Creating a Standardized, Non-Biased Compensation Policy with Caitlin Revie
Caitlin Revie, SHRM-CP, is the People Operations Specialist at crowdfunding marketing agency, LaunchBoom,a company that empowers the world to build successful brands and has been fully remote since 2018. Revie is an HR Generalist who is most passionate about being able to craft intricate and innovative solutions by understanding both the complexities of business and people.
“Basing pay off of employee requests does not have anything to do with knowledge, skills, abilities, or experience.”
You recently created a compensation system at LaunchBoom that ensures fair pay across all levels of the company. Can you tell us about the importance of that?
In HR, you can do compensation in so many different ways. In my experience at previous companies, we only used market-based pay benchmarks to determine our ranges. An HR professional would use a site like Pay Scale to pull up a salary range which includes what market data shows the job is worth, with specific filters such as location, industry and company size. Then, during the interview process we would ask people about salary expectations. Sometimes their salary expectations were high and sometimes they were low; not very often were they spot on in our range.
Regardless, a lot of times our offer would be very influenced by the compensation they requested, but there are a few issues with that.
One issue is wage compression, which is when you have new people coming into a company at a certain job role that are getting paid at nearly the same rate or even higher than people who have been at the company longer.
Another issue is that you are basing pay from what people say their expectation for salary is and how much they personally believe their work is valued. That’s something that can fuel wage gaps. Essentially, it’s a system that says, “we’ll pay you what you think you are worth” which creates inequality internally within companies. For example, if a prospective employee values themselves less—or is unaware of what is an acceptable salary to request, a company may pay them less, as a result.
Basing pay from employee requests does not have anything to do with their knowledge, skills, abilities, or experience. It’s simply about negotiation, which is okay if you are a contractor, but if you are an employee there should be a system behind what you are getting paid. It shouldn’t be a subjective system based on how good you are at negotiating.
How did you approach senior leadership about making the change?
I came to LaunchBoom and asked how they decided what to pay people. They were using limited information to decide pay for various positions and their compensation raises were given in set lump sum increments on an inconsistent schedule. The lump sum raise amount was the same across the board, so one person might get a 10% raise, while to another person with a higher base salary that raise might only be a 6% raise, etc. We realized that we needed to develop an equitable pay system that allowed us to pay our current people well, make strong job offers, and give sustainable raises.
“We wanted to empower employees to take ownership and initiative of their progress and their compensation, at any time of the year. Our new plan gives people a specific path for growth.”
Tell us about the process in deciding the new compensation standards.
I drew inspiration from companies like Buffer and Gitlab. Their content is inspiring to me because they are also fully remote, and they have location based salary calculators. I considered the fact that LaunchBoom has team members spread across the globe, yet we are still a relatively small company at around 65 team members. Developing a systematic process that completely aligned with our company values was also paramount.
Our formula uses Radford’s Step and Level Matrix and salary data. Our compensation formula is ‘step factor’ times ‘level factor’ times ‘location factor’ times ‘job benchmark.’ Those four considerations will dictate an employee’s pay at any level of his or her employment journey.
Using the step and level matrix as a way to define an employee’s progression to job mastery, we established that every step someone increases, they’ll get a 3% raise, and every level over level is a 16% raise.
Another goal of the system was to empower employees to take ownership and initiative of their progress and their compensation, at any time of the year. Combining compensation reviews with performance reviews was not an option we were going to consider. We believe that employee growth happens year round, therefore compensation should grow concurrently. If someone feels they’ve reached the next step or level, they should have a conversation with their manager and explain how they’ve increased ownership, initiative—or how they’ve increased job mastery. We also tell people there’s no minimum or no maximum number of raises they can get in one year. They might go a year without a raise or they might get multiple raises in one year. It really depends on how fast they increase in ownership and initiative. We emphasize to the team that compensation conversations aren’t taboo. Open dialogue is essential for this system to work.
How does the process work for new employees?
