Unit4 – The Relationship Between Market Dynamics and Compensation Management With Boyd Davis

Announcer: 00:00 This is Recruiting Daily’s recruiting live podcast, where we look at the strategies behind the world’s best talent acquisition teams. We talk recruiting, sourcing, and talent acquisition. Each week we take one overcomplicated topic and break it down so that your three year old can understand it. Make sense? Are you ready to take your game to the next level? You’re at the right spot. You’re now entering the mind of a hustler. Here’s your host, William Tincup.

William: 00:34 Ladies and gentlemen, this William Tincup. And you are listening to the Recruiting Daily Podcast. Today we have Boyd on from Unit4 and our topic is the relationship between market dynamics and compensation management. Can’t wait to talk to Boyd about this Boyd. Would you do us a favor and introduce both yourself and Unit4?

Boyd: 00:59 Sure. William and thanks for having me. So I’m Boyd Davis. I head up the global compensation planning software business for Unit4. We Unit4 acquired a small us startup called Compright at the beginning of this year. And I was CEO of Compright. So now I’ve joined Unit4 to continue that path. And Unit4 is a wonderful company. Unit4 is a 40 year world company that has deep experience in enterprise software.

01:24 And we’ve undergone a massive transition to the cloud with a completely rearchitected solution for all sorts of back office functions, HR, finance, and so forth. And the copyright family fit right in with a cloud solution. And I’m thrilled to represent Unit4 here. Focused on compensation, but Unit4 has a bunch of stuff that folks should look at if they want to look at leading edge cloud solutions for the enterprise.

William: 01:50 I love it. What I love about comp professionals, because these your clients. These are the folks that you interact with the most is their Excel geeks. You’ve most sophisticated spreadsheets I’ve ever seen have always come out of. It’s crazy. And of course you built software to help them get off of Excel and get into something more sophisticated and better for them, ultimately. But they are really, really, really geeky about… And it’s important to be geeky about this, about pay. And so I love it.

Boyd: 02:26 The comp professionals are definitely often the odd ones out in HR because they’re the analytical people, the numbers people, but they still are part of HR. And software will never take the H out of HR. It’s still a human-centric business. And I always say that a lot of these folks use spreadsheets because they have to, not because they want to. But compensation is 80% the same for most organizations in terms of how they do it. But that 20% is unique to their culture, their strategy, the talent that they want to acquire. And so they’re kind of forced to do these really, really customized spreadsheets and then send them out and get inputs. And it’s a mess. But yeah, they’re a wonderful audience because they’re the intersection of analytics and people.

William: 03:12 100%. And you’re right about being the outsider outlier, et cetera, because of all the reasons that you said. And it’s also the interaction. Because comp kind of is off on an island. And you’d almost… I’ve said this for years, that payroll should really be under finance, not HR. Comp, closer to finance than HR, but probably co-owned. To get it right, ultimately, you’re going to have to interact with finance. I mean, you you’re going to do everything-

Boyd: 03:51 In fact, actually in the United States, almost 100% of the compensation professionals we deal with are in HR. In Europe it’s much more split.

William: 04:03 Interesting.

Boyd: 04:05 A lot of the compensation professionals actually sit organizationally in finance, but your point is well taken there. There’s always an intersection-

William: 04:12 What do you [inaudible 00:04:14]-

Boyd: 04:13 Compensation’s the unique thing because almost everything… Yeah, go ahead.

William: 04:17 No, no, no, I there’s a little bit of a delay. Sorry about that. No, finish your thought Boyd.

