Sabrina

Welcome back to the HR Connection, the podcast designed solely for those managing human resources in a 1 to 500 employee headcount. Today, Marie and I are breaking down compensation structure, giving you a few tips and tricks for finding good market data, and then helping you figure out what to do when you know you have some pay equity issues, including how to have that conversation with your leadership. Please stick around to the end for an important, uh, announcement about the HR Connection, how it will be moving to a solo podcast soon, and why that is happening. Thanks so much for being here, and please subscribe if you haven't already. Marie, this week on YouTube, I released a video. So for our listeners, YouTube is where I speak CEO to CEO. So as a HR practitioner but also CEO, I have the YouTube channel to talk about how important HR is in a small business because I have that hat as well, uh, but do it in a CEO to CEO way, which is different than, than how you do it, CEO to HR or HR to CEO. Anywho, this week on the, on the YouTube, I talked about the metric that I think matters for CEOs when they are thinking about a hiring plan and the metric that they never pay attention to until it's too late. And that is payroll to revenue. So you know we look at payroll to revenue. It's something that I certainly look at and talk about when we think about hiring because I want to scale responsibly. I do not want to overhire and then have to undo that. It's like a, a, the worst nightmare of mine to think about laying off somebody because I hired them when I shouldn't have, when I didn't have the revenue to support them, or I made a decision that, that did not fit the business. And so that payroll to revenue number is such an important number, I think, for CEOs, CFOs, even HR practitioners to be looking at to make sure it's in line with industry benchmarks and that you're not hiring ahead of what revenue can support because then you're gonna have to correct that. But that really opens up a whole can of worms about compensation overall. And I would have to say that this is an area I don't wanna say universally, but I do wanna say consistently where we come into clients and it is a mess, like a mess, mess. And it's a mess because people have made whatever offer they needed to in the moment to secure the person. Um, they have got somebody in under budget somehow. They, they convinced somebody to come in and take less because that's all the budget could afford with maybe the promises of other things. They've hired, uh, one gender higher in than another. They've got equity issues because of that. I mean, it's just there's no rhyme or reason to how we pay people. It's, it's pretty consistent, I would say, client to client. Um, and it, it is the area that creates such issues. And more than the issues, it's the area that's so hard when it is that messy to get under control. It's really you are messing with people's livelihoods, man. You are, you are talking about whether they pay rent or not when you talk about their pay. And to have compensation be so insane and so out of whack, it's such a daunting process to rein back in. And it and these, these issues that arise, small business leaders do not think about them until they're a very, very big deal and really, really hard to unwind. So I know that that's really what we're gonna hit on today, not this payroll to revenue. If they, if you want that, you'll have to watch the YouTube episode, but really just some compensation help. What can we tell our listeners to help them through navigating one of the most important aspects, I think, of an HR role?

Marie

Mm-hmm. Yeah. And you know, compensation really is one of those areas where also just doing nothing has the most visible consequences, right? It shows up in turnover. It shows up in engagement. Um, employees chat behind closed doors all the time. And then, like you said, when it surfaces, it's always gonna surface horribly. So yes, exactly. Today we are going to talk about how to do comp work right when you are one person doing the job of an entire function. So that means no comp team, probably no comp tool, um, and a budget that doesn't have a lot of room in it at all. We're gonna cover where comp breaks down in small businesses and why it compounds quietly. Uh, we're gonna walk through where to get market data without an enterprise budget. Um, that includes some sources that are free and actually usable for you. Uh, we're gonna talk about how to run a basic equity review when you don't have a system. Uh, and then we're gonna get into how to have that comp that salary conversation with leadership when you're the one bringing the numbers and the ask. So if you've ever had to explain a paid decision that was made before you got there without documentation, uh, by someone who is no longer at the company, this one's gonna be for you.

