Think & Grow partners Vinisha and Hugo host a conversation between Damien Andreasen, Regional Head, APAC at HiBob and Nicola Burgess, growth-focused CEO, Board Director & Advisor, around the hot topic of pay parity and the role it plays in attracting and retaining talent as an Australian start-up in today’s market.
How do you see the pay parity topic playing out in Australian businesses right now? Specifically when you let staff go vs when you need to retain them.
Damien: Pay parity in Australia is playing out badly at the moment. Research from the ABS has shown, for example, that the gender pay gap has increased over the past six months. And there’s clear evidence that there’s still a pay gap among employees of similar titles and experience.
However, I’m not convinced that the reason that pay parity exists always comes from a place of malice. I believe it comes from a place of disorganisation and unclear goals for employees.
On the disorganisation side, there are so many organisations in Australia that don't make the best use of their company data or they use very basic HR tools to make ill-informed decisions about pay. Often, what limited amount of data they may have often lives in different spreadsheets on different systems and there's no easy way to draw meaningful insights from data. The best-case scenario for organisations that operate in that way is that they manage to achieve pay parity, but it’s hugely difficult. The worst-case scenario is a widening pay gap.
Companies that are tackling pay parity and employee retention well usually have access to a mixture of data sets that include industry benchmarks, your company’s salary bands, and people’s tenure, title and performance. Having this information all in one place — or a ‘single pane of glass’ as some like to call it — significantly increases your ability to make the right decisions as an organisation.
But having the data isn’t the end of the problem — you also need a process for how to discuss pay with your team. That can be a difficult conversation if you do it on an ad hoc basis, but it becomes much clearer, fairer and transparent if the organisation has regular performance reviews with clear goals for each employee.
There’s also an interesting trend happening in Australia right now with companies that are growing exceptionally quickly. If you've grown significantly in the last 24 months, then it’s likely that your longest-serving employees are not in line with current market rates. Understanding where the gaps are and figuring out how to best address them requires access to data.
Cash is incredibly important right now and companies are closing the pay parity gap between employees whilst still being mindful of cash flow. Where have you seen this done well? And have you seen ESOP being used as an effective retention strategy?
Nicola: If there is an issue with cash, there are ways to find it such as debt arrangements or new capital raises.
It all comes back to strategy and what your business is anchored around, then it becomes a matter of execution against that as to how you go on and plug that gap from a cash perspective.
In terms of other retention incentives, since COVID people are seeing more of a benefit around packaging. Location and hours flexibility, and how the business can support them personally with mental health and professionally with career development have become more important. Understanding the motivations behind the individual is important and where I’ve seen companies do it well avoiding a blanket approach with consideration of how to scale and communicate more broadly.
Damien: It’s important to note that when attempting to close the pay gap between employees, that doesn’t mean you’ll automatically increase your chances of retaining those employees. Retention has many other factors at play, and so it’s important to have a good understanding of each employee and what motivates them.
For example, flexible work arrangements, extended holiday leave, ESOP, healthcare, investing in their learning and development, clear career paths, mentoring and external coaching are some great methods I’ve seen Australian businesses use to successfully incentivise employees. And let’s not forget the work itself has an impact on retention. People tend to join startups or scale-ups because they’re purpose-driven and want to have an impact. Therefore, doing work that has meaning is also an important component of retention.
To increase your chances of retention, therefore, I’d advise treating each employee as an individual, and have transparent conversations with each and every person about their motivations. Constructive discussions with employees about their careers, remuneration packages and other things you know motivate them are fundamental to building effective retention strategies.
If money is a significant motivator for someone, but you’re struggling with cash flow, I’ve found the best way to deal with that situation is to be honest about it. Explain that while the cash isn’t there now, there is a plan to get it and communicate the short-term incentives, like flexibility around their role, more exposure or mentoring more responsibilities.
So what’s your advice for having those awkward or tricky conversations? If you’re uncomfortable with it, what’s the solution?
Nicola: If leaders aren’t able to conduct or take part in those conversations, then as managers they’re in the wrong role. They need to be accountable for that. If they don’t have collateral in terms of background or only have one lens in terms of one particular organisation then there are always opportunities to talk to subject matter experts. The bottom line is you’ve got to have those open conversations and if you don’t have an answer right now, indicate when you’re likely to have the answer and be transparent about it.
Damien: Nobody likes having difficult conversations, but they’re a part of doing business. Avoiding difficult conversations often makes things worse, and conversely, navigating those conversations well demonstrates effective leadership. But in early-stage companies, experienced leadership isn’t something everyone has the luxury of affording.
If you’re in that situation, you should be looking to mentors, advisors, the board and external HR consultants to help upskill your people managers. Many companies forget to invest in manager training, which can create big issues for long-term retention.
And on the topic of training, many companies don’t invest enough in the training of their employees themselves. Training is vital in making sure employees have the evolving skills necessary to be successful in their jobs. That always surprises me because most organisations I work with believe that people are at the centre of all a business’s success.
