Michael Downey

▶0:01HostWelcome to the Built by People podcast, where we share the stories and insights of the world's top HR leaders. Join us as we dive deep into the minds of HR executives, uncovering their strategies, challenges, and triumphs in shaping today's workforce. I'm excited to welcome Michael to the Built By People podcast. Michael, thank you so much for joining us. And as a starting question, I always love to ask if you could tell us a little bit more about your career journey and how you landed within Total Rewards.

▶0:58GuestSure. Yeah. So I have a, maybe not a super direct route. I started as a high school math and phys ed teacher. I taught up in the, just south of the Arctic in northern parts of Canada. Then I got actually a job right into compensation and I've done compensation for pretty much 15 years now. I became the director of Total Rewards a couple years ago and yeah, now I'm managing Director of Total Rewards at Datorobot.

▶1:26HostMichael, my first question for you is what is benchmarking and where do you see most companies falling short in their benchmarking practices?

▶1:35GuestYeah, I mean, so benchmark at a high level is really just leveling and aligning your employees both internally and externally. And it's broken down into two parts. So there's the level. So what is the actual level that they're working on? Are they a manager or a senior manager or a director? Are they Senior, principal, staff level, that type of thing on the level. And then the specialization is, well, what exactly do they do? So are they a software engineer, a DevOps engineer, machine learning engineer? For me, the level is key. The business can even match the specializations. You can just give it to them and say, you tell us what exactly the specialization that they're working on. But the level is where you see those really significant pay differences. That's where you would have those promotions is going level to level. And that's where I think you really need HR, compensation, total rewards, whatever you have it at your company. You need them to really help the business through that piece of the benchmarking. Where I see the businesses failing, because I've worked on this for a long time, I think the biggest piece that's missing is that the business sees this as a burden rather than a value add. I always tell them that. Compensation is here. We're here to help you spend your money efficiently. Finance's job is to help cut costs. They're always cost containment. That's their angle. Whereas compensation, we're here to help you spend it efficiently. So maybe it's helping to avoid overpayment, but we also might be trying to help avoid underpayment. There's internal alignment, pay equity, budgeting, all those things. Top talent. Where are your top talent paid? Are they paid where you want them to be paid and things like that. So that's the biggest one is they don't, the business doesn't see this as a value add. The other piece would be not treating this as a living document. You might say, you know, we hired a consultant 5 years ago and they did benchmarking and then it's been in a drawer ever since, or you've never even done benchmarking. But if you look at even these larger companies, the Googles, Microsoft, and things like that, you can even find those, their leveling structures. Just, you can just Google it and say, well, what are the leveling structures? You got the, you know, L5, 6, 7 at Google, they'll tell you this is exactly what our structure is because they see the value of being clear and transparent with these are the levels that we have. This is the level that you are. Here's the requirements for the next level and things like that. I think that what's missing a lot at these smaller companies, and by smaller, I'm saying, you know, anywhere from 100 employees to 2,000 employees, I think that there is it's a real hesitancy around getting started. A lot of times it's for cost because they say, well, we just don't want to, that's going to be a big initial cost to get this benchmark. We're going to need to bring in an external consultant because maybe you don't have the expertise in-house. But there is a real short version that you can do if you're a company that either has never done benchmarking or hasn't done benchmarking in a long time. And if you're okay, I'll kind of, I can kind of run you through like a 2, 3 minute version of how this would work. So I think that if you're going through this exercise, the first thing you do is you need to clarify what are the ground rules, because a lot of times the executive team especially might be hesitant around, well, what are we doing this for? Are you trying to cut salaries? Are you trying to cut headcount? Are you trying to demote people? Are we going to have changes in pay? Is this going to cause huge disruption within my business because of an HR project? That type of view is often how this is seen. So setting those ground rules up front, and I'm completely fine to say we're not going to do anything. This is just so that we're now coming in with this eyes wide open with here's where we actually sit. Here's where these people are paid. Here's where these titles are misaligned and that type of thing. We can deal with the next step after the fact. So one, setting those expectations and then being clear that you're benchmarking the role and not the person, because it's, I don't care if this person's a high performer, low performer. What are we asking them to do day in, day out? What's the scope of their role? And so if you develop, you can develop a leveling structure and, or you can buy one from the Mercers and Radfords of the world. You can Google it. You can, I'm sure ChatGPT can build you a leveling structure where you say, what's the difference between manager, senior manager, and a director? What's the difference between senior and principal? That type of thing. Because you need a common vernacular that you're sharing amongst your team. If you can create a file for the heads of the, these functions and say, here's your direct reports, maybe one or two levels down. Here's where we, based on their title or based on what we know about the role, this is who I think sits into this level. If you have a description and say, here's a description of a director, here's 5 people you have titled as director, reading this description, who of this group best fits this description? Not who's the best out of this group or who's the worst or whatever, who best fits this description. And if you have that match, that now becomes your anchor job. That becomes way easier because now you can say, okay, Sally, the director of accounting, we all agree this is a director. If Sally's going to sit around a table with these 5 other people, are they going to say, these are all my peers? Or are they going to say, what's Jerry doing here? Because Jerry's not at the same level as us. Jerry might be higher or lower. It becomes way less abstract because if you've ever read the descriptions for the Radfords and the, you know, Towers and Mercers and all these, they're intentionally vague descriptions of, well, what is a manager? What's a senior manager? So I think it's important to find a person to say, that's what we're aligning this against because it's easier to say they're on the same level as Sally or they're not. And we can deal with those exceptions. You can just do that to go down through your org. A couple levels, depending on the size of your org, of course, have leaders input and then roll it back up. So now you're back at those function heads and saying, here's the input from your team. Now that we see these other outliers, where do we think, is this person a low senior manager or a high manager? And you need to kind of make those decisions. Having that is, it will get you 90% of the way there on benchmarking, even if you had very little expertise. If you have an HR team or even an HR person, you can do benchmarking at a company of this size, just as a simple step like that. The hardest part is getting those anchor jobs, having those initial discussions to say, you read this, read this description and you tell me which is the one. Pushing back on leaders is always a bit of a challenge, but I think that when they see that you're there to help them, building that trust is so key, but if they see You're here. I'm not here to cut your salaries. I'm not here to change someone's title. I'm here to help you. Then you can really get a long way to build that internal alignment.

