimed at reducing pay discrimination. Is this indicative of a trend? And what are the implications for pay transparency?

It’s definitely the trend. Every company is going to have to be responsive to it, and the reality is that most companies are not ready for it. When companies are struggling with it, it’s typically not because they don’t think it’s a good idea; it’s because they probably don’t have their house in order. For one thing, transparency clearly shines light on decisions that some rogue managers may have made for part of their team but not the other part of the team. This is the kind of legislation that will force companies to get better extremely quickly.

This is especially challenging in the US because the US operates in a much more granular compensation style than any other country in the world. If you are in France, the UK, or Brazil, you don’t see as much striation across compensation for similar jobs. Whereas in the US, you’re going to see big differences between New York, San Francisco, and then Cincinnati. Because we’re so big we’ve basically set up different geographic zones, and many companies have gotten extremely granular, even down to the zip-code level for hourly jobs.

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People will naturally immediately start pointing to the New York City rates. That will be a really interesting time for how companies respond, if they go to more national rates or if they elevate everybody else. What they do is going to be dependent on their employee mix and where people are. If you have 1% of your people in New York, you won’t make that change to more national pay rates. But if 1% are in Ohio and 99% are in New York, you’ll probably make the change just for administrative reasons.

It’s challenging for sure, because you have to make it public, and then once you make it more public, people are going to wonder why they’re placed in a certain part of the pay range. Companies are probably all trying to figure out, ‘Do we need to do a one-off pay adjustment under this new world before this stuff goes live?’ A lot of companies have been caught really flatfooted on this.

 

So there are discrepancies among pay for similar positions that are the result, in some cases, of relatively nuanced and sophisticated classification of workers by geography, for example. But in other cases, it’s just ad hoc differences—someone got a competing job offer, and their employer decided to raise their salary to retain them, for example. So what pay transparency does is it forces companies to look across their employee base and actually confront these discrepancies….

Yes. That minimum number is actually a lot more important than a maximum number. When you’re transparent about the minimum of the pay range, it takes off the table the ability to lowball people. Pay ranges typically can be very, very wide. If I see that the market rate for a marketing manager is $100,000, companies will typically set their pay ranges even 50% or more width across from that. It might go from $80,000 to $120,000. You don’t know where you’re going to land in that, but saying that you can’t go below $80,000 as an employee is super helpful, because you can self-select into certain jobs or not.

In that sense, it will eliminate all of the companies that are bad actors or have poor HR practices that might take that job and give somebody $60,000, because they’ve asked their previous salary history and they’re being cheap. That’s pretty good.

​​If there’s one coda to pay transparency, it’s that for the companies that have chosen to go extremely transparent, the more transparent they get, the more likely they are to introduce a very formula-based pay approach. The only way they can effectively administer that is if they go very formulaic. That is one reason why companies have been hesitant to do this. They don’t want to have to go super formulaic with pay because they always want some margin to be able to reward super top performers or to make counter offers. Once you start breaking formula for certain people, then it doesn’t work anymore for anybody.

 

What are you advising people about geographic-based compensation, including adjusting people’s salaries up or down for remote/hybrid work arrangements?

I don’t think you should lower anybody’s pay. I think that’s a recipe for disaster. I know some companies have done this, but ultimately compensation teams are having to react to the decision that sits upstream of their ability to influence—which is, are we going to require people to go back to the office or not? Everything hinges on that question. If you’re saying, ‘We expect people to be in the office in San Francisco or New York three days a week,’ that person can’t leave the area, they’re tethered there. But if you’ve said somebody else does not have to be, and they can be in Florida or Texas or whatever and you’re paying them the same, you’re naturally going to create friction on the other end with that person who you have not allowed to work remote. If their peer is now in Florida and they’re netting 20% or 30% more than you, it’s a lose-lose situation.

If a company has said, ‘We’re going to go full remote,’ then really it’s the employee’s choice. A lot of companies will figure out the right set of peer cities that they want to try and benchmark their talent for. Especially the bigger, super competitive players are going to expect most of their talent to be coming from some of the larger cities anyway, and they’re going to be highly paid and highly sought after.

