Beware the PayScale Marketing Trap

The current PayScale “Develop a Market-Based Pay Structure” marketing publication is deceptive, inaccurate, and, given the apparent quality of their data, could set you up for a non-competitive and divisive pay program that increases turnover and employee dissatisfaction.

PayScale is a popular online market pricing “tool” presented by the company as a solution to compensation planning.  The company’s marketing strategy involves convincing you that every other approach to compensation program development and maintenance is expensive and time-consuming, and that you need nothing but their data tool and all your pay problems will be solved.  Think of those late night commercials for “only available on TV” products where the actors over-emote at the tragedy of the cheese burning on the pan, leaving the only option as their $49.99 unique patented special pan (order now and we’ll throw in a set of steak knives!).   No, seriously, there’s a stock photo of a young woman with a shell-shocked expression tearing at her hair under a caption “Do you have time to fill out salary surveys?”

The current marketing brochure makes the following arguments/claims (among others):

  • “Market pricing is the most effective approach to job evaluation.”  FALSE – market pricing, by definition, IS NOT job evaluation.  Job evaluation is the systematic analysis of jobs to determine their contribution to the organization, irrespective of the market. It is the only way to correctly determine how your jobs truly compare to those in the market, how to deal with jobs that have no market rates, and how to properly address jobs with combined or multiple functions.  Market data is a tool to anchor an internally valid pay structure to ensure competitiveness — but it is just a tool.
  • “[market data] takes less time to maintain.”  FALSE – market-based pay programs are very time consuming to maintain, because every year you have to go out and collect market data for every single job.  To do it right, you have to review multiple sources, and then figure out what to do when (inevitably) market rates for particular jobs rise or fall — do you put them in different grades only to have them move again next year? I’ve seen organizations spend hours on a single job trying to determine how much to adjust a market rate to account for lead responsibilities, or added responsibilities, or additional educational requirements.  How do you adjust your ranges overall to reflect the multiple changes that go on with jobs and in the market — ever sit there with a spreadsheet struggling to develop a structure that accounts for pay compression, differing rates of market movement, or organization growth, all without any logic?  With an effective internal evaluation structure in place, you can update a pay structure in a couple of days each year.
  • “It is harder to manipulate the results [with market data]”  FALSE – there is nothing easier to do than manipulate market data — to pick and choose which surveys to use for a particular job, which “cut” of the data, how much to age it, or weight a survey. The bottom line is that in a market-based system, you can use “legitimate” data sources to come up with just about any number you want.
  • “A smart alternative to the expense of multiple survey sources is to use a data source that has good comprehensive coverage.  PayScale is a good single-source option”  FALSE — on so many levels.  The reason that “real” compensation consultants (PayScale uses the word “traditional,” presumably as a way to suggest that PayScale is more “progressive”) recommend using multiple sources of data (we suggest, frankly, as many as you can find) is that each survey has its own “trends” — some attract higher-paying employers, some have different business models than you, some have smaller or larger samples.  Multiple sources compensate for variance, and give you more reliable results, as well as increasing the likelihood of finding as many jobs as possible.  No single source can cover all the variables  — and no “algorithm” can substitute for real data.
  • “The goal is to benchmark 75-80% of the positions within your organization.” FALSE — of course, if the only way you have to assign jobs to pay grades is through market data, you really need 100% of the positions, or some kind of internal equity model to fix the other 20-25%.  On the other hand, with an internal equity structure tied to the market, you can do quite well with data for only about one-third of the jobs.   That certainly makes it easier than scrambling through multiple sources trying to come up with “something” to use as a market rate.   PayScale ends up with the obvious — suggesting using an internal evaluation method to slot jobs without market rates into pay grades — so they still say you need one, you just don’t use it effectively, only to cover the holes in their database.

Speaking of their database — probably the biggest and most worrisome critique of the PayScale tool is the very algorithm they brag about that they use for their predictions. PayScale’s data comes only from job seekers — it DOES NOT incorporate the entire spectrum of what people are paid.  Given that you can assume that more highly-paid folks are less likely to be seeking jobs, and that those with longer service (generally earning more) are also less likely to be looking, we can make a pretty fair assumption that the PayScale model is set below the market.

In two tests we’ve done this year (one sitting in on a client’s PayScale sales pitch, and the other from data on a couple dozen jobs that a client purchased from PayScale) we found the PayScale data to be about 10-15% lower than the data from traditional surveys, particularly in entry-level jobs where the risk of pay-related turnover is so high.  We’ve seen similar comments on message boards.