Boyd: 04:22 I was going to say that everything else in HR, the goal is to be continuous. Continuous engagement with managers and employees, continuous performance feedback, getting employee engagement is a round the year process. So people are moving away from most of the annual processes. But the challenge with compensation is you have a limited budget. So anytime you can’t just change them continuously because you have to look at investments kind of normalized across the whole team because somebody may deserve a raise, but somebody else may deserve a raise more. And that’s I think one of the other challenges, which [inaudible 00:05:01]…

William: 05:00 Apologies again, I got myself into some hot water because Indeed… This is at the beginning of COVID. Indeed had reached out to me and asked me to write an article for them. And I said, “Okay. Oh yeah, fantastic. Love to. Love Indeed. And I wrote an article that it’s time to get rid of location based pay.” This is where pay inequities… This is where some of them come up is in my opinion, or in the article is Sammy and Tammy do the exact same job. Sammy lives in San Francisco, Tammy lives in Topeka. We pay Sammy the exact same job. We pay Sammy more because Sammy lives in San Francisco, but we’re not paying him the exact same.

05:51 So there’s an inequity. That’s built in based on what with location, with cost of living, et cetera. And my argument was you chose to live there. So it’s the job we’re paying for the outcomes of the job, which should be more equal. So of course, when I gave them that article, they came back and said, “You realize that everything at Indeed is location based.” I’m like, yeah, you should probably rearchitect that.

Boyd: 06:27 You’ve highlighted one of the three big challenges facing compensation professionals right now. And the one is the change in the work style coming out of COVID. Some level of this remote work will certainly be permanent. And it was a transition happening. And of course COVID accelerated it. And most organizations are still grappling with what’s the right strategy. A traditional way of doing compensation is to look at the cost of labor, not cost of living, not cost of local taxes or anything else. It’s the cost of labor. What would it take for you to hire the similar talent in a similar place? And that doesn’t change. The question is how do you assess that? And in an extreme case, you could look at what we sometimes refer to as the digital nomads who are not just working in San Francisco, but Topeka instead working in Columbia or Portugal.

07:28 And so that is one of the challenges, is organizations have to figure out what their philosophy is. To what extent are you paying for the output of the role, or are you paying for the talent? And I would say that that is not fully… There hasn’t been like some consensus. In fact, you see people going from the extremes of saying, we’re going to have everybody back in the office where a local cost of labor is the right metric. And you have other organizations that are saying, we’re going to pay everybody, the San Francisco or London rates and everything in between. And I don’t profess to have an answer.

William: 08:04 Nor do I. That was just an opinion article.

Boyd: 08:06 But I do think that it’s a challenge where compensation professionals have to make sure that they stay nimble. And in fact, those spreadsheets could be a bigger and bigger problem for them. Because if you change your policy, it’s pretty hard to change all the spreadsheets. But I do think that’s one of the three big ones that comp professionals are facing. And I’m sure we’ll get to the other two.

William: 08:32 Yeah, let’s do that. Let’s just go through the other two right now.

Boyd: 08:36 The second one is the obvious. We have global inflationary pressure at an unprecedented level, depending on where you are. Certainly here in the US, you’re looking at 8%, 9% inflation and you get to a mode where, oh my gosh, if inflation’s up 8%, if I get a 5% raise, which is actually pretty big by historical averages for an average increase, then I’ve actually got a pay cut. And you have that dynamic going along with this intense competition for talent, particularly in certain job codes that are hard to fill. So you have this whole inflationary pressure and talent pressure. At the same time, you have a number of organizations that are freezing hiring and maybe even laying people off and a fear of a potential slowdown. And I’ll probably have a different mindset about the threat of a recession by the time this airs versus when we’re having this conversation, it’s a day to day thing.

09:39 So the economic environment is also as dynamic as it’s been. I’m in my fifties, I’ll admit I’m kind of an old guy in tech. And certainly in my lifetime, we’ve never had this kind of economic environment. I remember as a kid, a young child in the late 70s, I was aware vaguely of all the challenges and with inflation and stagflation and recession going on. And we haven’t had anything like that in 30, 35 years, maybe 40 years. So that’s the other big challenge is how do you handle maybe a more dynamic and unpredictable economic environment than we’ve ever seen in most of our adult lifetimes, for workers. That’s the number two that requires people to be really nimble and adaptable and not be stuck in plans that were looked good six months ago. But don’t look good now. And I’ll highlight the third one, because you may want to go back to that one. The third one is this trend toward pay transparency.

