a16z Podcast - a16z Podcast: All Things Compensation

Episode Date: June 21, 2018

Compensation is a topic near and dear to everyone’s heart… but what does “compensation” fully mean — and what does it include, what doesn’t it include? How do entrepreneurs compete for talent in an intensely competitive environment, while balancing their startup’s affordability considerations? This wide-ranging episode of the a16z Podcast (based on an event held for entrepreneurs at Andreessen Horowitz earlier this year) covers all things compensation — from philosophical questions such as how to get to alignment around your company’s compensation philosophy to details such as the tradeoffs between RSUs vs. stock options. The discussion includes Steve Cadigan, talent advisor and cofounder at ISDI Digital University; Thanh Nguyen, Executive Director at Connery Consulting; Greg Loehmann, principal at Compensia; and a16z partner Shannon Schiltz, who heads up a16z’s human resources, tech talent, and people practices operation.

Hello and welcome to the latest A16Z podcast. I'm Matt Oberhard. This episode is a conversation all about compensation from the simple act of defining what compensation is to discussing how to build and develop an overall comp philosophy for your company. There's a lot of great content in here around affordability versus competition, pluses and minuses of RSUs versus options, and a whole lot more. This conversation includes the following voices in this order. Steve Cadigan, talent advisor and co-founder at ISDI Digital University, Greg Lohman, who's a principal at Compensia,

Tan Nguin, who's an executive director at Connery Consulting, and A16Z partner, Shannon Chilts, who leads our HR, tech talent, and people practices teams. This recording and podcast is based on an event held at Andreessen Harwoods. As Matt said, I'm a recovering human

resource professional. Such a broad topic we have today, and everyone in here is probably looking at it and coming at it from a different place, given your background, given your organizations you've been in and are in today. I was with LinkedIn from a pre-IPO through IPO, which included the day we went public, realizing that we had to switch from an options to an RSU program that night because the stock was just going wild. So, experienced a lot of craziness and also, like many

of you, competing for really endangered species, software developers and engineers in the valley puts a real strain on it. You know, it used to be you could do a salary survey, once a year and you're feeling like you're pretty on top of what the competitive environment was. And if you're not doing it quarterly or even monthly now, you may be missing something. And that puts a big pressure, I think, on all of us to be competitive. And who you're competing for and how their programs are changing is really, it's almost like the tide, right? Lots of undercurrents and lots of things going on and flashy news that gets people's attention.

So maybe a good place to start would be to just unbundle some of the terms we use in compensation around. There's comp, there's total rewards, you know, equity and pieces like that. When you guys' opinion, what's the difference between compensation and total rewards? Is there a difference? Look, I mean, I think you've got employees, right? You've got comp. You've got base, you've got bonus, you've got equity. You've got things the company spends money on that ends up in my wallet, basically, my bank account.

It's really direct forms of compensation. I think total rewards a little bit more broadly, things that generally cost money that the company is kind of spending on perks, training, development, And anything that the employee finds value in, that keeps them engaged with your company, that they put on their balance sheet. Like, I'm giving this company something with my contribution. I'm working for this company. I'm helping them create value. That's on one side of my exchange with the company.

And on the other side is everything I get back. For me, it doesn't necessarily include, like, I like working for this company because of our mission, or I feel good about what we're trying to achieve. I mean, that I think is something that the employee themselves helps create. That's something that they're giving as well. I don't think you pay less because they like working there. I think that's part of why they work there. That's part of the umbrella around your total rewards package.

That's how I tend to think of those. And I would say it goes by stage. So when you're a smaller company, most people talk about comp because it's base and equity. And then you kind of go through this evolution where all of a sudden you're talking about total compensation, which is base bonus and equity. And then you start talking about total rewards, which is everything you're talking about, all the perks, it's benefits, it's matching a 401. It's the total rewards for working for the company. I work with companies who are, you know, $500,000 raised up to, you know, $100,000 raised, and you see them go through the progression there.

