Bamboo HR Elevate Summit: The Impacts of Pay Strategy

Snowbird – There is a perpetual elephant in the room in every office and workplace: compensation. It’s that thing we think about but don’t talk about. Pay strategy can have huge implications to the ecosystem of your business. It can be the difference maker in attracting and retaining talent, which can determine your product quality, which can impact employee morale—and the sum of these parts can add up to either success or failure.

Dave Smith, CPO at PayScale, a compensation and software solution, and Justin Gagnon, CEO of Choicelunch and customer of PayScale, discussed compensation solutions at the Elevate Summit, BambooHR‘s user conference Wednesday.

“One of the things we’ve learned through a large body of research over the last three years is what really matters is not the number itself—that does matter, it is important—but it’s what you do with the number and how you communicate it internally,” said Smith. “It turns out it’s not complex, but it is really hard, and the thing that makes it hard is the emotions involved with having discussions around why somebody gets paid more or less than somebody who they think is just like them.”

Smith said that problems with pay are ubiquitous for many companies and have been for many years.

Gagnon’s company has been facing these issues head on. Choicelunch, a healthy school lunch delivery service, is based in California, a state that is on pace to reach a $15 minimum wage by 2021, causing a race amongst municipalities to be the first to hit the new minimum wage. This can be complicated for businesses like Choicelunch who have about 150 hourly wage earners spread out over different cities.

“Some of the issues we’ve been facing are attracting and retaining talent, because one of the things we’re finding is some of the other competitors have been employing a really smart strategy of jumping to the minimum wage like six or nine months ahead of when everyone else is going to be there,” said Gagnon. “We’ve been losing good people, and we’ve been having a difficult time bringing new people in the door at our current rates without causing significant wage compression.”

The result was Choicelunch being short staffed with underperforming employees. Gagnon said they were seeing a lot of mistakes being made that were impacting their customers. Morale took a dramatic hit. What Gagnon did next was a risk.

At one of their locations, Choicelunch increased the hourly wage for the hourly workforce by $1.50 across the board. This dramatic shift in the company’s wage floor came with the stipulation that managers be relentless with their expectations and fire underperforming workers. Having fewer employees allowed for the possibility of a net-neutral solution, and with their wages now above market they could finally attract the talent they needed.

“It took about two months to work through, but eventually it was not only net neutral but we had about a 2 percent savings in March versus January on less heads, and cut mistakes by half,” said Gagnon. “In three short months, a ginormous shift in pay strategy had a pretty big influence on performance in our organization.”

Choicelunch has since implemented this strategy in other locations.

Smith reaffirmed the importance of having a conscious and thoughtful pay strategy, and while the right pay strategy is different for every company, Smith and Gagnon did offer some advice for companies looking to implement something better.

“One of the things I’m passionate about is destigmatizing compensation. I don’t go to work for free in my company, my partners don’t do it. We don’t expect our managers to do it,” said Gagnon. “[It’s important to make] sure people feel fairly and adequately valued for the positions they are in and destigmatizing that conversation. Everybody is thinking about it so you might as well talk about it in an open manner.”

Part of opening that line of communication is being transparent.

“The vast majority of people don’t know if they’re paid at market, but that is primarily a perception problem,” Smith said. “The way to solve the problem is to share the information and be transparent. Be a little bit more open about the information you’re sharing with managers and employees so that at least they have some context for why they’re paid what they’re paid, and what they can do about it if they don’t want to be stuck in that range, what the next job is, the career path, or if this is not a good fit for them. It invites having that conversation.”

Finding the right level of transparency in an evolutionary process. Gagnon said that his company’s transparency will differ based on the level of employee, among other factors.

Making sure employees are aware of all the ways they are deriving benefit from a company is important too. Smith said that a lot of this comes down to just sharing that information because people don’t reflect on benefits the way they do their base wage.

“Mercer did a study recently and they said that the average employee thinks about money for 13 hours a month, and that’s kind of crazy,” said Smith. “Now imagine if, in a really simple way, you can alleviate that stress.”