It’s taken us a number of years, but we’ve successfully moved all of our clients off of “pure-market based” pay structures, and helped many others fix compensation systems broken by over-reliance on market data.  It’s not magic, and it can be done internally if people have the knowledge and exposure to the right techniques. Regardless of how you choose to establish your pay ranges, remember that survey data is only a tool, and only part of the process of establishing an effective compensation program. Relying on a single-source “product” with a  modeling method that seems guaranteed to provide non-competitive results is likely to result in failure.

 

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Provider Compensation 101 – Maybe Extra Pay Isn’t Worth the Extra Work

[This is part of a new series on specific issues related to provider compensation, designed to be “short and sweet” and prompt thinking before doing.]

When improving productivity will take time away from your providers’ personal lives, expect push-back.  When trying to change behavior, we need to look at the reasons for the behavior — and when it comes to “quality of life” and “work/life balance” issues, we need to recognize that frequently these will be more important than money, and that all the incentives in the world won’t change that.  Let’s take a look at the “extra effort” that increasing productivity may involve.

Recently I spoke with a Medical Director contemplating a change to their provider incentive program.  The current productivity target for family practice medical providers (doctors and mid-levels) is 24 visits per day.  While many exceed that figure, many are stubbornly stuck at about 18.  The current incentive plan is relatively generous (to the point that some providers need to dial back on productivity to focus on quality), so there is a definite financial incentive.  Assuming for the moment that processes and patient load would permit every provider to have an average 24 visit (a very big assumption), there should be no reason other than effort why a provider couldn’t see 24 patients in a day, right?

Here’s one thought.  The Medical Director estimated that their providers spend an average of two hours per evening at home working on their charts and notes (many providers tell me its closer to three hours, but lets be conservative).  For an “18 visit” provider, this would amount to about seven minutes per visit.   If I’m the provider, I should be able to increase my productivity to 24 visits without changing my time in the clinic — however, my math says those extra six visits can add another 42 minutes (three and a half hours a week) of time taken away from my home life.

Now I have to ask myself, what is it worth to give up another three and a half hours a week  of my life (a 35% increase) that I can’t give to myself or my family?  How much money will it take to make up for missing yet another concert, ball game, helping with homework, watching “Survivor,” or a night out?  I already make a lot of money, and I don’t need more.  Will $25 more a day do it?  $200 a week?  $15,000 a year?

Not that easy, is it?  What would you do in that position?

 

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Stop Asking Candidates About Current/Past Pay

Last week, New York City barred employers from asking potential employees about their current or previous salary.   This action is yet another in the long list of things that end up getting regulated because organizations just can’t get rid of ineffectual business practices on their own.  From the Washington Post article:

The thinking behind the new law is that when employers ask about an applicant’s salary history, they can end up perpetuating any discrimination that women or people of color may have faced in the past. When employers ask about current or previous salary, they can hear a number that “anchors” them, and then offer to pay some percentage more on a figure that could already be too low. “Being underpaid once should not condemn one to a lifetime of inequity,” James  [the City’s Public Advocate” said in a statement.

The purported reason for asking the question in an interview is for the employer to gauge the likelihood of a candidate being a good fit for the pay structure, and to avoid wasting time in pursuit of a candidate the organization can’t afford to hire.  The New York law speaks to the “moral” issue, concerned about perpetuating past discrimination. But there is an even easier business reason — someone’s pay history simply doesn’t matter.

The right offer to make to a candidate is a function of that individual’s value to the company — which is a function of the importance of the job to the organization, the labor market in which it competes for talent, and the projected performance of the individual based on their qualifications, experience and the opinions of those who interviewed the candidate.  Simply put, the question is “what point in our salary range is appropriate for this individual at this time.”  Sometimes this will be an increase for the candidate; sometimes it will not be enough for the organization to be attractive to the candidate.  However, the most important thing is that the offer should be consistent with the organization’s compensation structure and the pay of current employees.

To determine whether a particular candidate is worth pursuing (or in fact to attract the appropriate applicants in the first place), advertisements should provide a general idea of what the organization is prepared to pay — this does not mean providing the entire wage/salary range, simply the general vicinity of which the employer is willing to go.  This should weed out those who have a pay expectation that is out of line with the organization’s resources, and the number and type of responses will also provide a good gauge of how attractive the opening is in the market.

Once a candidate has made it through to the interview stage it would be appropriate to ask the question “what are your salary expectations?”  Presumably the number is inside the range you have already provided, or you would not have reached this point, and presumably the candidate will mention the top of the range (another reason why the question is silly — what else would a candidate say?)