And comp is where it starts, and then it starts to evolve to total rewards. For me, total rewards, you also have to think about career development, that professional development aspect. And I think that's a broader, and that bleeds into culture, what you're defining. You've got to think about the development of your employees. pays. All right. Great. So for the folks who are evolving their compensation systems right now, where do you start? Where should you start? And what's some advice you have for people that are undertaking like laying the foundation of a comp strategy? One thing I will say that I think is super,

super important is compensation cannot be done in a vacuum with just market data. Right. So a lot of people want to go out and say the market's paying this and we have to do this and like we're competing for that. It's like great. What can you afford? Right. So the affordability piece has to come into the initial discussion. And if we're looking to hire 50 people and we have X amount of money and we can only afford 25 people for competing against all these companies, maybe you need to drive a conversation higher up about what is our headcount plan. So a lot of companies want to just look at, you know, here's what's going on in the market. And unfortunately, you have to look at affordability. Yeah, I think that's a big, big factor. Look, I think a lot of times we, Certainly I hear it's reactive versus proactive to a certain extent. And you've got to look at your own internal data, the type of profile that you're hiring to. And then, you know, getting a better understanding of the type of companies that you're comparing against and getting a sense of what that gap looks like.

And then also taking a look at future state companies, meaning you have an intelligent conversation around, look, this is where we're at, this is how we plan or are going to tackle this. issue as we get to the next phase. But it takes a lot of energy and a lot of effort, as you can imagine. And I think you've got to get in front of the data to a certain extent and then, you know, working with your finance. And to that point, your peer group is so important, right? And your peer group is like the hardest thing that you will define. Because nobody wants to think they're like X when they could be like Y, right? The place where I start is just, do you know who your employees are? Have you thought about just a level structure? Have you

thought about figuring out how to ban your employees. The first time you go through that exercise is really painful, right? We're going to start to understand what the market pays for a particular job, and your people are going to have this question of, is my employee overpaid, or are they in the wrong level? And if you don't get that framework set up initially, you're dead. And then secondly, I think you start to get into this question about data. Do you have data? Have you had surveys? Have you done this in the past? And it's like, well, not really. We just kind of, we figured it out as we've gone. So getting good information and how do we compare to those companies? As you start to go through this research, particularly in a pre-IPO setting, I mean, the ranges are enormous,

right? You could look at a particular cap raise got or head count cut and it might be five basis points for a job, 10, 15, even 20. How do we compare to those companies? What makes us similar? What makes us different? Are we big enough where percentage doesn't work? Should we start getting value-based data? Should we be looking at public company comm? So, I mean, really setting the tone early with getting the right information around the benchmarking that you're going to do, get the level structure right, get your company talking about who's critical, who's experienced, who's entry level, how do they line up to market? I mean, those are all really important building blocks before you even start to say,

well, we're going to give a new hire director X,000 options. And as I say, data can be dangerous, right, to a certain extent. And I think, you know, sometimes it's misconstrued that because we have the data, we have to pay everybody at these absolute data markers. I think what you've got to really focus on is trying to hold a general population to a general philosophy, market positioning philosophy, and really think about developing and going after really aggressive comp for key roles, key contributors. And that's how you're able to really build an aggressive and competitive strategy

because you're not going to be able to compete. with the likes of a $50 billion company, right? And that's the reality. And that's how it becomes iterative, right? Many times the proposal we come up with, right, you'll have a matrix of levels and functions, salary ranges, bonus targets, new higher equity. I also think if you're talking about any of those pieces,

you probably talk about all of them, including how you're going to think about refresh, an ongoing equity, it's hard to bring a candidate in and say, here's some new higher equity. Well, how's this going to play out over time? Well, we haven't thought about that. So you want to carry it forward, but that initial proposal is a little bit like sort of the artist rendering of an architectural proposal. Once you see that building build, it may look a little different.

It may look a lot different. And some of that comes through the process. You listen to your recruiters. You start to make those offers. You see if they're closing. You get a feel for how people are thinking about your equity and your company versus how they might be looking at other offers. And I think it's important to have that feedback loop that comes back to what we develop. based on market, based on what we think is right.

And so that's where it becomes a very live, iterative process. For us to think about a comp strategy that's really going to stick, who needs to be part of that conversation? Who are the stakeholders that need to be part of this for this to really be something that sticks and holds? Because everyone here walked into a situation where the comp strategy was defaulted into based on hiring competition, and they're like, oh my gosh, we've got inequities all over the place. We're going to have to smooth out over time.