Sabrina

Yeah. That's a that's a lot, right? That's, it's a comp there's so much with compensation. And so I know that this episode is probably gonna feel maybe a little heavy. It's probably one that as we go through it, of course, you know, we're gonna give as high level as we can and, and try to keep it digestible, but it may be one that you have to listen to in parts because there's so much that goes into, uh, all of this compensation stuff. Um, what I find, as I said kind of in the opening, is definitely that business leaders just have no idea how to do this. They, they don't know how to build compensation structure. They have no clue. I mean, there's a whole discipline around it, right? Like there are experts at that's all they do. And if you are an HR person who's never had to build comp roles, comp categories, build your, uh, pay ranges, then it can be a really daunting, overwhelming process. And especially when you have employees like breathing down your neck because Susie just found out that Bob makes 10,000 more than her and they're the same, right? That in her eyes, they're the exact same, but now she wants something done about it today. And you can't do something about it today. You have to go look at the overall compensation. So, um, this one is definitely an interesting one. It's a it's one that takes a lot of work and a lot of process to manage. But as I say with everything, the good news is once you get that in place, once you have a structure and that you let your, your offer decisions, your compensation decisions be driven by the structure, then things get so much easier and you actually have something to support the decisions that you're making.

Marie

Mm-hmm. Exactly. Okay. So let's dive in. So when it comes to paid decisions in small businesses, you know, these decisions, they're getting made at offer time and, you know, they're rarely revisited until somebody quits or kind of threatens to. And the problem with that is that everything else moves, right? Everything the organization is moving, people are moving, the market's moving, inflation's moving. Um, your employees' experience and contribution continue to grow over time. Uh, but the number stays where it landed on day one unless someone deliberately changes it. And the thing with small businesses is that deliberate that deliberate change, it almost never happens on schedule. What compounds quietly in the background because of that is, you know, you've got two people doing the same work, hired at different times or with different negotiating styles, and they end up with significantly different pay for reasons that have nothing to do with performance. Now that's a retention problem before it's ever a legal one. Uh, and it becomes a legal exposure once you can see it and you haven't acted on it. The inequity usually doesn't come out in an audit. It comes out in a conversation between coworkers instead. Um, you can also see it in an exit interview where the real reason, um, you know, someone's leaving finally gets named or a, a glassdoor review that someone posts a number in an emotional state or something like that. Um, and then because of those things, HR is in the position of explaining decisions that were made without a process before they got there or probably by someone who's no longer there to even answer for them. So the goal of today is really to get ahead of all of that. Uh, we're definitely not here to build a perfect compensation infrastructure from scratch, but we do wanna give you a process that means you're not starting from zero every time a pay question lands on your desk.

Sabrina

Yeah. I think that's such an interesting point about surprises, how you set the rate at offer and then you do kind of forget about it and you never check against the market. It's is the is what you're paying maintaining with the market? Or you have these inequity issues and to your point, rarely does an audit uncover them unless, you know, it's like we come in and do we, do we do an audit for you? Then, you know, we're gonna uncover that. But usually it's that somebody brings it up, right? Somebody finds out and they bring it up and you hope that they only bring it up to you and not to the world on social media. But it's, it's always a shock, I think, in businesses when they realize there are compensation issues. You have a lot of leaders who think things are fine. They're paying well or, you know, whatever. And they, they have this shock that hits them one way or the other. They find out they're not matching the market or they find out they've got some inequity issues. And then it's such a hard thing to start to navigate because you have to navigate it well, but also quickly because again, you're dealing with the with people's livelihoods and they want that stuff fixed. Okay. So let's start by giving a little practical tips and tricks here. Um, because I know that one of the reasons HR pros do not touch compensation data sometimes or compensation projects is because they can't they feel like they don't have access to data. They don't have access to pay, pay software. They don't, um, know where to get really good data. We know that if you go to Glassdoor and some of those other places, it can be a little inflated. So you have to be really careful about where you're getting your data. However, I will say in 2026, I think we have access to more free data than we've ever had in our in my lifetime, um, because of all of the pay laws and the required posting laws that exist today. So I know, um, we often we, we have access to pay software. You know, we use PayFactors in our business, but we also access a lot of these free sites. So I think that it's a, a good place for us to just give a very practical tip on where they can find accurate market data.