So to sum up, the best way to have hard conversations is to prepare, know your talking points, set clear expectations and don’t promise something you can’t deliver.
As the organisation grows, what are the considerations around whether to let certain staff go or retain them as different functions and priorities change, and how does pay parity fit into those considerations?
Nicola: This is where you have to be clear on strategy and what your skill requirements are. Not everyone is going to make it long-term and a job is not for forever as there are different chapters that a business will go through.
As a business, you’ll go through one phase and one strategy, then review or reset your strategy for the next phase. There may be profiles in your team, even in your leadership team, which aren’t the right fit for the next phase. It all depends on what the mission is for the business, over what period of time and the worst thing you can do is hold on to people for the sake of allegiances. It’s not fair for the individuals, team or organisation.
Damien: Companies mature and go through phases and it’s important to know who in the organisation is right for the current and next phase of growth.
For example, when you start a business, you may have just one sales manager along with one or two other salespeople. But by your series D funding round, your sales team may be 10 times that size and require a business development team, sales ops, sales engineers and team leaders. The person running that team has a vastly different profile to the one running the small team that existed in the initial stages of the business.
In my experience, it quickly becomes obvious when a person isn’t able to keep up with the pace of the business as it enters a new phase of maturity. At that point, you might want to hire a more senior person above them, and consider moving that first person sideways into a different role.
Having a skills matrix for each position is a good way to understand what is required of each role and how each individual aligns to those requirements. That matrix can facilitate ongoing and transparent conversations with your employees, removing emotion from the conversation and enabling people to understand the gaps in their capabilities, and whatever training they may need to develop those skills over time.
Nicola: If you're facing redundancies, you've got a duty to be able to fulfill these according to legal requirements and fiduciary duties, both at board level and as business leaders. It’s important to be clear on communication. Some people have a redundancy landed on them without context and that can be very damaging to the individual. The rationale and reason why a role has become redundant is really important for both parties to understand.
The person exiting can go on to become a huge advocate or detractor for the business depending on their experience as they leave. It's all part of your ongoing brand and making it a respectful, human experience because it has the power to be very disruptive.
How often do you think a business should be going through checks and balances when it comes to strategy? Things like direction, team, skills in the business…
Nicola: From a board perspective, it’s standard practice to have a dedicated six-monthly planning session for strategy (working with management teams), focused on the purpose (the why), and the mission.
Execution is different; That's about your operating rhythm and delivery (the how), which is more frequent. It’s where you check that you're actually doing what you need to in line with your strategy as your anchor.
There are also external influences which are beyond everyone's control. And that's essentially what you check your strategy against in your plan. COVID is a great example of this, everyone had to pivot incredibly quickly to understand the impact on strategy and people including wellbeing and ways of working.
Damien: How often you should go through strategic planning varies depending on the maturity level of the business. You have to be rational about the strategy, resources and timeframe required to successfully achieve the outcomes you’ve set. There’s no one-size-fits-all approach.
You also don’t necessarily have to wait six months to see if your strategy is working. Setting checkpoints with OKRs, goals and one-to-one employee check-ins, however, will contribute to the data you need to validate whether or not your strategy is working.
We’ve seen companies in the Australian ecosystem raise a lot of money, hire like crazy, make a lot of noise about a valuation of X and we're doing great, then oops we grew too fast and now we're laying off 15-20% of our workforce. What do you think the founders, CFOs and HR boards should be considering when it comes to hiring and growth plans moving forward so that we don't get into these sorts of traps again?
Nicola: It all comes back to the strategy piece and figuring out if you’ve got enough money to grow. You have to understand the things that can influence all the different and possible outcomes and prepare for them. If that means reducing your staff then do it the right way, respectfully and transparently.
Damien: I’ve worked in companies that used to run scenario-based financials, and while that tactic doesn't give you a crystal ball into capital liquidity, it gives you a best and worst-case scenario, so at least you’re aware of the risk you might be facing if a worst-case scenario were to happen. Those scenarios used to be shared with the board, which then agreed on a subsequent approach.
The conversations around pay parity are clearly very important. For example, some members of the team might be very forward in suggesting that they are entitled to more pay or equity and others feel too uncomfortable to ask and then don’t end up receiving it. What would you advise to businesses avoiding this trap?
Damien: Conversations around pay are always awkward when they happen on an ad hoc basis. If you have an employee that puts their hand in the air to their direct manager and says ‘I emotionally feel like I need my money’, that's a difficult situation for both parties involved. My advice is to put clear performance reviews in place so people understand their purpose, goals and progress. A clear performance review that outlines a clear path to progression, and potentially promotion, takes away some of the awkwardness around pay from the conversation. Then you can have a practical and rational conversation about pay.
Nicola: In terms of companies being transparent with salaries and earnings, it’s not just a matter of retaining staff and maintaining a kind of balance. It’s also showcasing to the broader market in terms of talent attraction, that this is how they operate – ie. ‘we are transparent and we have integrity’.
Thank you to Damien and Nicola, and Think & Grow partners, Vinisha and Hugo for this conversation.