But how do you get that to work? What we've seen work really, really well is you have, obviously, HR is involved. You have your CEO has to be at the table. Your CEO has to sign off on the comp strategy. And I would say it's comp philosophy plus your comp strategy, right? And then on top of that, you have to, if you have, obviously, CFO or finance from an affordability standpoint, and then I think your entire leadership team has to stand behind it. There is a moment in which the CEO does need to take it to the board, you know,

There's utilization and burn with regards to equity. There's affordability with regards to cash. But there needs to be alignment between your board members and your CEO on what they're going to spend with regards to equity. Has anyone seen what happens when that's not the case? It's not pretty. Look, I think it's the operations goal to present a plan to the board, right? I think it's important for any kind of check to say, look, do we have the programs

or the strategy in place so I can go in front of a comp committee or a board member and say, this is what we're projecting, this is how we're going to do it, this is our philosophy, and this is how we've kind of thoughtfully looked at the employee population and how we're going to pay them. If you're not there yet, then kind of goes back to what we talked about, really baselining. Let's get leveling in place. Can we categorize our employees to a certain extent? And it starts from there. It's one of those things that if you actually do the entire year budget plan of equity spend off of your hiring plan and get your board to sign off on it, you'll find your approvals go a lot faster.

You can just say, like, here's what we planned, here's what we're spending, here's our rest of the year utilization, a board member can sign off on that really, really quickly. And so this goes back to doing the prep work on how you're actually going to spend for the year. What advice do you have for the folks here who are earlier stage? They don't have a revenue stream yet. They're not profitable yet, but they want to hire, and their leaders want to hire superstars from the high-paying companies out there, the Googles of the world. How should they think about being competitive? Like, how can they be competitive?

Is it just like, oh, sorry, non-starter, not in budget, can't hire those people? Again, to a certain extent, assessing candidate, and we talked about assessing, you know, candidates risk appetite and what their alignment is. Like, there's a range of different development stages. There's a range of problems that companies are trying to solve. And it's not comp that's going to ultimately seal it. I think the big thing is getting in alignment with recruitment and the leadership to better understand that alignment fit with your company and that culture. Right. And if you can get closer to that alignment, you're going to have an easier job on the compensation side. Now, with the compensation aspect, I think it's important that you're able to communicate a strategy,

whether you're, you know, 10 employees or 100 employees. I think you've got to start early enough to be able to thoughtfully say, look, we're at this stage. You know, as we grow, we're going to start to develop different programs. But far too often, I just don't. I mean, even we have the luxuries of seeing. create all the way up to, you know, post five rounds and public companies. And nobody's discussing that. It's important to kind of start thinking about that, obviously, at an early stage.

There's certain kinds of people are going to be interested in certain kinds of companies, and there's going to be a split in the market. And as an earlier stage, whatever stage of early you actually are, you can't get everyone to come work for your company. It's just not possible. There are different profiles. It's different to work at a startup than it is at Google. If you're trying to buy talent that way, you're chasing the market.

I think you're getting caught up in euphoria. You're making promises you probably can't keep. And so I think that often doesn't work out well. I also think one of the things you see a lot in companies, this was like the roadmap of Wall Street compensation, is somebody had a lot of success somewhere. Let's pay them a lot and they'll make us successful. That happens a lot in Wall Street.

That happens a lot in sports. It happens a lot everywhere. And it certainly happens in Silicon Valley. I think getting caught up in that can be really damaging for a business. and we come in and start working with companies you might see two employees who basically do the same thing and I have five times as many options as that other person.

I mean, there are huge disparities and that's just how they negotiated coming in and when they came in. And I think trying to mitigate that early is really critical. So being realistic about who you are and then selling your company, selling the opportunity, selling the technology, selling the mission,

all of those things, and then being competitive on pay and having a vision for how pay unfolds over time, I think that's how you can use pay as a way to make sure that comp isn't the thing that stops them from coming. We go through this whole process of putting a comp strategy in place. We enlist comp consultants. We get our leadership team to understand it.

We focus on ourselves understanding how we would sell it. And we forget this huge step, which is making sure our recruiters understand how to sell it. And so then all of a sudden we're surprised when our recruiters can't actually close candidates or speak to equity or speak to vision or speak to culture. But it's like we do all this stuff, and we don't educate our recruiters on how to actually roll it out or sell a program. And we don't train our recruiters on how to double-click on why somebody's not accepting our offer, right? It's really easy to say when you're leaving a company, you're leaving because of comp, and that's a tip we all know. We're HR professionals.