Marie

Yeah. Absolutely. So let's start with some free sources that are actually usable for folks. So the, the first that I actually love and really nerded out over 10 years ago when I first learned about it, and I also wanna say, you know, 10 years ago to your point, there was not as much free information out there. So this one was really helpful for me working in small business. Um, but it's the Bureau of Labor Statistics, Occupational Employment and Wage Statistics, um, otherwise known as OEW, yeah, OEWS. Um, but this is public. It's free and it's reliable for baseline be benchmarking. You know, this, this site, uh, it's not flashy, but it is the foundation that most paid tools are built on top of anyway. So start there. Next, LinkedIn Salary Insights. It is imperfect, but it is directionally useful, um, especially for knowledge, uh, for like knowledge workers and professional roles. Uh, the data, it is self-reported, which means it's skewed towards people who are actively on the platform and willing to share. But for a quick market read, it, it gets you in the ballpark fast. Um, same with Glassdoor. You know, neither of these replaces a real benchmarking tool, um, but they are a starting point that you can pull in, you know, when you've got 10 minutes. Most recently, I've learned, um, about a resource for tech-adjacent roles, and that's LevelsFY.fyi. Um, and this is one that's definitely worth bookmarking out there because it's built around total compensation, which really matters if you're hiring in the tech space. When I think about sources that people overlook a lot, um, I, I think about the industry-specific salary surveys from like trade associations. Uh, these are often more relevant than general market data because they're built around your actual sector, your actual org size, and then sometimes your actual geography. Uh, so if your organization is in a specific industry, that industry's professional association probably publishes comp data. Um, and it's frequently free to members or low cost to access. Um, but it's definitely worth checking before you pay for a subscription tool.

Sabrina

You know, I know that one of our favorite comp tools for nonprofits is the Fair Pay, um, report. And that's rarely inexpensive. I would think any nonprofit, I, I wanna say it's a couple hundred bucks, right? Like maybe $200, $200, $300. It's fairly inexpensive. And I often find that industry-specific or like that one, all of the nonprofit sector, those kinds of reports are often very helpful. They have a ton of information. Like whoever publishes those usually goes pretty deep on bonuses and all of the unique roles. I think that's one of the things that happens with, uh, comp data is that you may have a role that's kind of unique in your organization or unique to your industry. And so then you go to try to search it on LinkedIn Insights or something else and you can't really find it because it is specific. So then if you can find an industry report, if you can find one that's specific to what you are in and sometimes even your local area, then that's gonna be so accurate. And we, we often find them to be so much heavier in the amount of data that they share and so much more relevant for the types of roles that we have.

Marie

Yeah. You know, Sabrina, that's a really good callout. Um, there's a couple of other, uh, resources I wanna, I wanna share with folks. So something that we did for a long time before we had access to things like PayFactors, um, was using job postings as real-time data. So pay trends, and you touched on this a few minutes ago, but pay transparency laws have really made job postings one of the most underused comp data sources available right now. So states like California, Colorado, New York, Washington, Illinois, um, and really there's a growing list of other states that now require employers to post salary ranges on job listings. Um, that means when you are benchmarking a role, you can pull current active postings on Indeed, LinkedIn, or ZipRecruiter and see what employers are actually offering, uh, not just what they reported to a survey 12 months ago. Now these are not a substitute for a benchmarking tool either, but again, it's current, it's free, and it really does reflect what candidates are actually seeing in the market. Now I am sure some of our listeners are wondering, Marie, what about AI? Um, so AI is definitely something that we've been exploring as a comp research tool. And I'm just going to be real about where we're at with it. Now using AI, it, it can help you think through a role. It can generate a first-pass range for sure. Um, it can eat, it can also pressure test whether a number feels off, but we're still figuring out how to use it reliably for this kind of work. You know, that I always say this, but the outputs are only as good as what you put in and how rigorously you verify what comes back. So if you're interested in using AI in this capacity, just use it as a starting point and not a source, um, and then layer it alongside the other tools we've talked about, not instead of them. Now once you have all of the data, the most important thing to understand is that a number without context isn't useful. So market data, it gives you a range like the 25th, 50th, and 75th percentile. Uh, where your organization lands in that range should be a deliberate decision connected to a comp philosophy, not just whatever was in the budget, the year, or the role was created. Now here's one important filter before you use any number you pull. Uh, market data for a 500-person company in San Francisco does not translate directly to a 30-person company in Long Beach. You know, you have to adjust for geography, industry, and organization size. Uh, so the number you find isn't necessarily the number you use. It's just the starting point you adjust from.

