Patrick Simmons
VP Global Compensation & Benefits
Ecobat
Episode 318
Market Pricing Is a Trap: Unlock True Compensation Fairness
Current chapter: Built by People podcast features insights from world's top HR leaders
Built By PeopleFebruary 3, 2025 · 18:03
Thesis
“While market pricing is a useful baseline, an over-reliance on it can create misalignment; effective compensation requires combining data with leadership judgment, individual performance differentiation, and transparent communication to foster trust and ensure fairness.”
Show notes
In this episode of the Built by People podcast sponsored by Previ, host Dave D'Angelo welcomes Patrick Simmons, an HR executive with over 30 years of experience in compensation and benefits, currently at Ecobat. Patrick shares his career journey, emphasizing the importance of market pricing in developing pay programs while acknowledging its limitations. He also discusses the challenges and opportunities posed by pay transparency laws and offers insights into creating compensation strategies that span multiple countries and markets. Patrick's parting advice underscores the value of interpretation over observation and the need for intellectual rigor in decision-making. 00:18 Sponsor Message: Previ's Financial Well-being Benefit 00:43 Guest Introduction: Patrick's Career Journey 03:11 The Flaws of Market Pricing in HR 09:37 Balancing Math and Subjectivity in Compensation 11:20 Navigating Pay Transparency 14:46 Creating Global Compensation Strategies 16:53 Parting Advice and Conclusion
What you'll take away
- 1Market pricing provides a reliable baseline but is descriptive, not prescriptive; it's an estimate that requires leadership judgment and shouldn't be the sole determinant of pay.
- 2HR should focus on how positions are valued (scope/complexity), while leaders focus on how individuals are paid (experience, capability, performance) to avoid the 'march to the middle' phenomenon.
- 3Pay transparency is a growing necessity; companies must comply with regulations and proactively communicate pay expectations to employees to manage the transition effectively.
- 4Successful pay transparency requires leaders and HR to be prepared to explain and defend pay decisions based on clear factors like performance and experience, as transparency removes previous 'cover'.
- 5Global compensation strategies should be built on a core foundation of guiding principles, adapted with flexibility to local country differences, and supported by strong relationships with in-country leadership.
What most organizations get wrong
- •Over-reliance on market pricing, while common, is flawed and can lead companies to change their 'identity' to fit desired outcomes, creating misalignment with their business.
- •It's a misconception that competitive pay means aligning with the midpoint of a pay range; individual experience and capability warrant differentiation in pay.
- •The primary resistance to pay transparency will likely come from some leaders and a segment of HR (the 'we've always done it this way' crowd), not generally from employees who tend to accept it.
In Patrick's words
“Market pricing simply helps define a reliable baseline. While it's a useful source of competitive pay data and decision-making, market pricing is descriptive, not prescriptive.”
This quote highlights the inherent limitation and true purpose of market pricing as a reference point rather than a definitive rule.
“The answer to that question can easily be, what do you want the market survey to say?”
This playfully points out the subjectivity and potential for manipulation in interpreting market survey data based on desired outcomes.
“But it is incorrect to believe the way to pay competitively is to pay at the middle of a pay range or at a calculated market value.”
This challenges the common 'march to the middle' approach, emphasizing that competitive pay should account for individual differences.
“Some leaders will resist pay transparency because it exposes their decisions. Leaders will be forced to explain and defend their decisions. There will be no more cover.”
This identifies a key hurdle in implementing pay transparency, focusing on the accountability it imposes on leadership.
“It's not what you look at that matters, it's what you see.”
This parting advice emphasizes the importance of deeper interpretation and critical thinking beyond superficial observation in complex environments.
The problems this episode addresses
- •HR leaders struggle with the over-reliance on market pricing data, which can be inconsistent, subjective, and lead to pay policies misaligned with business strategy.
- •Companies face challenges in moving beyond a 'march to the middle' pay philosophy to differentiate compensation effectively based on individual performance and experience.
- •Managers are often unprepared to have transparent conversations about pay, explain compensation decisions, or defend them in an era of increasing pay transparency laws.
- •HR departments encounter internal resistance and discomfort when transitioning from guarded to open pay practices, requiring significant change management.
- •Organizations operating across multiple countries find it difficult to create unified compensation strategies that respect local norms, customs, and regulations.
In this episode
Built by People podcast features insights from world's top HR leaders
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In the US, we live and work in a time of mixed pay transparency
The Case for Pay Transparency
How do you create compensation strategies that work across multiple countries and markets
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Topics covered
Organizations and entities mentioned
Full transcript
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