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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Your Compensation Program is Your Best Chance to get Better

There is nothing your health center can do right now that is more important to achieving your mission than taking a hard look at your employee compensation program.  Given that there is not a single thing your health center can do without employees, and that what you pay is directly linked to the quality and engagement of your employees, there is a compelling argument that your compensation program should get a great deal of your attention.  Wages make up more than half (55%) of your expenses, and when you add in taxes and benefits, the “average” health center spends more than two-thirds of its total expenses on employee costs.  Employee costs as a percent of expenses have been increasing every year, and there is nothing to suggest that will be changing soon.

We estimate that as much as a third of the total payroll and benefits cost of the typical health center is wasted.  With turnover of about 20%, you’ll conservatively lose about 5% of total compensation to turnover costs.   Unengaged employees, who likely make up about 70% of your workforce, are estimated to only really “work” about 60% of the time, and about 25% of employee engagement problems are compensation-related, so subtract another 20% for compensation-related employee disengagement costs.  In virtually every assignment we’ve had, roughly 8% of current total compensation is mis-allocated, typically paid to long-service, poor performers.  Add those three costs together and you’re up to 33%, and we haven’t even asked the fundamental question — what percent of your “planned” performance are you getting from employees who are frequently not qualified to do the work.

An effective compensation plan tells you the current value of every employee to your health center.  With this information you can determine whether you have the right jobs and the right people, and whether they are performing at a level that justifies what they are paid.

Employees paid fairly do not turn over at the same rate, saving you money.  Research shows that when employees feel they are treated fairly  they are more engaged, and far more productive, not just saving you money, but increasing your revenue.   Imagine what you could do with a third less expenses, and a workforce who can actually afford to be mission-driven.

Eight out of ten health center clients we work with already have a payroll budget sufficient to pay a highly qualified workforce, but they “can’t afford” to pay correctly because of the money they have tied up in the wrong people performing the wrong jobs.  You have the resources, you just need the will to use them the best possible way.




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Your Front-Line Staff Have Pay Pressures — Understand Them

Pay isn’t always the answer to every problem, but understanding the pay pressures on the most vulnerable of our employees is essential for every health center.  Front-line employees in the FQHC environment, whether in the the “front office” or “back office,” make up the majority of health center employees, and are critical to the success of any health center in achieving its mission.  Any health center executive will tell you how crucial having skilled front line employees are, and how these employees represent the “face” of the organization.  Ask any provider, and they will tell you that their success, as well as a good part of their work satisfaction, is dependent on their support staff.

This morning the Wall Street Journal published an article “States Where Day Care Costs More than College” that provides readers with the average cost of day care for a four-year old child in each state and the cost expressed as a percentage of state median income.  Unsurprisingly, the amount is staggering.  For example, a single employee earning $15/hour working full time in Michigan would spend just under a quarter of her take home pay (24.5%, after factoring in the child care tax credit) on day care for one child.

You should know how these numbers work for employees in your health center, because the odds are high that more than 20% of your work force is in this position.  The overwhelming majority of front-line employees in the typical health center are young (under 35) and female.  There are currently just under 10 million single mothers in the  United States, of which about 5 million are under 35 and employed.  Given the total number of working women between 20 and 35 is just over 23 million, about 21.5% of the workforce that fits the typical front-line employee demographic is a single mother.  Add to this the fact that health centers are going to have most of the lower-educated and therefore lower-paid portion of that population, it is likely the percentage will increase to about one quarter of all front line employees.

Apply this to your employees — a single mother (assuming only one child) working full time at $15/hour at your health center (assuming you are in Michigan) will have disposable income of only about $1,700/month.  Let’s take off some living costs (all monthly):  about $650 for rent (average for a one bedroom apartment, Wayne County), $350 for food (USDA “Low Cost” food plan), $475 for transportation (an $8,000 car on a five year loan at 8%, plus insurance, and two fill-ups of the tank per month), and $220 for medical insurance premiums (based on Merces’ Michigan FQHC benefit survey).   That means she has $5/month left over for everything else.   These are all extremely conservative estimates, given that using the “living wage” calculators, those four costs would have already taken our employee into the red about $500.

Why should this matter to you?  Forget any guilt or moral obligations you may feel, because this is going to just be about pure business.  These jobs are not the burger-flipping, gain work experience type of jobs that the current minimum wage battles are about.  These are long-term jobs for people we want to keep, which means we want to do everything in our power to reduce turnover and disengagement. Someone who at best will have $5/month to spend on life is NOT thinking 100% about work.  She is thinking about how to get government assistance, whether she can find a roommate to save costs… and most of all… she is NOT thinking about the health center’s mission when she gets an opportunity to leave to earn another dollar an hour.

Turnover in healthcare is more than 20% annually; turnover in front line staff easily exceeds 30%, and in low paying organizations will be even higher than that.  These aren’t statistics you can wish away.  Pay will not solve all of these problems; some turnover will occur anyway, and some employees will leave to take higher paying types of jobs.  However, an effective compensation program can reduce turnover by ensuring you are at least competitive and not vulnerable to losing employees in the first two years … right after you have trained them up for someone else.

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