How and Why Small Business Can Close the Gender Pay Gap

Tracy Cote, People Ops Advisor to Zenefits
Mar 17, 2021

What practices should businesses be putting in place to ensure every employee is compensated fairly? In this PIVOT episode, Zenefits’ own Chief People Officer Tracy Cote draws upon 20 years of HR experience to share fair pay best practices. She discusses common missteps businesses make when it comes to determining salaries, and how to create a compensation structure that’s fair and consistent.

Fair pay is a complex topic. Along with the long-standing issue of pay inequity for women and people of color, small businesses are grappling with how people should be compensated based on geography, experience, and market rate. So what practices should small businesses be putting in place to ensure every employee is compensated fairly? 

On this episode of the People Ops Podcast, you’ll hear from Tracy Cote, Chief People Officer at Zenefits. With 20 years of experience in HR and people leadership roles under her belt, Tracy has built a lot of compensation programs and witnessed a lot of missed opportunities throughout her career. She joins to share how to create a compensation structure that’s fair and consistent, as well as objective standards for evaluating performance for merit raises.

On this episode, you’ll hear:

  • [06:30-07:18] – The most common misstep businesses make when it comes to determining salaries
  • [07:59-09:37] – Compensation practices that contribute to pay inequality for women and people of color and how to overcome them
  • [10:02-10:45] – How to get objective and correct information for market compensation rates
  • [12:44-14:46] – Creating a compensation structure that’s fair and consistent
  • [ 17:00-18:24 ] – How to think about compensation when employees are living in geographies with differing costs of living
  • [19:20-21:00] – Creating a tiered system that dictates what people pay for benefits based on their income

POPS Star Bio

Tracy Cote, Chief People Officer at Zenefits, has 20 years of experience in people and HR leadership roles at companies of all sizes. She also enjoyed a gig educating aspiring HR professionals as a professor at San Francisco State University. But it was during one of her first jobs at a local pizza parlor that Tracy developed a passion for small businesses and the symbiotic relationship between “mom and pops” and the communities they serve. When she’s not leading global people to experience programs at Zenefits, Tracy enjoys making her own skincare products using natural ingredients.

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Tracy Cote: People never do it on purpose, but it makes sure we’re not inadvertently paying people who we like, because we like them. And that we are giving those salary and promotion opportunities to people who are really moving the needle on our business.

Didi: POPS! The People Oops Podcast from Zenefits, the only show dedicated to small businesses, sharing stories of pivotal people, moments. I’m your host Didi D’Errico. On this episode, we’re digging into an important topic. Fair pay, even though some estimates say that it could take over a hundred years to close the gender pay gap.

Tracy co-teach joins me today to help us break down why and how a wider perspective on compensation is something small businesses can get ahead of today. To say she’s an expert feels like a bit of an understatement. Tracy is the Chief People Officer at Zenefits with 20 years of experience in people, operations, including a decade as a professor of HR.

Well, she’s built a lot of compensation programs. She’s also been witness to a lot of missed opportunities, be sure to pay attention to her example of where she seen fair pay act as a difference-maker. But before we get there, let’s take one step back to hear Tracy’s experience with small businesses and how that fuels her passion for people operations.

Tracy Cote: I had a great experience working at the pizza parlor for quite a long time. It was a small business in the community, and I think it really taught me something about being in a small town and that symbiotic relationship between the community and the small business and how they really depend on each other.

Didi: When it comes to people, operations, there’s a common thread that every business has to address how to support their employees appropriately. And it’s that challenge that has kept Tracy in this line of work for all these years. 

Tracy Cote: I liked coming into HR and staying in this field all this time, because that carries through today.

It’s always evolving. Every business has a slightly different need at a different time to support their employees appropriately. And for me, that’s a great challenge. As you either grow and evolve with one company, or you go from company to company, you always find that there are new opportunities to help support the business.

Didi: As we peel back the layers to demystify HR, small businesses are faced with a conundrum. We just don’t know what we don’t know. And that lack of knowledge has translated into one big issue, how to make pay equal and fair. Let’s work on that together. Here’s the conversation with Tracy starting first with the most common misstep when it comes to determining salaries.

Tracy Cote: The primary thing is basing salaries on what somebody used to make, and that’s actually becoming illegal in many places to ask. But you know, it’s still a problem. Recruiters are still calling people and they’re dancing around it saying, what are your expectations? Everybody knows what’s going on there, but it’s an improvement.

And we do need to get to a point where it doesn’t matter what somebody’s made. Uh, it needs to be about what is the market rate for the role in that location or in that geography and then, or maybe nationally, which is another conversation. And then does the person have the requisite skills and experience to perform that job?