That's not the reason people leave companies. And two, we're really quick at saying they got a better offer from another company. We're actually, if you really have a good conversation with the person, there's, usually something that might have been broken in the process or the manager didn't sell it right or you know the follow up was really bad so it's like getting the good data back to HR that can actually help them iterate on a comp philosophy at hire and also you know can help you think about what talent are you losing and does it have to do with comp do you guys have any examples of companies doing interesting things that is able to sort of nab some really high quality candidates that maybe

are even taking a pay cut to join you know people right now are interested in joining companies who are disrupting X space, right? Going back to your point, you have to understand what's driving the talent you're speaking to. There's tons of people who want to join companies who are doing something for the good of the world. It's not the perks. It's actually, what are you working on?

What's the company's vision? What are we trying to disrupt? And it's being able to sell that. It's the peers, yeah. It's like who they're working with. It's great to have, you know, leaders that and influence and have loyalty with other peers. I mean, that's a great way to build your initial employee base. And I think a lot of

hiring is done through that in engineering. But again, it goes back to that value of alignment and what you're trying to solve for on a day-to-day perspective and who you work with. Well, I think the other piece that used the words refresh equity, I mean, pay for performance, right? I think getting somebody in the door is one thing. Having high performers have confidence that they'll be rewarded if they contribute, not just from the appreciation, of their initial equity or through a salary raise, but the opportunity for ongoing incentives, I think, is critical because those are the people that you really care about.

And I think the companies that we come into where things seem to be going well, they are distributing equity and using it thoughtfully to reward people and recognize people. There's a connection between paying performance. And I think that's really more than free stuff. That's what high performers want, is to be recognized, to contribute,

and be part of a thriving enterprise. I get asked this question a lot. is how can we differentiate like that if we are transparent? Well, you can be transparent about your philosophy, which is you pay for performance, stand behind the decisions you made. Yes, we pay our top performers and our critical performers, right? That's the way we manage and how we reward top performers.

Everybody talks about the new hire grant and those programs, and it's just over-emphasized. And I just think that when you think about the employee's development, again, that career ladder, attention and you really sell that, that you've got programs and leadership is bought into that, that's ultimately what's going to, you know, create value for your business. And, you know, particularly, I think, later stage, you start to get different profile a board member, your dilution numbers start to really creep up. That's when you start to get

questions in particular, and it can be hugely problematic, right? You sort of alluded to this, Steve, if your overhang is getting up into the top of the range, what do you do? So getting ahead of that early so that you do have room to compensate people, you have room to bring in executive new hires. I mean, the amount of equity that goes out the door in a late-stage company that's really ramping up growth and heading to an IPO, it can be extraordinary relative to what's going on in an earlier stage company that's moving along but hiring at kind of a reasonable rate. I mean, you can go from a few percentage points of equity to double-digit percentage points of equity pretty quickly. So you've got to be ready for

that. I think you have to start to plan pretty early to be able to accommodate. that. So let's talk about growth in evolving your comp strategy. What are some of the markers in an organization's growth? Is it size? Is it geographic disbursement? Is it, you know, hey, we're hiring more executives now. So we need to adjust how this is doing or we're actually making a profit now. So maybe we want to dial up the cash a little more and dial down the equity because of dilution. Like what are some of the things that would lead an organization to say, hey, we need to revisit our strategy? I think all of the above. It's very nuanced. Comp is not linear to whether you've raised or whether you've grown X percentage and head count.

When we look at data, we want to segment the data, and we want to segment based on comparable development stages, et cetera, and that's going to give you a good baseline on what you're going to face from a competitive perspective. And you also want to look at future state, so you better understand the changing dynamics between the different philosophies, whether it's cash or equity or different pieces that make up that total reward strategy. But I think to that point, like you're focusing on growth, I think it can be companies going through a downturn, right? Companies pivoting.