Sabrina

You know, so two points. I wanna talk about the percentiles and then I wanna talk about a comp tool. Um, but so you mentioned the 25th, 50th, and 75th percentile. And what we find a lot of times is that our clients, especially on the smaller end, so 50 or less, maybe even 75 or less employees, they really struggle to pay above the 25th percentile. And so while you absolutely can have a comp philosophy at 25%, and if that is what your budget allows and that's what you can pay at, then that's okay. But there is a trade-off there with competitiveness. And so I just want to, to be able to say that to our listeners to think about, you should have a comp philosophy and you should have a, you should have a benchmark that you're trying to go for, be in the 25th percentile of the market, the 50th, whatever, the 75th. But just know that if you are in the lower end of that, then you are losing some competitive advantage in the, in the marketplace. Your, your roles are gonna be lesser salary than all, everybody else probably. And, and that's gonna be kind of difficult for some, again, like a nonprofit or whatever it is, what it is. But, um, it's just something to, to keep in mind because the reason that I wanna say that is because sometimes what happens is I go to CEOs and they're like, oh, well if I can only have to pay at the 25th, I only wanna pay at the 25th, right? They do it as like a budget savings. And I'm like, okay, but let's talk about what that means. Let's talk about the implication of you only paying at the 25th percentile. The other piece is I think all of those are great free tools. I often get the question of should I pay for a tool like PayFactors when, like what is the trigger to be able to pay for something? I'm gonna tell you, we pay for PayFactors. It's not cheap. Um, it's not a cheap tool, right? It's not something that most small businesses can afford. I know we have, um, small business listeners who don't even have an HRIS system. And so if your company's not gonna invest in an HRIS system, they're not gonna invest in a comp tool, nor should you probably. So I would say one of two things. You pay for a comp tool when you are hiring five to six to seven distinct roles at a time and turnover is kind of a problem. So you, you are constantly hiring, you've got this high volume of hiring, you've got some distinct roles, you really need to get the comp right, you've got some turnover, meaning that maybe the comp's not right. Then I think you could potentially pay for a, um, and, and that is gonna continue, meaning that it's not just a one-time thing where you're hiring five or six. It's like you are in a scaling business that's hiring a lot for the next couple of years. Then I think a comp tool could help you, but I still don't think you have to spend the money on it. Um, I think the free resources are fine. And I think that there are enough groups like ours that have access to that we do pay for the comp tool for our clients. And so there are enough, uh, companies like ours, agencies that you can come to and have us do that research for you that in the long run, having us do a project like that would be cheaper than you, because most comp tools want a three-year commitment. So us doing that would be cheaper than you buying the, the comp tool for a number of years. So I, I think for most of our listeners, if you're under 500 employees going out and spending the money on a comp tool, I'd rather see you spend an HR budget on other tools than I would on a comp tool when there are ways definitely to use these free resources or use an agency like ours when you really feel like you need the comp tool data.

Marie

Yes. And you know, the same thing goes for doing a comp equity review. You don't need a sophisticated system to start this process. Now a basic comp equity review, um, it, it doesn't, like I said, it doesn't require a system. It doesn't necessarily require a consultant or even a week of your time. Um, but it does require a spreadsheet and a willingness to look at what you actually find. So you pull every employee's current compensation along their hire date, role, and tenure. You group this information by role and level, and then you look for outliers and ask yourself these questions. Can I explain why this person makes, makes more than this person? And is the reason defensible? Now if you're not sure what defensible means in this space, I am talking about, um, are there different levels of experience coming in? Um, are there documented performance differences? Um, is there a market adjustment that was applied to some roles and not others yet? Those are examples of what defensible means. What is not defensible are things like some folks negotiated harder, um, or they asked first, or maybe they've just always made more and nobody's looked at it. If those are your reasons, those gaps, those gaps need to be addressed immediately. However, there are two kinds of inequity with different timelines that we need to discuss. So, um, there is a dis, a distinction worth making between historical inequity and current inequity. Now historical inequity is something that happened in the past, right? Decisions made before you got there, uh, under different leadership and without a process. Um, yes, it needs to be addressed, but it has a different urgency than current inequity, which is happening right now in your hiring and pay decisions and needs to stop immediately. Now don't get me wrong, both matter. Uh, the timeline and the remediation approach are just different. So historical gaps often get built into a budget cycle. Here's the correction, here's the cost, here's the plan to get there over 12 or 18 months. And then current inequity, it gets fixed now before it becomes the next round of historical gaps. So when you find a gap, you have to decide whether to fix it in the current cycle or build it into the next one. And, you know, both options, they have their trade-offs and both are sometimes the right call depending on the size of the gap and the budget available. Now what you can't do is find a problem and not act on it, uh, because once you've documented that inequity exists, inaction is a decision and it's the one that's really gonna create a liability issue if the situation escalates. So document what you found, what you recommended, and what decision was made above you. If the fix didn't happen on your timeline, uh, that paper trail is going to be what protects you and it makes the risk visible to leadership in a way that a verbal conversation doesn't.