▶8:22HostMichael, I wanna switch gears and talk about pay transparency. My question is, what's enough transparency in pay and why is pay transparency important?

▶8:33GuestYeah, I think so that, I mean, pay transparency is really just communicating information about compensation., but there's a spectrum of what people think or how they apply what is pay transparency, because it could be, well, we're now sharing salary ranges on job postings, which you're going to be required to in a number of states and countries. And, and that list is growing every day, but it's more than that because it could be, well, do you share where someone's paid within their range? Do you share what the next level is and what are the requirements to get to that level? So There is even a spectrum on what is the definition of pay transparency. And it's here. It's not, it isn't coming. It's already here. As I mentioned, there's already a number of states that this is required in, you know, California, Washington, New York, Colorado, it goes on and on. But I actually heard a stat that 1 in 4 employees live in a state that is required to post ranges. So this is growing every day. So this isn't going to be an optional thing where you say, well, I don't, we don't think we want to do pay transparency here because You're going to be posting these ranges. The statutory requirements is one part, but I think that the bigger part is what employees can find online. The last 10 years, the biggest change in compensation by far has been the introduction of people being able to find salary data online, reliable salary data. Because before you used to Google and what's an accountant pay in Colorado, and maybe it's some crazy number that you're like, that's Not even close. The number of websites where you can find this data is growing all the time. And the bottom line is that employees want to be paid fairly, but they don't know what the market is. So they Google it. So how much, you know, what is enough pay transparency? I think it depends. It depends on how confident are you in your current comp structure? Because if you don't have a comp structure that you can rely on, I don't know how you're going to share that data and say, here's the range for your job. And the person says, What level am I at? Because we're all called software engineer or we're all called managers. So how confident are you in the underlying data that you're sharing? And how confident are you that managers can explain to an employee why they're paid what they're paid? I think that that's going to be the big next step is pay transparency and managers being able to communicate that pay transparency and being able to communicate those ranges.

▶10:58HostMichael, what do you view as what's preventing companies from increasing their transparency?

▶11:03GuestI think that the lack of benchmarking and this foundation that I talk about, the lack of that foundation is a huge piece because they're not confident to say, oh, I'll share your salary range. Your salary range is this. We have, we're really confident in the data that we have. We're confident that we have you leveled to this right job. So I'm happy to show you what the market is paying. I think that that's a huge first step. You have lack of buy-in potentially from senior leadership, but even then, I think that they're afraid of the questions that they're going to get. You have on the recruiting side, the two biggest concerns that you hear are that the ranges are going to be too low and it's going to turn off candidates, which I don't believe as an excuse because I think it's going to be a huge positive. It's going to save your company so much time and energy going through this process. And then someone turns around and says, well, I'm expecting to be paid $200,000. And you say, we're looking for $120,000 to $130,000. The time and energy that you've wasted on candidates that you should be able to select out of the process is going to be a huge value add. The other concern is candidates are going to see this range and they're always just going to ask to be paid at the top of the range. Again, this is going to come back to how confident are you in your data and can your managers explain this? Because again, this could be a huge benefit to a manager to say, we can't pay you— look at, based on your expectations or based on your experience and education and what you're bringing to the table, we don't think it's a right fit for you to be paid at the top of the range, but here's why. We think that you should— we think you're going to sit in here, but we think you could get to the top of the range in 12 months, 24 months. How much easier and beneficial is that communication for a candidate to say, Okay, I'm taking $150,000 now, but there's a path to $175,000. And that's even without me being promoted or anything in this current job. I can see a path. I think that that buys you a ton of trust and it buys you a ton of potential runway where you just bought 2 years of loyalty from this employee. Cause they go, I'm not going anywhere cause I'm not $175,000 now, but I have a path there. I was actually looking, there was a SHRM study in 2023 and they said 66% of organizations lists that pay ranges on job postings, doing that has increased the quality of applicants. And 65% of organizations said that doing so made them more competitive in attracting top talent. I see it as like a garage sale. As you go to a garage sale, if someone doesn't have the cost posted, so many times you just look at something and say, it's probably out of my range. I'm just going to walk away. But if you see that sticker there, then you can make an informed decision. I think that you're going to get way more interaction and you're going to get better candidates because of it.