Companies just staying stable. Those are all times in which you actually need to be looking at your compensation philosophy because all of a sudden people are starting to question, right? Should I stay? Should I go? We were talking about extended exercise periods and how long should some people? work for you before they actually get access to an extended exercise period, you know, we haven't really seen any down markets, and it's an incredible benefit. And, you know,

you have to be thinking about these different programs that you might need to put in place if you're not on a hypergrowth. Right. There is a huge valuation component to that because certainly, look, I mean, we're bigger, we're scaling, but equity is a major part of the currency we're using. And as our valuation profile changes, maybe even the risk-reward profile of our equity changes, those are really key inflection points in terms of how you think about equity. Even getting very late stage, you start to talk about RSUs. Do we start to talk about denominating our equity grants as a value rather than a percentage? I mean, those are key points that start to come up in the conversation, particularly now when you're talking

about many, many multi-billion dollar pre-IPO companies, right? And that's just a different dynamic. And I think to your point, you just put it in context of you're growing, you're getting closer to IPO, like the valuations, and you start thinking about RSUs. There's tons of companies who are implementing RSUs really, really early now. Or they're implementing RSUs when, like, the 409A or the common, like, there isn't necessarily a need or a good reason to. Can you guys be in the professionals kind of talk about what you think, when you think a good time to implement RSUs might be?

There's a lot of discussion on RSUs. I think because it's what everybody talks about these days in terms of their offer. I mean, when you think about the big employers, Google, Facebook, et cetera, everything is denominating RSU. Apple, Amazon. Apple, Amazon. I mean, everything is dollar-based. And it's hard for earlier stage companies to kind of articulate that same value. I don't know if there's, yeah, there's not a right or wrong answer.

I think it's RSU's essentially you're dealing with present value equity versus an appreciation, right? So if you're not going to go out, meaning liquidity, in a very long time, I think it's hard for companies to move to that RSU model. I just think it forces a lot of, A, taxation on the employee base. It's just not as flexible from options perspective. And, you know, if you've got a low strike price, options are way more flexible for companies. And I just think that sometimes the marketing and the value of RSUs, pushes companies to do certain things that, you know, I think you've got a lot of room, certainly from an options perspective.

I agree. I mean, I think, look, if you're at a pre-IPO company, the odds are good that you're talking about not, you know, growing our valuation by 10% or 20%, you're talking about, you know, 5x or 10x, right? You're talking about multiples of returns. There's really no scenario where RSUs are better than options in that model. And so from a pure upside, from a pure opportunity,

perspective, from a flexibility perspective, from a tax perspective, from an administrative perspective, there are lots of advantages to stock options for pre-IPO companies. Having said that, RSUs can provide some nice optics around burn rate and dilution. I mean, there's some nuance to how that actually plays out over time. If you are a very large pre-IPO company, you may have a little bit of a different sales pitch about your upside. The dynamic is different. You're not talking about probably 5X returns in the short term.

So there are some places where RSUs can be a nice feature, but I think it's a pretty small slice of the pre-IPO world where they're better than options. I think the point I want to double-click on is like, understand it. Yeah. Right? Understand. I get that phone call all the time. We're thinking about RSUs. What do you think?

Yeah. What do you solving for? Yeah. Right? Well, we're competing with Facebook and Google and Apple and they're giving everything in RSUs. Sell your options. Yeah. You have a great story to sell.

You have an upside. you have huge growth in front of you, right? And I asked the question, like, okay, but explain to me when Facebook says they're giving 300 RSUs and you're now competing and giving 300 RSUs, like to me it just seems like the dollar value is a little bit different. So then you have a whole selling thing

that you're doing there too and educating. So just make sure if you're being asked to do that, you really understand what that means. We think of RSUs at a place like Google is value preservation, right? They're in a value preservation mode growth, but not huge returns. And you're giving an employee a share of stock.