Sabrina

Yeah. You know, one of the things that I wanna just say here is that I think sometimes we've had leaders, when we uncover a gap, who says, well, if nobody's complaining, then what do we, what do we need to do? What, what, what, why is this a big deal? And the thing that I always say to them is like, we need to fix it now because the alternative is to let it grow and then some, at some point they're going to find out. And then it's a bigger deal because then who knows what they could do with it, right? Depending on how egregious it is, there's a lot of things that could go way wrong with how they decide to handle that. And so I think it's always better to proactively find these things if you can and fix them, like talk to people about fixing them. Is it uncomfortable at times? Sure. And is it gonna be a lengthy process? And to your point, if it's like at this historical gap you're trying to catch up, there's a whole cycle process. You gotta figure out if, if, you know, 50% of your staff are below where they need to be, you probably can't raise them up all at one time. You're gonna have to do that in phases. And, you know, there's lots of moving parts to this, but the, the answer is always to fix it. The answer is not to wait until somebody complains about it. It's always, let's fix it and let's get it on the right track so that we don't have this issue again.

Marie

Mm-hmm. Yeah. Exactly. You know, we spent a lot of time on these episodes giving people frameworks on how to talk to leadership about these things. So we're definitely gonna give our listeners, uh, a framework around how to have these conversations with leadership. Something to note is that the frame has to change before the conversation can actually work. Uh, so this is the part of comp work that doesn't live in the data, right? It lives in the room with a CFO or an owner who has heard HR ask for more money before and definitely has a well-practiced response to it. So, um, however, if you walk in with a fairness argument, uh, you're definitely going to lose. And it's not because fairness doesn't matter, but it's, it's just not the language that moves a budget conversation. So instead you wanna go in and you wanna lead with turnover cost. You wanna lead with what it cost the last time you lost someone to a better offer. Uh, you wanna highlight recruitment fees, manager time, the productivity gap while the role was open, uh, and the learning curve for whoever comes in next. That number or those numbers are always going to be higher than the adjustment being requested. And those are numbers that actually mean something to a CFO in a way the mar, that market percentiles just don't, right? So you wanna make sure that, that the, that information is visible before you ask for anything. Now let's talk about how to actually structure this ask because you wanna make sure that you present a range and not a single number. So you go in and you give leadership optionality. Here's the minimum adjustment to get to the market or to get to market. Here's what it looks like to get to the 75th percentile, and here's the cost of each. Now with that, you also wanna make sure that you come in with a recommendation, not just a menu to choose from. Your point of view in this should sound something like this. Here's what I think we should do and here's why. Leaders who are not comp experts, they, they need that, right? So if you lay out three options and walk away, they're just gonna pick the cheapest one without any context. You also wanna show the risk of inaction the same way you would show any other business risk. So this means that you are not presenting the issue as a personal state, but instead you're framing it as a cost. And so that can sound something like, hey, if we don't address this, here's what we're likely to spend on a backfill. Here's the exposure if this becomes a claim. Here's what we've already seen in turnover patterns. Once you've said that, also just make sure that you put it on paper or just throw it all on a slide to present to the team because you don't want all of this just to be a verbal conversation. Now what do you do if the budget isn't there? Because sometimes the money genuinely isn't there this cycle. And, you know, that happens and it doesn't have to mean the conversation failed. So if that's the case, you just need to build a phased approach that shows, you know, where, where we need to get, how long it's gonna take, and then what's being committed to in the next budget cycle. You wanna make sure that that's also getting documented and you wanna make sure it's visible because, you know, if, if leadership decides not to act on a comp gap that you've identified and quantified, that decision should be in writing somewhere. Uh, and really that's because if somebody leaves over comp six months later, you wanna be able to show that the recommendation was made and the decision was made above HR. Now the side benefit that nobody talks about is, um, that the comp on conversation is also a leadership development opportunity. So when managers understand how paid decisions get made and why, like what goes into a salary range, how the market works, what equity review actually looks at, they stop making informal promises they just can't keep, right? They stop telling their team a raise is coming without knowing if it is. Um, and that's a real change in how comp conversations happen at every level of the organization. And it really just starts with the conversation you have with leadership.

