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5 Compensation Sins with Kyle Murphy

Oct 25, 2022 2:00:00 AM | By


When most of us think about compensation, we think about something that’s super complex, but it doesn’t have to be. Today, we chat with Kyle Murphy about the most common misconceptions that he sees across OpenComp’s customer base of almost 4,000 high-growth organizations — as he helps them find clarity at the point of every compensation decision. Kyle leads customer advocacy at OpenComp and draws from his experience in compensation and customer success at companies like PayScale, MedBridge, and more.

Join us as we discuss:

  • Why it’s important to avoid compensation misconceptions as an HR leader
  • The top #5 most common compensation sins
  • Letting your knowledge of your organization shape compensation practices

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CAITLIN ALLEN: Hi everyone. Welcome to the official high growth matters podcast. My name is Caitlin Allen. I'm the VP of Marketing at open COMM And I'm one of your co hosts, the your only co host today. Welcome to today's episode. So let's get right to it. When we think about compensation. Most of us we think about something that's super complicated. But if there's one thing that I've learned from working with Kyle Murphy, who is our guest today, it is not the end that's that doesn't have to be competition can actually be very simple. So today we are going to talk about the most common misconceptions that he sees across open comps customer base of 1000s of organizations as they're working together to have clarity at every point of decision as it relates to pay a little bit about Kyle, he leads customer advocacy at open calm and he draws from his experience in both compensation and Customer Success worlds at companies like PayScale and medbridge. Kyle, thank you so much for being here.

KYLE MURPHY: Thanks for having me.

CAITLIN ALLEN: So let's start with something personal so folks can get to know you a little bit what is something that people generally don't know about you?

KYLE MURPHY: Yeah. Well, you might be able to tell this if you're a musical theater friend, and you're, you're looking at my back wall. But I'm a huge musical theater fan to the point that I actually opened up a small community theater in my little community of Olympia and built the black box theater in the mall to make available for local groups who didn't really have a place to perform. So my partner Danielle, and I take one to two trips a year in New York specifically to watch Broadway shows as a huge passion for me, something people often don't guess when they meet me.

CAITLIN ALLEN: It is not something I would have guessed, but I would like to be one of the guests on your biannual trips.

KYLE MURPHY: It's a lot of fun.

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CAITLIN ALLEN: I don't believe in going to New York unless you go to Broadway while you're there. So let's let's get into the topic at hand. Today, we're here to talk about common compensation, misconceptions. And so let's dive into what some of those are. And maybe, as a preamble, before we get into it, why this matters, you know, from my perspective, for HR leaders who are is our listeners, or HR leaders, it matters because comp is the biggest source of spend for any company, it's also a big, it has a big impact on culture and activity, employer brand and any number of things. So I wanted to paint the stage show that this is a really important topic you're about to drop some wisdom on today. And Misconception number one that you've shared with me, is that a company should that companies believe they should ask what are other companies doing to figure out their remote work strategy? Why is that a misconception? 

KYLE MURPHY: Yeah, that's a big one. And it's kind of funny, because I worked in compensation from 2014 to 2017. And then I took a few years off, and I came back and really, nothing had changed in how compensation was managed, except this one thing that we have this remote world now. And everybody I talked to us, what should What should we do? What are other companies doing about remote work strategies? And the answer that I give them truthfully, is asking me what other companies are doing for remote work strategies. It's everybody's scrambling to try and figure out what their neighbor is doing and how people are solving this problem. But really, you shouldn't be looking at what other companies are doing. You should be looking inward? Because the answer to that question really comes down to are your jobs going to people who who want to work exclusively from home and can do them from anywhere and are going for the highest dollar because if so, then you really need to think about those top tier markets and targeting those when you're doing your compensation. But if your job needs to be done in an office, be if you're even part of the time Once a week, a couple times a week, so you're anchored to a geographic location. Or if you have any sort of mission driven element to your company, you know, if you are, say a software company that helps physical therapists connect with elderly patients, when they can make it into the office, you may be attracting talent for a lot of jobs that isn't necessarily concerned to get about getting the biggest paycheck. And you can focus more on a strategy that that looks at, say, where they're living the cost of living the cost of labor, in their specific geographic market. So it's more about knowing your DNA, and why people work for you then knowing what others are doing, especially once you get past those jobs that are just kind of anchoring to the biggest paycheck.

CAITLIN ALLEN: And that actually is a very insightful comment. If people are starting with the what should I do? Or how should I have a remote work strategy? They haven't taken the time to ask that question of why have one and what makes me different? So so therefore answering the question of why should our strategy like what should its guiding principles be so to speak? So that makes total sense. The second misconception that we discussed in our prep call, Kyle, as you remember, is the idea that companies believe they'll attract the best talent, if they, if they target the top market pay percentile, meaning, oh, I need to pay at 75% of market or 100% of market. So when is it savvy? Or is it ever savvy not to target the top of the market?