It's got value. That employee can look at that share and say at the end of the vesting period, I'm as good, you know, as likely as anything to get that much value, $900,000, $1,000, whatever it is. Pre-IPO company, they've got a valuation, the share of stock,

the preferred valuation might be six. I don't know. I mean, is it likely to be worth $6 at the end or more or less? There's a hugely different risk-reward profile, even though it's an RSU, even though that's what somebody paid for a share of that stock yesterday,

day, there's a huge kind of distribution of potential outcomes. So granting RSUs isn't less risky the way it is with stock options when you think about pre-IPO to public. Right. Okay, so you guys have helped and consulted and seen lots of companies go through the IPO. Any big mistakes you've seen, any big like, oh man, I wish we'd done that differently, that they learned, that they didn't expect something was happening or would happen? I think having the support function to drive your programs is, probably one of the most critical things, meaning you've got a philosophy, you've got to be able to action the frequency from which you're going to be supporting, you know, career

development, performance management, all those things on an annualized basis. And if you don't have the structure in place, man, you're going to be in a world of hurt when you get to that IPO and post-IPO. And it takes a lot of, you know, planning and resourcing because there's a lot of compliance. In my own personal experience, it was ensuring that we were able to activate on the things that we said we were going to do. It's the scalability of the programs you're implementing. I also think as we work with our CEOs and really understand transparency and what transparency means pre-IPO and what transparency means post-IPO, and making sure you have a communication strategy on all things company-related as you get closer to IPO. If you want to be

super transparent and pre-IPO, understand what your strategy is once you become post-IPO. Right. And if you've been private for a while and you are going IPO, a lot of times what I've found is the CEO, if they haven't done this before, may not be aware that the Section 16B officers will have their comp published. And if there were some back office, you know, back alley dealings and special side things, if that's not cleaned up, they're going to be untangling something. That everyone finds. I mean, everything from, like, different double-trigger, change-of-control things, accelerators, special benefits, all that kind of stuff needs to be attended to before you file.

And it takes time, and I think that's the key. There's two types of companies that call us. They say, we're thinking about going public, okay, when, well, like 18 months, and then there's others. Well, it's like, well, you know, we've got a confidential S-1 file, and it'll be a few months. And so, very different, right? There's a pretty clear roadmap here from a comp perspective, particularly executives.

You've got to get ready for disclosure. You're clearly going to start to think about contracts and severance for executives. You've got equity plan to think about. But where you get the benefit of backing up and starting earlier is a lot of things we talked about with RSUs versus options, the 4NNA price, your dilution, all those things are going to change most rapidly, in most cases, right as you go public, right in that stage. And you hire somebody 12 months out, six months out, one month out, you could have a different comp strategy, different answer at each of those three points.

And so you've got to be ready to move through that curve pretty quickly. So start early, start thinking about it. I think particularly with respect to some of the direct comp elements, because it's going to change fast. Okay, questions for the panel. You made a great point on, like, affordability. And I'm just curious because I do think there are certain managers and leadership who feel that they do want to buy certain talent, and they feel that they can afford it in their budgets. And so how do you manage, like, consistent?

considering the internal parity and the overall company strategy and leadership expectations. I don't think you break that cycle until you actually are helping that leader with the overall strategy and budget. And a lot of times I see this happen constantly over and over. Because each hiring manager really is in support of... That one hire. That one hire. They're the bees' knees, right? So if you give them that opportunity, you also have to give them the responsibility of managing an overarching budget and the consequences of that.

She's going to keep doing that until you equip them with the strategy and say, this is the ring fence from which all managers within this organization are going to operate in, and this is your budget. I'm curious how you think about going out of ban, though, in the context of paying the people in level. for the same job and like around all of the pay gap and better negotiating and things like that. So how do you say, okay, we're going to go out of band, but what about this next person who we're not going to go out of band for, but they're actually, do you move them up a level, or do you say, all right, we're going to have this problem moving forward? What we did in my days operationally is we had a different approval matrix for them. And you really had to stand behind why that person,

was going to go out of band, right? And, you know, if that approval goes up to the CEO and then possibly the board, your name's behind that. There's going to be pushback. There's going to be questions. And if you're one of those managers that asks for that constantly and, you know, you're backing that individual and that individual isn't performing,

then there's a little bit of a peer kind of review on, man, this person does that, consistently. We don't really value that person's assessment. And I think that's kind of pure pressure to do the right thing, right? And I think everybody still tries to do the right thing. And I think having a process from which that gets reviewed will mature into kind of, you know, everybody watching out for establishing a calibration process. This is a great opportunity, if this is really happening in your group, to bring the executives together and say, okay, let's figure out as a team how we're going to handle these, right?