For new hires, we ask questions throughout the interview process that really attempt to gauge their level of expertise so we can determine what job level and step they should be placed in.
Then, when we make an offer, we explain what level they are in and why, along with what compensation is included. This may be above or below their salary expectations. If it’s above, then good for you! We actually made an offer this morning to someone that was $4k above what they expected.
If the salary calculator is lower than what they hoped for, we explain the system and what they can do to work their way up to their salary goal. We discuss with people during the offer call that there is a ton of room for growth here. Ultimately, if they did decide to turn the offer down, that’s their decision, but we haven’t had anyone reject our offer yet just because it comes in below their original salary expectations.
What reactions have you received about this compensation plan?
It has worked out extremely well because it gives everyone a framework for career progression but it doesn’t matter who you are, how long you’ve been working here, how good your negotiating skills are, or how cool you think you are. It is purely based on expertise, knowledge, skills, and abilities. Managers are able to give specific feedback and explain why something equals one level or another and it is consistent throughout the organization.
Did you find any complications in implementing the new system?
We did a complete readjustment and we’ve been able to have some very candid conversations about compensation. The changes put some people in the ‘red’ and some people in the ‘green’ but for those in the ‘red’—we did not reduce their salaries. Instead we had conversations explaining where they stand and that their next raise will be when they reach a step or level that exceeds their current compensation. Most people were in the ‘green’— and those people all got raises to their new salaries.
Overall, the systemic changes did create an increase in payroll costs up front, especially since we didn’t do any pay cuts. But this will naturally adjust itself over time.
Seeing the reactions of people who ended up with generous raises, due to the new system, was exciting. It’s also been interesting to see the lofty goals employees are now setting for themselves. For example, one employee is currently at a level 2, step 3. But they want to get to a level 4, step 1 within the next four months. I had a conversation with their manager and said that it is probably not that realistic of a timeline, but at the same time that there is no reason they couldn’t accomplish it. If they can do it, as a company, we are not here to stop them and their manager is here to support them. As they increase their expertise, the company will benefit. It’s really had a positive effect in the way of people seeing their step and level and thinking, “ That’s amazing. Now I want to get to this next level.”
“Our compensation and career growth system is not just about doing the essential responsibilities of your job; instead, it’s about demonstrating ownership and initiative to become the master of your job role.”
How does this system directly relate to achieving business goals?
Some job roles can be easily quantified to show how successful someone is. For example, let’s say you are in sales, most likely your success in your job is measured by your ability to meet your sales quota. The issue is that not all job roles have “success” that is so black and white. Ultimately, we wanted to have a system where the definition of success or career progression was consistent throughout the company.
As a result, our compensation and career growth system is not just about doing the essential responsibilities of your job; instead, it’s about demonstrating ownership and initiative to become the master of your job role. As a part of your journey to mastery, you are encouraged to make systemic changes to LaunchBoom processes and systems. Those systemic changes impact efficiency and effectiveness and therefore profitability. Empowering employees to take ownership over their work and ultimately their careers allows LaunchBoom to capitalize on employees’ intrinsic motivation.
“Regardless of what you decide, having a system that allows you to make competitive job offers that aren’t tied to people’s negotiating skills is crucial now more than ever.”
Do you have any other advice to anyone who may be hoping to revamp their company’s compensation policies?
The compensation system I created for LaunchBoom is not a one size fits all solution for all companies, but given our company culture, it is the best fit for us.
If you are considering making a change, first analyze what your own people need, along with what really drives your culture and motivates people within that culture.
For us, we are a really fast-paced company and we have a lot of people who like to be challenged. I have even had people who have said to me, “If I’m not challenged, I will quit my job”. This compensation system allows us to make competitive, equitable job offers, but it also allows employees to grow their career and get raises.
Regardless of what you decide, having a system that allows you to make competitive job offers that aren’t tied to people’s negotiating skills is crucial now more than ever. If you are still making job offers based on someone’s negotiating skills, it would be very surprising if an internal compensation audit didn’t come back with room for your company to improve pay equity.
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