10:42 And this is a really interesting one that’s also very local. You have markets like in the Nordics pay is very transparent. You can actually look at individual people’s income tax returns online. But in most other places, things like pay structure, pay ranges have been very, very secretive. That’s the way we all grew up in commercial America for nonprofits or commercial organizations or any others. A lot of times public sector has been much more transparent, but all everywhere else, it’s been pretty secretive. And now you have a few things going on. Haven’t been successful closing the gender wage gap to a large extent. And people view pay transparency as a way to address that. So you have legislation most notably in the United States in Colorado, you’re now obligated to publish pay ranges with job postings. New York City had a law that was due to go into effect that’s now been delayed until November.

11:39 And many, many other states and localities have put some form of pay transparency legislation on the books. Saying that pay ranges are going to be transparent. When you look for a job, when you get an offer, when you ask for it, there’s varying degrees. And we also see that younger workers, younger millennials, and certainly gen Z are much more comfortable talking about pay with one another. And most of the legislation out there says that you can no longer prescribe that can no longer punish people for having those conversations. So now we’re in a mode where comp professionals have to assume that within very short order, all of their pay ranges are going to be public information and an employee can figure out where they fall within the range. They can figure out what the ranges are for people that they may want to leave an organization and go to.

12:26 And a lot of organizations are not ready for this. And it’s funny, there’s a website out there that’s tracking over 200 companies that have posted jobs that can be done remotely, except if you live in Colorado. And they’re doing that because if they enable a Coloradoan and to take the job, then they have to publish the pay range for it. And they’re obviously not ready yet. So they just do remote except for Colorado, which is probably not a great long term strategy as you see more localities figure out how to say, “Hey, we want these things to be transparent. It shouldn’t be secret. People should know where the job range is.” And I think it’s probably a good thing overall. Because transparency gives organizations a chance to articulate why they pay people, what they pay them and give them a higher sense that it’s fair.

13:17 But when you look at this kind of post COVID dynamic environment around the work environments, you look at the economic environment with huge inflation, but a potential looming recession. And then you add to this mix of pay is going to be transparent whether people want it to be or not, then comp professionals have a challenge. And I look at it is great for our people. I’m a comp guy. And a lot of times they’re the whipping post inside a company. The employees don’t think they’re paid fairly. Managers think they’re not being paid fairly, not allowing to pay their employees fairly. The executives are saying we put all this money into the comp and now we have a chance to say, “Hey, there’s a lot of thought that goes into this.” Every comp professional I’ve ever met is passionate about paying the employees fairly in the market. And I think their efforts will become a lot more visible. So I view it as a positive, but it’s certainly a challenge.

William: 14:14 So tell us, let’s go into ranges. And where I want to go into ranges specifically is the active negotiation where we’re hiring front end developer, let’s just say. And the front end developers ability to articulate what they deserve, what their expectation is, et cetera, versus someone that can’t, or just doesn’t have the ability to negotiate or communicate in that way. It seems unfair from the jump that we have a range, but it’s kind of slightly based on another person that has nothing to do with their job. It has something to do with their ability to ask and negotiate and communicate and all these other things that aren’t related to their job. And so I’ve always looked at ranges. I’ve wondered to myself how much of the pay equity issue is related to people’s negotiation skills.

Boyd: 15:21 It’s a great question. And I think that there has been one school of thought that that’s a driver of gender pay equity, that maybe just on average women are less aggressive in negotiating than men. I think there’s some other research that says that’s not the case. And I think there’s an argument to be made that it’s a little bit sexist to even say that women don’t have that ability or they don’t have that mindset. So I’m not weighing in that is, or isn’t a driver, but certainly people have differences in their willingness, whether they’re men or women to negotiate. And I think publication of ranges is very positive in that sense. So if you pay an average front end and developer with some experience, say your range is a company is $120,000 to $150,000. And somebody may be a front end developer and somewhere making $85,000 or something.