Didi: I think that in the conversations I have with small business leaders, there’s a couple of points that come up as inherited inequity and maybe. Tracy, when you talk, you often talk in very practical terms and also talk about make it right. Don’t make it weird. So there are some weird factors that tend to happen. One of them is how women and minorities get unintentionally left behind their white male counterparts. Can you talk a little bit about maybe some examples there of what companies might not be thinking about, but that will happen in due course of work sometimes. 

Tracy Cote: You bring in new talent at a market rate or you base their salary on what they made. So if I am a female, which I am, and I come in and I was underpaid at my last job, if I tell you what I make, I’m going to get underpaid at this job too, because that’s how you’re going to level me. So I think that perpetuates the problem for sure. I think this concept of pay for performance people are really in love with this idea and it makes a lot of sense, right?

You’re a good performer. I’m going to pay you more, unfortunately. Evaluation of performance is very subjective in a lot of cases. So I think it’s really important for companies to figure out how to create objective standards for performance. If you’re going to try to give people increases based on their performance.

I think makes a lot more sense to price jobs that like the market rate for a job. So, you know, whatever software engineers or pizza makers or whatever they are, this is what they make in this location. More or less, try to pay your people somewhere in that range. And then if they do a good job, think about paying for performance based on giving them a bonus.

If they. Go over and above, but, those performance standards should be clearly defined. So setting goals and having performance standards, I think is really important and will go a long way. Otherwise, it just becomes more of an idea of pay for my favorite. Right? I like this guy. I’m going to give him a raise. Cause you know, we go golfing together and we’re buddies and we have beers after work, whatever. And, and that happens a lot. Um, and so really building in that idea of objective performance metrics is important.  

Didi: There’s one point that you made in there too, is the market rate. I think that’s another area where people can go kind of sideways. Right. I know that there are some tools that are out there that candidates use all the time and say, Oh, my market rate is X. What would you counsel folks to? Where would you look in terms of making sure that you’ve got objective and correct information for market rates?

Tracy Cote: Well, there are a lot of tools out there that do this. Unfortunately, a lot of them cost money. Some of them cost a lot of money, but there are also, um, a hodgepodge of sites that are free and we can put it together, a list after this, and post it in the comments. So you can get an idea. But I mean, it makes sense. If you can afford it to buy something that will give you a sense of.

Of the benchmarks for your industry. Our tool actually has some of that built-in automatically. We have a compensation module and it’s actually good. I use it. I also supplement it with some other things because it doesn’t hit all the geographies I need to hit internationally and things like that. But it’s good.

If you can get something like that, that comes with, with what you’re already using, make good use of those tools that you have at your disposal. And another thing is for the companies where you can have people. Working remotely longer-term or you choose to do that, which isn’t all businesses, but some there’s a lot of conversation about, do you pay differently in different geographies?

And you’ll have to really think about what your company philosophy is going to be around and how you want to, how you want to tackle that. That’s such a big topic. 

Didi: I run our online customer community, and there’s a lot of conversation about that right now, because that’s becoming the new reality and thinking about that as super important, it’s just one more kind of historic thing I wanted to tie off on before we move into how to think next about compensation.

And you talked a little bit about the, you end up the pay for performance, then you end up paying your friend and that’s really not the way you want to go, but also about performance. Uh, management and performance reviews and promotions, where sometimes as the person who does the squeaky wheel or the loudest wheel comes back and says, Hey, listen, I need a promotion. I’m ready for one. Right now, I just had a conversation with a customer the other day, who was saying that setting goals in a system was really super democratizing because maybe engineers, for example, are a little less self-promoting by nature. Right. And having something come up regularly about. About the goals that they’ve put in place for themselves as well as their department and, and having that brought forward without them having to do it, or historically, perhaps women or minorities having less voice at the table or less of a less visibility or whatever creates a bit of a skew toward those who are more empowered or self-possessed in terms of reviews and keeping the salary equity. 

Tracy Cote: I think it’s true, you know, historically I think we see a lot of companies that, that happens. Somebody raises their hand and says I’d like a bigger increase or I would like a promotion or I candidate coming in.

That’s not enough money. I want more. And if you value the person enough, From a business perspective, you tend to try to compromise or meet them halfway, at least. And then the people who just feel like if I put my head down and I work hard, somebody will recognize that. So some of that is building in a process that is fair and consistent, and it’s really hard because.

Unless you’re in a unionized type of environment. Everybody doesn’t make the same amount of money. They just don’t because people have different years of experience than different locations, companies value different roles differently. So it’s really, really hard to be truly fair. So I think the best thing you can do is to try to create some kind of structure around your compensation practices to make it as fair and objective as possible. One of the things I did is remove this idea of the merit increase and instead replace it with a concept of a compensation review, where you are looking at every single person and where they are for the market rate of their role.

And if people are under you look at prioritizing getting those people where they need to be from a comp perspective, assuming everybody’s performance is more or less on par with everybody else with a special focus on women and people of color, because they have traditionally been the furthest behind.