▶13:50HostMichael, what are you doing as a total rewards leader around benchmarking and pay transparency that others can learn from?

▶13:56GuestYeah, I mean, you know, it's things like, again, doing semiannual benchmarking reviews. Leaders sometimes have this idea, or the business has this idea that it's like, this is going to take months and it's this big thing. It can just be a check-in to say, again, here's your groupings. Remember we talked about Sally as the director? Here's that group of directors. This is still the same group. And you're actually helping them in those discussions because they might say, Jerry's role has really changed in the last 6 months. We've asked him, you know, so-and-so left and we've asked him to take on more. I think that he might be at a higher level. You go, great, let's look at the description of a senior director. Maybe he's ready for a promotion, that type of thing. It leads in so well into all these other discussions that come up around comp. I think the biggest piece is manager training though. This is where you have to give those managers the tools to be able to speak to their employees of, I want employees to be matched to the right level and to understand why they're paid what they're being paid. You're really trying to just save managers from themselves a lot of times because they might think that they're gaming it and say, hey, instead of a senior, I'm going to say that this person's really doing the work of a principal. And they're just going to be causing more problems. Pay is going to be misaligned. Internal equity is going to look off, things like that. I think that it's a real big thing that I think that, you know, coming back to what is causing, what is preventing pay transparency, it really is just fear. It's fear from questions that employees are going to receive and that they won't, managers won't be able to answer. So being able to explain to someone. Why they're paid above a range or below a range or low in a range or high in a range. How is this range determined? You know, and then the million-dollar question is, well, how do I get to the next range? All of these should be, should be seen as such huge positives of employees are engaged. These are career development conversations to say, hey, this is your role now, but look at, we're trying to give you more exposure and experience to these other areas. And if you can take more of this work on, this is the next level. And guess what? Here's the new range of this next level. All of these can be seen as huge positives. So I think that manager training and having them comfortable and confident is going to be just such a huge piece.

▶16:14HostMichael, in many cases, employees may be being paid above market, but they don't know it. Can you expand on this idea and the steps you'd take to increase awareness around this opportunity?

▶16:26GuestYeah, so this is such an underrated question around employee, or a lot of times the business thinks, well, we're getting away with something by not being transparent. Like we don't need to have those conversations. Employees aren't really complaining, so we're good. And it's beneficial to us to kind of keep quiet. So they're putting these conversations off. PayScale had a fair pay impact report. I think it was in 2023. And they said that employees are 50% more likely to leave a company if they believe that they're being paid below market, even if they aren't. And you combine that with their other finding, which is 42% of employees who are actually paid above market believe that they're paid below market. So 42% of employees who think that they're being paid below market, even though they're actually being paid above market. So you're, you have companies that are just wasting hundreds of thousands of dollars paying these employees above market and they're not even getting credit for it. They're not getting any value for it. And in fact, it's the opposite. The employees think that they're being paid underpaid. So I think that that's where, again, if you had this transparency, you can show them this is what, this is the market data. This is what you're being paid. This is where you're being paid. We're paying you above. You get all the goodwill that comes with that to say, You're, you're overperforming. We're so happy with your performance. We're paying you here. Next step for you would be a promotion. Here's what that would look like. There's just such a huge value add that I think is often just missed.

▶18:02HostMichael, any parting advice you'd like to share with our audience?

▶18:05GuestYeah, I mean, the first is that you can do this. You know, if you have some HR background on how to do some of this benchmarking, it's actually pretty straightforward once you have those descriptions, which again, if you're buying market data, you have these leveling descriptions. If not, you can Google them. Doing these benchmarkings as a group is way easier than doing them one-off. It's actually very difficult to say, here's one employee, you tell me, are they a manager or a senior manager? Or here's one role that we're trying to recruit for. Is this going to be a manager job or a senior manager job? Because again, like I said, these leveling descriptions are so intentionally vague. And it is hard to be that granular, but when you look at the whole company, it becomes much easier because then you have these big groups and you say, this role is definitely going to be aligned with this group or that group. So that's the first thing is I think that anyone can do this. This is something that can be done in-house. And the other thing is I think that it's important to remember that pay transparency can be a positive. It often is seen as negative. And then if you think that pay transparency is a lot of work, Wait until we have the full scope of pay equity legislation that's coming into effect. Benchmarking is not gonna be voluntary. This is starting from the EU, but this will spread. There's things like salary history bans, pay secrecy bans, career progression transparency, and pay scale transparency. Pay scale transparency is gonna be one piece of this much larger pay equity legislation that's coming. I think that this is coming and I think that Again, the, the quicker that you can kind of get a foundation with benchmarking in place, the, the better off you're gonna be.

▶19:42HostMichael, thank you so much for joining us on that Built by People podcast.