Employers often make the mistake of trying to hire the “best possible candidate.”  A better way of describing the goal should be to hire “the best possible fit for us,” and that is going to include compensation.  It is much better to take care of the compensation issue up front, rather than going all the way through the process and being disappointed when expectations aren’t aligned.

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FQHCs, International Women’s Day, and Gender Pay Equity

The consulting firm Accenture yesterday released a report called Getting to Equal 2017, outlining its thoughts concerning how the gender pay gap could close in developed markets by the year 2044, 36 years earlier than previously estimated.  It sets forth three main ways to address this challenge: digital fluency, career strategy and tech immersion. Interestingly, all of these tactics are focused on things women can do individually to help themselves, and do nothing to address the systemic problems within the labor market that perpetuate the pay gap, and continue generally unabated.  Since women make up the vast majority of employees in health centers, there should be a conscious effort on the part of health center management to identify the problems in their organizations and address them, if not for “moral” reasons, than simply because it simply makes good business sense.

It would be hard to imagine a health center deliberately engaged in pay discrimination, and frankly, this is not where most of the problems occur.  The use of seemingly innocuous (and often “industry standard”) pay methods accounts for far more discriminatory impact that bold-faced discrimination:

  • Failing to recognize the value of jobs to the health center.  A truly fair pay plan will ensure that compensation opportunities are the same for jobs of equal value.  If a front-desk receptionist position has the same value to the health center as a maintenance person, for example, the pay opportunities should be the same, regardless of how other employers compensate people in these jobs.  While “value” may seem to be in the eyes of the beholder, there are simple and straightforward job evaluation models that allow any organization to see, in an objective way, how each job contributes to the organization’s success.   Taking this approach minimizes the inherent biases that occur when jobs are seen as “women’s” or “men’s” (or any other demographic characteristic, for that matter).
  • Relying solely on labor market data to establish pay opportunities.  Survey firms’ advertising notwithstanding, the quality of labor market data can be suspect at best, meaning relying on it alone to set pay is already a poor business practice.  However, since it is well known that there are inherent biases in the labor market impacting jobs typically held by women, using labor market data to set pay opportunities merely perpetuates the problem.  This is particularly problematic for entry-level jobs in the health center environment, such as front-desk staff, medical assistants and the like. As employers are thought to have more leverage on individuals in these generally less-skilled roles (because of their need for flexibility, desperation or other factors), they can be paid less.  As an employer you may feel that you are being “competitive,” but when “competitiveness” is based on an underlying bias, you may not be “fair.” Add to this the fact that “competitive market rates” are frequently insufficient to maintain a decent standard of living, the inevitable churning and turnover makes this type of approach a poor business practice.
  • Managing pay by negotiation.  It is said that part of the gender pay gap can be accounted for by women’s inability (or preference not) to negotiate aggressively. Internet articles  suggest that it is a woman’s obligation to “get what she deserves” through negotiation.  Our recent research indicates that in many health centers there is a gender pay gap for physicians, for example, that cannot be accounted for by any other factor; you may feel you are getting a break because your female physicians are not complaining, but to think that they don’t resent you is foolish.  The problem here is simple — if your pay plan can be impacted by individual negotiation, it is not a good pay plan. Employee compensation should be based on the value of the job and the performance of the individual alone, and if negotiation is allowed to change that equation, the credibility of the program is diminished.  You should not be putting the burden on your employees to fix the gap themselves; you should be paying everyone what they are worth, regardless of any of their characteristics.

As an industry, health centers should not be content with waiting another 27 years to fix a problem they could fix within a year.  Creating a compensation program free of gender bias, intentional and unintentional, should be one of the primary objectives for every health center.

 

 

 

 

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New Compensation Metrics – A 2017 Resolution

Health centers need to know that the way they’re spending 3/4 of their budgets is actually being done right. Adopt this set of metrics as a first step to gauging your the effectiveness of your program.

The Compensation Times

The compensation profession suffers from a severe lack of effective metrics.  To be frank, the typical measures used in describing compensation program success really have nothing to do with success.  This year, try something that makes more sense — focus on metrics that actually tell you if your compensation program is achieving its mission.

Traditional compensation “metrics” include:

  • “Compa-Ratio” – the ratio of a current employee’s pay to range midpoint/target. This measure only means something if current pay SHOULD be at midpoint/target; without performance information, it’s meaningless, and potentially very deceptive.
  • “Average Compa Ratio” – the average of individual compa-ratios.  This is even worse.  Its underlying statistic is meaningless because it doesn’t take into account performance.  Average things together and all your errors actually wash out — talk about a way to be deceptive!  If you’re bound and determined to use something like this, consider using absolute values.
  • “Average Increase”…

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