16:22 And then they could look and say, “Oh, okay, no, the competitive range here is 120 to 150 and maybe I don’t have great results or I don’t have some of the skills or competencies that would get me to the high end of that range. But I should certainly be at the low end of that range.”

16:38 And organizations, aren’t going to be able to say, “Well, you’re making 85 today. So I’ll give you 95. Isn’t that a great deal.” So they’ll take away some of that mandate for people to negotiate in the dark and take away some of the rewards for people that figure out how to work the system. Again, I think that’s a positive for employees because our goal is not for organizations to get away with underpaying people that can contribute at that level, but just don’t know that they’re being underpaid. So again, I think it’s a positive for our workforce. If the job is worth 120 to 150, then yeah, maybe you say this is a big bump for you, but you deserve it. And by the way, the person at the organization who’s paying that individual well less than market should think about how to drive that person to a market minimum, at least.

William: 17:31 It’s interesting Boyd-

Boyd: 17:32 Or they have a very high risk of leaving.

William: 17:34 … Because from a recruiting perspective. Historically when we have a 120 to 150 range, it’s like used cars. We’re trying to get them as close to 120 as possible because it’s a cost savings. It’s been perceived and thought of in recruiting as a cost savings to the organization and the problem as more than anybody else is that is a cost savings, check. Got it. But it also creates an inequity or potential inequity in the organization, of peers. People that are doing the exact same job, same skill sets, same schools, all that, they’re Twinkies.

Boyd: 18:18 If you look at it though, if you get everybody within the range, we’ve gone a long way.

William: 18:23 True. Good point, good point.

Boyd: 18:25 And two is I see it actually more often than not the opposite, the talent acquisition people are typically not incented on the total cost of payroll for the people they bring in. They’re incentivized to fill positions, fill them with the best talent as quickly can. And so if anything, I see the traditional struggle is between a talent acquisition person who wants to bring the person in at the high end of the range because it gives them a higher chance of landing the candidate, closing the open requisition and meeting their indicators.

William: 18:58 Which plays a-

Boyd: 18:58 Compensation person looks at that and says, “Well shoot.”

William: 19:03 Which potentially creates a compression issue.

Boyd: 19:06 That was exactly where I’m going. The compensation person looks at this and says, well, now this person’s going to come in with maybe similar experience to somebody else who’s at the midpoint of the range. And all of a sudden you’re going to have what’s known as a comp ratio and all the comp professionals out there know a comp ratio, that’s out of whack. So that tension between talent acquisition and compensation is more often found on the side of saying, let’s have a total value proposition for this candidate that says, yes, your base pay may be at the lower end of the range because you’re coming to the organization new. But we have these talent development opportunities. We have this work life balance things. We have have a certain environment and culture we’re trying to create, that’ll make your life richer. And that’s also a really compelling story, particularly for less experienced workers or younger workers that are looking at work in maybe a different way.

20:05 I’m a solid gen Xer. And we were still coming of age in a time when it was keep your nose to the grindstone, work hard and things will work out, and work was maybe a bigger part of our self worth. And now we have a lot of people are looking to have a lot more balance, which of course I think is a good thing. As now a parent of a millennial and two gen Zers. I think that’s probably a good thing, but I do think that it does… Transparency is overall a good thing. But it’s hard to get to, particularly when you look at these other factors of how are we going to manage, pay for workers and doing the same job in two different locations, from a cost of labor perspective. And particularly when you look at this huge inflationary pressure and yet everybody getting worried about battening down the hatches for a recession. So I definitely think when I talk to customers, I’m often focused on, “Hey, how do you get at least the ability to adapt quickly to the market?”

William: 21:14 Boyd, I could talk to you all day. This has been absolutely fantastic. Thank you so much for carving out time, both your wisdom and your time. It’s just been wonderful.

Boyd: 21:25 Yeah. I love having the conversation. I’d love to help customers deal with these three big whopping issues and happy to chat with you. Anytime William, it’s a pleasure to be on your show.

William: 21:38 Thank you. And thanks for everyone listening to the Recruiting Daily Podcast, until next time.

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