They might say, ‘We’re going to look at market data and either take national data and add a 15% differential on it,’ something basic like that. Or they might take a mix of cities and say, ‘We’ll look at San Francisco, New York, and Austin rates, and blend them together.’ There’s all sorts of ways you can do this. But everything hinges on whether you’ve said that people have to go to the office or not.

So much of what compensation professionals have to do is just recognize that there’s always this ambient temperature of people being mad at you, no matter what you do, because everybody wants to be paid more at all times. A lot of us wake up and realize we’re trying to figure out, ‘How do we make fewer people mad at us today?’

That’s a terrible way to be operating, but that’s the reality for most of us. We didn’t say you had to stay at the office three days a week, that’s not our fault, but we’re trying to control that person who’s now bought this nine-bedroom house in Tennessee. We want the situation to be equitable to the extent possible, but if somebody’s already in your organization, they’re performing well, I don’t see any benefit of lowering their pay. That’s like you’re asking them to leave, basically.

 

We have significant inflation in the US, running around 7%. What’s the best practice for employers to address this as they think about compensation?

This is another area where compensation teams have been caught flat-footed. I’m 36. Most of the people that I work with are plus or minus 10 years of me. None of us has ever dealt with the US inflationary environment. We have literally never planned comp in a high-inflation environment.

Those of us who’ve worked in big global companies for a while have a better sense of how to deal with this. If you’ve ever had to do compensation for Turkey or Argentina or something like that, companies will typically break up their pay rate cycle into a couple of different timing periods. A lot of companies will say, once a year we give out raises in the US, we have a 3% of payroll budget. We’re going to navigate it that way. But now we’ll introduce a second pay cycle: instead of just January, we’ll do January and July, or whatever. They might break it into two, one so they can monitor the environment of inflation, but also so they can spread out some of those costs. So companies are having to build up secondary processes and run this multiple times a year.

 

Some employers are giving extra bonuses, given the retention climate and inflation. Would you consider a two-stage pay rise cycle this year instead, so that you can monitor things?

I’d probably break it into two, though it will depend on the context of the company. For most companies, they probably will want to stage it if they’re not going to be able to get good market data. The normal survey cycle really comes out once a year in the fall. If we’re looking at it right now, they won’t get fresh data. They might get anecdotal spot survey stuff, but not the hardcore real data that they want until this fall. A lot of them probably end up doing catchup investments shortly thereafter, so they understand their market position.

Most companies are never going to say, ‘Inflation is exactly this number.’ That’s what our merit budgets are. They’re always going to triangulate it based on where they show up to their market rate. If the market rates for this marketing manager example we keep using is $100,000, and we get the survey back and realize we’ve aged it forward and it’s only $102,000 now. That’s not 7%—they’ll try and set their market rates toward that. They have to try and navigate affordability, market position, and then the employee experience and what they’re feeling in their paychecks too. It’s a difficult question, but I think most companies will probably look at splitting their cycles into a few different events, while also trying to make sure they put hooks in their top talent.

 

We know from surveys that people are considering changing jobs, and there’s also a labor shortage in some areas. How is this impacting compensation?

A lot of companies are freaking out and throwing money against the wall right now, hoping something will stick. Companies can operate in a really robust data environment so they can understand who’s top talent, or do predictive analytics to say, ‘We typically lose people at this level around this tenure.’ So we need to have what you might call a ‘stay interview’ to say, ‘How are you doing? Are you comfortable with your career aspirations? I know you’re probably getting pinged on LinkedIn all the time.’ Companies will proactively do that because there’s the burnout feature, but there’s also—and this is not my phrasing, but I love it—the bore-out.

Some people are just bored. That’s where I was. I wanted to use the opportunity to take on a greater challenge, and that’s why I made a move. It wasn’t a compensation-related thing. With companies that are really good about that and can get ahead of that, it’s not necessarily leading with comp. It’s starting with, what does that person need? Do they need different projects? Are they remote, and now they haven’t seen their senior leader in a year because they don’t have that sort of cadence where they have opportunities to present to them? That kind of thing. You have to know your people and for some people it’ll be pay, but for other people, it might not be.

 

Read the full transcript of our conversation, including advice for what employees, managers, and leaders should all be thinking about now.

Read our earlier coverage of Buffer’s approach to pay transparency. And read our briefing on Fair Pay by Buckmaster.

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