So you do have to prioritize, you have limited funds available. Unfortunately, most companies don’t have millions of dollars to just sit around and correct this problem. And so. It could be a multi-year approach to really get you where you need to go, but you have to start somewhere. And to me, where you start is with a thoughtful compensation review, with an emphasis on bringing your people up to market and you prioritize women and people of color.

Didi: So, this is probably in many circles goes without saying, but let’s just make sure we hit it here. Let’s talk about why fair pay is more than the right thing to do.

Tracy Cote: Well, I mean, of course, it is the right thing to do. Um, but it’s also increasingly a matter of the law. So there are laws and lawsuits about equal pay for equal work emerging laws about ensuring there’s more diversity on boards specifically for women and people of color. And it’s clear that a more diverse company leads to better business outcomes. So we already kind of intrinsically know this, but we don’t seem to practice it. So I think these issues will start to evolve and change as more and more companies.

Place women and people of color on boards and senior roles on their leadership teams and on their hiring teams, because that’s, what’s going to make the difference. And it’s then not just a matter around diversity, it’s also around equity and inclusion. And so these things all will come full circle. And I think this will evolve over the next few years, but I think the conversation you and I are going to have about this five years from now, it’s going to look very different than it did.

What would you say that that looks like. Well, I’m an optimist. So I’m going to say, you know, there’s still pockets of these issues that, that most companies have made a lot of progress in the five years between today and tomorrow, I’m going to be optimistic and say, most companies will have made a ton of progress in this area, but they’re probably still not where they need to be.

Didi: So you talked a little bit about a compensation foundation. There was an article recently in work, which is our small business site that talks a bit about compensation benchmarking. And I’m curious if you’ve got a perspective on 

Tracy Cote: this one. So I’ll tell you what, when I think about this compensation, benchmarking is one of those things where if you buy a huge survey like Radford or something, it’s going to lag behind what’s actually happening.

So first of all, the data that you get is never going to be real-time. It’s never going to be absolutely right. So this is part science, it’s part art, no matter what I think a lot of companies are really struggling with the fact that the relative value of roles do change. Based on geography industry.

Like these are always a little bit of a moving target, so you’re never one and done when you set your grades and ranges or the corporations for your roles. So that’s the challenge. I think the biggest conversation happening right now has to do with the geography piece. And do we pay people based on the cost of living where they live or do we just pay them what we think the job is worth regardless?

And I think you’ve got the big companies with deep pockets, many of whom. Can afford to pay people what they pay them now, no matter where they live. But I think the business reality for most smaller businesses, that’s just not financially feasible. Long-term so I think we’re going to have some interesting challenges there.

So it’s a combination of keeping up with the actual benchmarks and then thinking really deeply about your philosophy going forward. And what does that mean? And then the other piece is. What else goes into comp? It’s not just your base in your bonus. It’s how much you charge for benefits. It’s uh, maybe you have equity in your company.

Um, maybe there’s a flexibility factor. How much vacation time do you ever so compensation, isn’t just comp it’s the whole package. And you have to think about what you’re paying people holistically. 

Didi: That’s such a huge lever and such an important piece. And I think to the point that you’re making about, as we are looking at enabling people to move to wherever that flexibility, hopefully, will count in the, in the bucket for the small business person too.

Who’s competing against ID, the larger companies as an option. That is something that didn’t exist a year ago. That is a, it’s a great risk to continue to stay and to really think about the business that you’re in. So we love to on this show, come up with an example of pivotal people moment if you will.

And I’d love if you could talk from your ear, your deep background on people’s strategy and as a practitioner and as an educator, in terms of a fair pay practice that you’ve seen be a difference-maker in person or a department or a company’s existence to be more competitive and be more fair.  

Tracy Cote: You know, I’m going to give you an unusual example, um, in this fund because I think we all try to do what we’ve talked about already, which is we look at what the job is worth.

We look at what people make. We try to take our merit budget and try to figure out how are we going to, you know, fix people we can fix there are other things you can do. One of the things I’ve done in the past is create different tiers from a benefits perspective for what people pay based on their income.

And so this, it never felt fair to me inherently that, um, as a C-level executive, I’m paying the same amount. To cover my family and their benefits as somebody who might be working, you know, in the warehouse on the floor to cover their family, that is inherently a problem. Um, and in the US of course, healthcare is such a hot topic, and we don’t have as much national support for medical benefits as maybe other countries do.

So it actually makes the divide even further between what people make and what they spend. And so. I’ve introduced a tiered system where it cuts off at different levels. So basically the less you make, the less you pay for your benefits, um, and the more you make and you’re going to contribute a little bit more for them, um, because you can afford to nothing outrageous.

It’s not like you’re paying a hundred percent of your benefits, which are very expensive if you’re a senior person in the company, but you are going to pay a little bit more. And I think that that’s fair because you can afford to pay a little bit more. So that is one thing I’ve done to try to. Improve the earning power of people who are lower-wage earners in my company.