Sabrina

You know, to the, the budget discussion, I think probably most leaders are always gonna say there's not a budget, right? Because they just would rather spend the money elsewhere. And again, if it's something that, that employees haven't brought up, that an HR is identifying, they're way less likely to move on that. They almost are gonna wait until it is a problem. And so I think the question that we often ask is, can you afford not to do this? Like, can you, you say you can afford, you can't afford to do it, but really can you afford not to? Because what is going to happen? And is there truly no budget to do anything? So maybe your first pass is more than the budget can afford, but what, what can we do? What can the budget afford to get us moving in the right direction here? And then again, as you said, making sure you're bringing up turnover and, um, recruitment cost and the time to do that, and then just the, the competitive advantage in the market. If we continue to have these issues, we're going to not be able to hire and we're not gonna be able to keep people. And what does that mean when we have this revolving door? So I think that, um, I don't ever stop when they first throw a budget thing at me. I keep asking questions and I keep, you know, making sure that I remind them that while it's your call, if you don't wanna put the budget towards this, here's the consequences of not doing it. And is that really a risk that you wanna take? Okay. So again, just a few practical tips here on compensation. We understand this is a very kind of convoluted topic. It's a, there's a lot of moving parts that, um, you know, can be at play here. I know that when we have with our clients a compensation issue, it usually bubbles up to me, meaning that it's something that the business partners will bring to me and we will talk through how we think we, we should handle it because it is so sensitive. And, um, it's one of those things that if it, it, it, it can really grow legs the minute somebody is angry about it or the minute they found out something, you know, they're telling everybody because gossip runs faster than anything else in a small business. And it can, you, you want to be able to control that narrative before it gets so much bigger and you want to know that there is some kind of plan. So we wanted to just give you a few quick practical tips today to navigate that. As always, we are here. If you have a unique situation or you need help in this, or again, you want access to market data, um, then that is something that we can certainly help with. With that, I need to share, um, that the HR Connection podcast will be moving to a solo podcast, um, after our next episode. Uh, Marie has decided to transition into a new role. And while we, all of us at Acacia are insanely sad to see her go, uh, and we'll miss her dearly, we know that it's the right move for her and this certainly happens in life where people have to make transitions. So, uh, Marie, I've certainly enjoyed recording this podcast with you and I know that our listeners are going to miss hearing your voice with mine, um, and bringing that very practical, you know, you are the one in the trenches kind of doing this every single day. So, uh, you are definitely gonna be missed.

Marie

No, thank you so much. You know, it's been very refreshing to sit and think about how to share what we do with our listeners. Um, you know, we do it every day and it's very different when you sit down and put your own thoughts and experiences and philosophies into, um, you know, an outline to share with others. And so while I am transitioning out of HR, um, I do wanna let folks know that if anyone ever wants to reach out, wants to network, wants to ask some questions, I'm always available. Um, just because I'm leaving HR doesn't mean you can't take the HR out of me. That's for sure. Um, so thank you for such a wonderful opportunity. And listeners, thanks so much for hanging around with us. It's been a pleasure. Um, as always, you know, we are not here to, um, push you towards perfection in any, in any way. Um, but really we wanna build you defensible frameworks and tools that you can use to make decisions, um, that you can explain with your leadership team over and over again. So, um, thank you so much for being here and I'll see you next time.

Sabrina

Yeah. We'll see you next time.