Startup compensation is broken. And as Emily wrote, fixing it is key to fixing much bigger issues in the workplace. It all starts with compensation.
Trust is crucial to a strong employer-employee relationship, and there’s no faster way to break that trust than unfair compensation. We need to change the compensation process from an adversarial process to a collaborative one, where policies and expectations are clear, and employees trust they are being treated fairly.
After working with hundreds of candidates and employees via Help Wanted Project, it’s clear that understanding how compensation works at different companies is a real challenge for people. Compensation discussions often don’t occur until late in the hiring process, and misaligned expectations lead to a ton of wasted time on both sides. And once there’s an offer, candidates are put in a very tough position of having to figure out how much they should try and negotiate.
Our previous post touched on five key problem areas:
- Inconsistent compensation due to a lack of standardization in levels, titles, and roles
- Low-balling initial offers, leading to better or luckier negotiators being better compensated
- Information asymmetry, so only the company really knows the rules of the game
- Broken systems, with many companies using spreadsheets and ad-hoc processes
- Compounding effects, where these issues follow someone throughout their career
Bringing more transparency to compensation philosophy and processes will help your relationships with candidates and employees get started on the right foot.
The time is right to embrace compensation transparency
The nature of the professional workforce is changing, and it’s becoming imperative to embrace compensation transparency to address modern employment challenges:
- Pay equity and reducing bias has become a critical issue for companies to address, as society at large confronts these issues more openly.
- The increase in remote work and distributed organizations has turned a local competition for talent into a global one, making it even more difficult to determine correct compensation levels across organizations.
- Compensation information that used to be a closely guarded secret is now shared openly via spreadsheets on social media and sites like Glassdoor and levels.fyi, and employees demand more visibility into the value of their compensation.
- The job market has changed dramatically this year and recruiting teams are strapped for resources, so it’s crucial to focus efforts on candidates with aligned compensation goals for each role to save time in the process and close candidates faster.
How to get started: create a compensation philosophy — and share it
It’s time companies did more to clearly communicate and build trust around compensation practices. The first step is establishing a compensation philosophy. You can start with a basic framework and build it out as your company grows.
A good compensation philosophy makes it clear to candidates and employees how your company thinks about compensation, ties compensation policies and processes to roles and careers, and gives employees trust they’re being compensated fairly.
Here are a few key questions companies should be able to answer about their compensation philosophy, both to ensure internal processes are right and to communicate to candidates:
- Do you have a formalized written compensation philosophy?
- Do you have set salaries/bands defined for each role?
- Do you adjust salaries based on location?
- How are equity grants determined?
- Do you negotiate compensation on new offers?
- What other special compensation items do you offer? (long exercise periods, equity refresh grants, bonuses, etc)
We’ve put together a short six-question survey around those questions to help get you started on the path to more transparent compensation. We’d love for you to take the survey, and we’ll share aggregated results with all participants.
Leading companies are embracing compensation transparency already
Here are some examples of how leading companies are sharing various aspects of their compensation philosophy:
Gitlab — One of the most open companies about compensation processes, Gitlab’s open compensation policy covers everything from their compensation principles and framework, to how they calculate salaries across different regions, to benefits, bonus, and equity grant details.
Otis — Otis shares not only salary and equity levels for all roles, but also details on their career tracks and skills expectations for each level.
Buffer — An early advocate for compensation transparency, Buffer not only shares how much each role will make, but goes to the extreme of full salary transparency, sharing every team member’s salary.
In my next post, I’ll provide an overview of what a range of companies share publicly about how they approach many of those compensation areas.