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Companies Open Up Once-Taboo Talk of Pay Scale

November 4, 2007
Related Topics: Compensation Design and Communication, Featured Article, Benefits
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Before Pete Herrera received a job offer from Accenture, he went online to gauge what his peers in the field earn. Among other sites, he visited PayScale.com, a five-year-old compensation information company, where he bought a personalized report.

    As negotiations replaced interviews, Herrera was prepared to show his future employer printouts detailing the market value of the job. But in the end, he felt "very comfortable" with the offer because it fell within the range provided by Web sites, says Herrera, who recently retired after 23 years in the Air Force and who began working as an instructional design manager for Accenture in September. Still, he used the information to help negotiate an earlier performance review in hopes of earning a merit increase.

    For years, as far as many employees were concerned, pay scales were created with secret formulas. Some employers tried so hard to keep workers from comparing pay that handbooks forbade them from discussing it, a practice that landed several employers in court for violating the National Labor Relations Act.

    Now compensation information permeates the Internet, placing data a click away from Herrera or anyone else who has a few minutes for research. The result is that from small businesses to multinational firms, companies are tweaking workforce strategies so highly sought candidates understand their total rewards. They also are training supervisors to turn questions about pay into opportunities to re-recruit workers.

    "Information doesn’t ruin the business," says Bill Coleman, senior vice president of compensation for Salary.com, which market-prices 3,500 jobs every month using employer-reported data. "It just levels the playing field and gives everyone an intelligent perspective from which to have a conversation."

    Kettley Publishing, a 30-employee firm that offers software and Web-based products for professional financial advisors, embraces that idea. "When we’re recruiting employees, when we’ve drilled down to one or two candidates, we explain to them the process we use to arrive at compensation and the process we use in annual evaluations regarding compensation," says CEO and CFO Ken Kerr, who uses Salary.com to guide his pay scales.

    "I want to be very open about how we make our decisions so they can determine for themselves that we’re treating this matter fairly and openly and objectively," Kerr says.

    Motorola Inc., meanwhile, has prided itself on being open with its 950,000 employees, but the pay sites have prompted the No. 2 manufacturer of wireless handsets to adjust its practices. Motorola has taken deliberate steps to educate employees about the concept of market pay so they understand both what they find online and Motorola’s compensation philosophy, says Regina Hack, global compensation director.

    Green Mountain Coffee Roasters has gone even further. It sends its new hires through "financial literacy training," which includes sessions on reading profit-and-loss statements and understanding "you and your pay." All 940 employees of the Vermont-based company, whose coffee is sold under the Newman’s Own Organics brand and its own label, have attended the training since it began three years ago.

    "Clearly those sites are basing [pay scales] on some kind of survey," says Kathy Brooks, vice president of human resources and organizational development for the coffee company. "They say it may be a typical benefit package, but what’s a typical benefit package? We’re trying to be careful about educating our employees about what the total compensation is really made of."

    All employees at Green Mountain Coffee, for example, are eligible for a profit-sharing plan of up to 5 percent of their salaries. They receive up to $500 a year in "wellness reimbursement" for expenses such as joining a health club and are paid to volunteer up to 52 hours with the nonprofit of their choice. When someone cites numbers found online, Brooks wants to make sure they’re "comparing apples to apples."

    Mike Hayes, vice president of business solutions for PayScale, which uses employee-reported data, says human resource professionals should probe the subject with job candidates or employees who make salary demands based on data found online.

    "The HR manager has to ask all of the questions that the employee will ask them: ‘Where did you get the data?’ ‘What makes up the data?’ ‘What in the data set tells you that you should be earning at this level?’ " Hayes says.

    And employers should be ready to do something many organizations have never done before: Explain the strategy driving pay for a particular position, whether it’s paying above 50 percent of the market for mission-critical jobs or below 50 percent for less key spots.

    "There is a strategic decision companies have to make in terms of what their pay policy is going to be for various functions within an organization," says Jim Stoeckmann, practice leader for WorldatWork. "And it is entirely appropriate to share with employees what that pay policy is."

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