Didi: What would you do, council, those small business leaders to think about first when they’re building a compensation practice for all of the players and their organization. And then what kind of tactics do you want to kind of stay on top of it? Is there an annual review? Is there something else in terms of measuring how you’re doing and how you’re staying on top of it?

Tracy Cote: Yeah, I think it starts with the goal setting and making sure your objectives are clear, clearly defined, and that everybody has metrics they have to hit. That’s the first thing. And that starts to reduce the favoritism when it does come time to do some kind of a compensation review and an annual review is what most companies do.

I think that that’s fine and administratively certainly easier than doing it. You know, two, three, four times a year, if you can do it twice a year, particularly in industries that are moving fast and evolving quickly, I think it’s a good thing to take a peek at them twice a year if you can. But if you can’t, you know, I think once a year is pretty traditional, pretty typical.

As far as the actual reviewing people’s compensation, the problem is you’re going to have pent-up demand during the year. So if you have a process that allows for an exception review, Quarterly or semi-annually or whatever it is. I think that that’s a good idea because then you can address some of the pent-up issues and potentially get in front of any unwanted turnover.

If you can get your hands on a tool like Zenefits or other ones out there that will help, you know, what the market rate actually is for your people. That’s helpful. You’ll also know because they’ll tell you when they leave to go find other jobs, what they’re making and are you a little bit low on what you offer, and are you being competitive?

And then, you know, again, I think when you review the salaries on an annual basis too, Make sure that process is as objective and fair as possible. And so make sure that it’s not just managers getting a bucket of money to decide what they want to do with it. There has to be some structure around that process.

So there are multiple eyes on it, people questioning and looking at the salaries and making sure that we are not inadvertently people never do it on purpose, but it makes sure we’re not inadvertently. Paying people who we like, because we like them. And that we are giving those salary and promotion opportunities to people who are really moving the needle on our business.

Didi: One last question for you on this. What about marketing back? What you’re doing to your team? You know, I think a lot of, a lot of companies try to do the right thing and maybe are doing the right thing and make sure they’re, they’re covering their people, but not necessarily reminding them of how they’re thinking about it, how they’re staying ahead.

And is there some, is there some benefit to re to really. Talking to your organization, not only when you hire people and, and when you promote them, but in-between of letting them know what’s being made available for them and how you’re investing in their success with your success. 

Tracy Cote: Yeah, I think that’s a great idea. I mean, a lot of HR teams definitely will do sort of this idea of a total compensation statement that they’ll do annually. That says here’s what you earned this year, but also here’s what we contributed towards your benefits. And here’s what we contributed maybe to your 401k or here’s what you got in PTO time.

So here’s all the overtime we paid you. So I think a lot of. Companies will put something like that together at the end of the year, which helps. In other ways, I think people are afraid to talk about some of this. It’s something that happens on the back burner in the back office, and it is extremely strategic.

And I think that it makes total sense to have these conversations. You just have to know that once you put it out there and you start talking about it, people will ask questions and want to know more. And. You talk about compensation, it becomes a topic and you have to be ready for people to need to start questioning their compensation.

And if you say you’re doing benchmarks, they’re all going to want to look at them. Right. And so you have to decide how transparent you’re comfortable with being. But I absolutely think, for example, when I did the benefits stratification, we absolutely talked about that and it was visible to the entire company. Everybody saw it and not a single person complainant. And of course, a lot of people were quite happy with it. 

Didi: Your biggest expense, your biggest value if you, if you play it right. Right. And you play it fair. So, one last question for you. I’m just curious what you’re most optimistic about this year. When you look at small businesses, you were leading our HR efforts for our small businesses, but, um, small businesses and the people that worked for them?

Tracy Cote: Yeah. You know, I think it’s going to be a Phoenix from the flames story here. I think small businesses are going to see huge successes this year, as the vaccines become more widespread, hopefully, COVID fades into the background. And I think that it will, and people everywhere who were all desperate to get out of the house.

Um, and we haven’t spent a lot of money this year, for those of us who are still employed, right. Embrace, dining out, getting out of the house to shop locally, and infuse some life back into their communities. The stimulus checks have been coming out. And I think that will also help with this effort. And I also think it’s given people a much stronger tie to their local community.

They don’t want to see their downtowns die out. They don’t want to see their local pizza place go out of business. They realize now that we need to support local businesses more than ever. I think we’re going to see a huge resurgence in the power of local businesses this year.

Didi: I’m Didi, and this was PIVOT. If you want more detail on the topic of fair pay, check out, where we also include data on a brand new survey of small business compensation shifts during COVID and 2020. Also, if you have questions, you want us to answer on our show, check out the link in our show notes below and we’ll get it covered.


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