KYLE MURPHY: Yeah, absolutely. There are lots of situations when it's savvy to not target the top of the market. I mean, like the top of the market, and only a few people can be there, there's this whole other section of the workforce that isn't, you know, expecting to be paid at the 90th percentile. And you can encounter those situations where you don't necessarily need to focus on targeting that top percentile. Like, if you have an early entry job, where you're going to recruit a lot of people who are looking to gain skills and then move up to other places in the organizations, you don't need necessarily need to target the 75th percentile to get good talent for that. When you again, when you have mission driven roles, and people want to work for you, because of who you are and what you're doing and who you're serving. Those are not the same people looking for that top paycheck, they just want to be paid fairly well, there's a huge range of paid fairly, that isn't at the top of the market that people are willing to accept. Yeah, additionally, you look at the the individual perks that come with working with your organization, whether it's a it could be something as simple as a bring your pet to work policy, or a policy that every parent gets to pick their kid up from school, you know, like, or a coffee machine, that's the state of the art that your your, you know, that your employees love. There are reasons that people work for organizations that aren't strictly market driven. And you really have to look at the bigger picture of what you're offering as an employment package and an incentive for someone to show up every day. And compensation is a huge piece of that. But it's only one piece.

CAITLIN ALLEN: Right? Right competition is a piece of total rewards. But it's not the total. That's a really good point. And I think that, to me, is a somewhat relieving piece of truth to hear during times of economic uncertainty where budgets are under greater scrutiny, they might have greater limitations. And so so that's, that's a good piece of news to be able to share with with our listeners. I also think that, you know, in my experience, I've seen that it really depends how a company pays depends upon where they are in their company lifecycle, as well, early on, you might really want to pay at a top percentile for engineers, for instance, as you're building the product or trying to get an MVP, but then maybe further on in the company lifecycle when you've raised a Series C or D round, maybe you're focused more around go to market roles or hiring top executives. And so it's, it really is reflective of where your company is, is that and the compensation and compensation philosophy, strategy and philosophy that go into to making those decisions. Absolutely.

KYLE MURPHY: I mean, if you're, if you're running a data software company, you need data scientists, and that's the core of what makes your product successful, you're going to have to target the top of the market. And as you grow, that may change.

CAITLIN ALLEN: Yeah, no, so true. So number three, at least in my experience is the one that I see the most in terms of a misconception and it's the belief that pay bands, or salary ranges and market percentiles are the same thing. So I'm going to ask you what the difference is, but maybe we should even define what both are as part of of our understanding that difference.


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KYLE MURPHY: Yeah, this is hands down. One of the I mean, not one of it is the most common misconception that I work through when folks are getting into compensation for the first time. A market percentile is a data point, if we think back to like standardized testing in school, if you scored at the 99th percentile means you scored higher than 99% of people who took that test. Compensation market percentiles are no different. And we often focus on numbers like the 25th percentile, the 50th percentile in the 75th percentile. And it's very tempting for folks to want to make that a pay range and say, Well, we're gonna pay between the 25th and 75th. The problem is, if all your data points are clustered tightly together, like let's say, every day 98 $180,000, when that's where the 25th and the 75th percentiles lie to and your range is like this small, or it could be this big if there have spread out. So what we do to work with that and make and make it so that raw data is not impacting us in that way, is we create pay ranges where we say, we want to target most of our employees right around the the 50th percentile, we'll go and we'll find out what that 50th percentile is. And then we're going to build a range on either side of it, let's say 15% is a best practice. So use find that the 50th percentile for the job you're benchmarking is $100,000 in your pay range might be 85,000, to 115,000. And the reason that's important is because market data fluctuates all the time, there are anomalies like we just talked about, you can get market data that's tightly clustered or spread out. And when you build a range structure that is built off your your organization's compensated as guests sorry, compensation philosophy and compensation strategy. So when you who you add your workforce to it, or when you update it, you're not just you're not just evaluating how you're performing to the market, you're evaluating how you're performing to your strategy. And that's really what we care about.

CAITLIN ALLEN: That makes a lot of sense. And I think that is a very important nuance for companies to understand an HR leaders to understand on their company's behalf. In light of the fact that New York pay transparency legislation is going to come into effect less than a month now on November 1 of 2022. And as of a week and a half ago, Gavin Newsom signed new transparency, pay transparency legislation into effect as well, January one in California, where pay ranges will have to be listed in job posts by that by that start date. So that's an important one to really get. Number four of five is the misconception is that businesses must personalized market data to their organizations. So maybe, could you explain what that is for our listeners who may not know it, and then describe why they don't always have to do that?

KYLE MURPHY: Sure. So what we're talking about here is the perception that I need to make sure all data that I look at, is specific to exactly what my organization looks like. And while there is there's truth that you want to think about things that way, and that is impactful, because if you get data that's not representative of, I guess, the sandbox you're playing in, so to speak, you're not going to be able to get good data. But at the same time, I find that a lot of times people anchoring on I have to find the specific one set of data sources is right for me. And that will be my source of truth, and I will never look past it. And in reality, the best practice for compensation is to look at multiple data sources. Additionally, there are a variety of reasons for this both to avoid your data anomalies. And but also what it allows you to do is we need to pause here because I've lost track of what I was saying.

