Michael Downey
Director, Total Rewards
DataRobot
Episode 344
Pay Transparency: The Strategic Imperative Transforming Talent & Trust
Current chapter: Covering monthly expenses is the number one concern for employees in 2024
Built By PeopleJanuary 17, 2025 · 19:45
Thesis
“Pay transparency, underpinned by robust compensation benchmarking and effective manager training, is no longer optional but a strategic imperative that builds employee trust, enhances retention, and attracts top talent, ultimately optimizing a company's financial investment in its workforce.”
Show notes
The Built by People podcast features HR executive Michael Downey discussing his career journey from a high school teacher to Managing Director of Total Rewards at DataRobot. Michael provides in-depth insights into key HR topics, including benchmarking practices, pay transparency, and their importance in the modern workplace. He highlights common pitfalls companies face and the significance of having robust compensation structures. Additionally, Michael offers practical steps for implementing benchmarking and increasing pay transparency, stressing the importance of manager training and communication to ensure employee satisfaction and retention. The podcast is sponsored by Previ, a company that partners with HR teams to offer voluntary benefits reducing household expenses. 00:45 Guest Introduction: Michael's Career Journey 01:26 Understanding Benchmarking in HR 02:31 Challenges in Benchmarking Practices 04:17 Steps to Effective Benchmarking 08:23 The Importance of Pay Transparency 10:58 Barriers to Pay Transparency 13:49 Best Practices in Benchmarking and Pay Transparency 16:13 The Value of Pay Transparency 18:02 Conclusion and Parting Advice
What you'll take away
- 1Implement a clear benchmarking process focused on roles, not individuals, to establish a reliable and internally aligned compensation structure.
- 2Embrace pay transparency proactively, as it is becoming a legal requirement in many regions and is increasingly expected by employees with access to online salary data.
- 3Invest significantly in manager training to equip leaders with the confidence and tools to effectively communicate pay decisions, ranges, and career progression paths to their teams.
- 4Communicate openly with employees about their compensation relative to market data, especially when they are paid above market, to build trust and leverage this as a retention tool.
- 5View benchmarking and pay transparency as a 'living document' requiring semi-annual reviews and continuous adaptation, rather than a one-time HR project.
What most organizations get wrong
- •Companies often view benchmarking as a 'burden,' but Michael argues it is a 'value add' that helps companies spend money efficiently by avoiding both overpayment and underpayment, rather than merely cutting costs.
- •The fear that posting salary ranges turns off candidates or leads to all candidates demanding top-of-range pay is unfounded; Michael presents data showing it increases applicant quality and saves recruitment time by aligning expectations early.
- •Many businesses mistakenly believe keeping quiet about above-market pay is beneficial, but Michael highlights that 42% of employees paid above market think they're underpaid, leading to wasted goodwill and increased turnover risk.
In Michael's words
“Compensation is here. We're here to help you spend your money efficiently.”
This quote reframes compensation from a perceived cost center to a strategic investment tool.
“The business doesn't see this as a value add. The other piece would be not treating this as a living document.”
This highlights two critical shortcomings in how companies typically approach compensation benchmarking.
“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”
This offers a foundational definition of pay transparency while acknowledging its varying interpretations and applications.
“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.”
This emphasizes the legal and inevitable nature of pay transparency, framing it as a non-optional business reality.
“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.”
This provides concrete data to counter common fears about the negative impacts of pay transparency on recruitment.
“42% of employees who are actually paid above market believe that they're paid below 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.”
This reveals a significant and often overlooked financial and cultural cost of lacking pay transparency.
The problems this episode addresses
- •Businesses perceive compensation benchmarking as a burden or cost, rather than a strategic value-add for efficient spending.
- •Smaller to mid-sized companies hesitate to initiate benchmarking due to perceived high costs and lack of in-house expertise, leading to misaligned pay structures.
- •Lack of confidence in existing compensation data prevents leadership from embracing pay transparency and effectively communicating salary ranges.
- •Recruitment processes are inefficient, wasting time on candidates with vastly misaligned salary expectations because ranges aren't transparently communicated upfront.
- •Managers lack the training and confidence to discuss compensation and pay transparency with employees, leading to fear and reluctance from senior leadership.
- •Companies lose employee loyalty and incur unnecessary turnover risk when employees, despite being paid above market, believe they are underpaid due to a lack of transparency.
In this episode
Covering monthly expenses is the number one concern for employees in 2024
Built by People
And as a starting question, I always love to ask about your career journey
Interviews with the Director of Total Rewards
Benchmarking is really just leveling and aligning your employees both internally and externally
What is Benchmarking?
Michael: What is pay transparency and why is it important
What's Pay Transparency?
Companies should be transparent about their salary ranges on job postings
WSJDLive: Salary Range Transparency
Michael, what are you doing as a total rewards leader around benchmarking and pay transparency
What are the steps to increase pay transparency?
In many cases, employees may be being paid above market, but they don't know
Many employees believe they're being paid below market
Michael says anyone can do pay benchmarking; it's easy
Pay Transparency: The Need to Benchmark
Topics covered
Organizations and entities mentioned
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