CAITLIN ALLEN: I can ask the question over again. Because that's probably just the easiest. The basically was asking about personalizing market data and why they they don't have to personalize market data.

KYLE MURPHY: I'm trying to remember the thought train I was going on with this because it's about so people get anchored to one one data source. But the truth is, again, this goes back to market data versus ranges by just jump in here. Can you cut it? Yeah. Okay. So it goes back to what we were talking about with market data versus ranges, you should be acquiring market data to build strategic ranges and those ranges like they're not based on whether you or not whether you found that a customer success manager in Illinois $60,493.21. It's, it's round and so that you can manage multiple positions that provide the like value to the organization at the same time, save yourself time and then have internal equity. So if you're anchored to one data point, and you think it has to be exactly what your organization looks like, that's just not true. Additionally, What if you are not competing for talent with people who look like you? What if you need engineers that will that will compete for jobs? What if you need what if you're a large company, but you can actually hire talent that would be applying for jobs at small startups, because of the nature of that job. It's more important to understand what the competitive marketplace looks like and what your competitive set is for each job than it is to find data that looks exactly like you.

CAITLIN ALLEN: And that makes a lot of sense, because that is the reality of today's world. So closing out with with Misconception Number five, Kyle, I think I would wager a bet that most managers at some point in time, particularly in the last couple of years, given how fast the labor market has been moving from a pay perspective, have heard from an employee on their team or from a peer, at the very least, where the employees come to them and said, hey, you know, I got hired, you know, however many X number of months ago, and you hired me at 50th percent of my market rate, and now it's six months later. And I realized I'm now as great as percentile I need a raise or something along those lines. And so the misconception is that the companies sometimes respond with is that they need to anchor to compensation data in real time as it shifts. So in that scenario, the manager would then say to that team member Oh, okay, well, we clearly need to give you a raise so that we can stay true to our compensation philosophy. Why is this not a best practice?

KYLE MURPHY: Who so many reasons, and where this comes from actually is the way compensation used to be done with create a huge time gap from the time it was collected until the time it was distributed, sometimes like a year and a half. So as technology has allowed us to get more nimble, there has been this rallying cry for real time data, real time data, because I mean, that's kind of how big data thinks is give us all the data, we can give you information that's, that just came in yesterday. And there's a million reasons why you don't want to do that in compensation, all you have to do, right now to get an idea of that is look at the exchange rate with the British pound. Over the last week, it's gone up and down 10%, it's all over the place. And if you tried to make adjustments to your workforce based on that exchange rate as it fluctuates, you'd be having meetings on a daily basis, it would just be. So you want to get out of like blended snapshots in time to see trends where things are going. As opposed to trying to get real time data, I think that trying to get refreshes once every six months, possibly once every three months, is good. But you don't want to overreact. There were a lot of companies that just got their funding. And we're very excited and overpaid for a lot of employees in q1 and q2 of this year, when things were just going gangbusters. And then all of a sudden, they looked around. And the employment marketplace wasn't as hot as it was a couple of months ago, because everyone just went through layoffs. And so if you're trying to anchor to the most real time data, then you were probably paying at the 99th percentile today. Yeah, you know. So it's important to understand that, yes, fresh data is important. But that doesn't mean you want real time data, or that data that's coming in on a daily basis is necessarily more valid or valuable to you than something that's been captured over a period of time.

CAITLIN ALLEN: I've heard it said that, that updating ranges about once a year is best practice, meaning that you take competition data that's fairly fresh at that point and then update your company's pay ranges on an annual cycle. Is that correct?

KYLE MURPHY: That is the best practice the yes, that is the best practice, I would say. Some companies look at doing it once every two years, those tend to be in high growth mode, they tend to have a lot of change within their workforce, typically even people changing responsibilities within the organization. But if you're going to do a comp review once every six months, know why you're doing it, don't just do it because you heard it was a best practice, understand what you're trying to accomplish, what things look like when you're done. Otherwise, it's just like it's a lot of wheel spinning.

CAITLIN ALLEN: Makes a lot of sense. Well, Kyle, you have dropped some major wisdom in this call. So thank you so much. As we close out, keep in mind, we're talking to HR leaders, as our listeners, what would you say is the most important thing that you've said today that our listeners should remember and take action on?

KYLE MURPHY: Well, all of this really rolls back to understand your business and how it relates to the marketplace because every single end Drag gave could be interpreted differently depending on where you are in your lifecycle how large you are helping your team is how many things you have to think about. But it all comes down to knowing who you are. Understand that you're making sure you have a defined compensation philosophy and strategy and that you are putting that into place. So you're not just reactive to what the market says. That's really what it comes down to is know your organization and let that really drive your compensation practices.

CAITLIN ALLEN: I love it makes so much sense. Kyle, thank you so much for being here today and for everything you've shared with us.

KYLE MURPHY: Thank you, Caitlin. I enjoyed it.

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