The same thing with like a retention bonus or a bonus that you're trying to keep someone from leaving. Like, hey, should we give them a bonus to stay? That's a big cultural move, right? And the more harmony you have, there's no right or wrong answer to these. None. It's what is consistent with the leadership team. And building that muscle is really important. I think calibration amongst leaders is really important,

but it's probably the hardest thing to do. And sometimes there isn't a leadership team. Yeah, exactly. I mean, and the HR professional kind of becomes that intake, and you have to really kind of take a lot of considerations in from a lot of different people and hopefully form a consistent recommendation. So you can advise, right? Consistency is probably the biggest piece, right? Totally. What are you guys seeing in terms of pay equity, which has become like more of an issue? Like, are companies actually doing any sort of like analysis around pay equity? So New York, San Francisco and California passed a law where they said you can no longer ask the question, what do you currently make?

And that was passed in the hopes of removing a lot of the gender questions or inequality, those laws will hopefully solve some of that issue. Yeah, I mean, if you're doing competitive analysis, you can do gender pay analysis really, really simply. There's no reason not to do it. I mean, the data's there. We're seeing a lot more of it. I have one company that has put that as one of their top HR initiatives, and they're making really aggressive market adjustments around that. And they're actually putting the stats in a place where all of their employees can see that. I just think it's the right and appropriate thing to do.

And it's not adding any extra load to your competitive analysis or what you need to do in terms of developing those initial strategies. The only thing it puts a lot of pressure on, it's that first thing we talked about is, like, who's who in my organization? Who actually is the same? Because if we have a mistake, a mismatch, a mislevel on a comp analysis, we can sort of factor that in. Maybe they should be, they're on the border, so they should be high in the range or low in the range. But if you're publishing these numbers, you're saying two people are the same, well, suddenly that percentage difference isn't accommodated very well by the range, particularly if you have a low head count. And so you have to be really thoughtful, I think, about how you identify people.

Well, and that's where I do think it helps to bring in the professionals that are doing it to understand, because data can be dangerous and data can be helpful. It's understanding what data are you looking at and making sense out of the data. You can't just say, like, here's the data and everyone look at it and this is like come to your own conclusion. You really do have to understand the data, and this goes the levels and all of that. So a question about dilution, you mentioned that earlier as something to watch out for early. Let's say you've made a fair amount of sort of overgenerous mistakes early on. you're at a point where your employee pool now needs a refresh and the board is really pushing back. How do you prevent that in the beginning or, you know, or halt it or do something so that you can get to a thoughtful refresh when needed and you're not facing the same dilution issues?

Well, certainly, how do you prevent it? I mean, a lot of the things we're talking about, right, in terms of having a structure early, thinking about market data early, thinking about the type of candidate that you're chasing and getting people in with a consistent, profile, but also reporting on these statistics along the way, I think the more that you engage broadly, both your board and your executive team, your investors, around what your strategy is, is important. I think, too, don't get behind on equity. And so I was in a meeting just last week, actually, where this was the issue. And there were board members not speaking to executives because there was such a huge divide around this concept. And the proposal from the executive team was, we haven't done a broad refresh in a long time. And our dilutions fall into 13.

and change percent, and we want to add 10 percent to our pool, and we want to give most of that now. This would have been a lot easier if they'd been on top of this, if they'd been granting equity along the way. The numbers that they were proposing in the absolute were not ridiculous. If they had gotten there in stages, it would have been a lot easier. Well, and I think this goes back to philosophy versus strategy versus, like, real dialogue around equity. Here's a template, and this template will actually help you have a really good conversation with your board. And that has to do with, you know, what our total, like, what our equity pool is, what our equity pool was at our last financing, what we've added since our last

financing, what dates the board actually approved additional equity, what our plan spend is, what our projected executive hires are, what our performance equity plan is. Because if you come to the board and say, we're going to do a 13% spend and we have 200 employees and we're actually giving $199 employees equity, the one that we're going to be. we're not as CEO, which gives us a light, you're going to come back for a CEO equity. Like, we're not in alignment, right? We want to see you actually spend it and give it to your top performers and really actually keep your top performers. And that's a hard discussion to have. But if you have those conversations and you're reporting to your board constantly,

and then all of a sudden you come back and you say, look, this is what we were going to spend. We had high turnover. We had high turnover on the executive team. We have to upgrade our executives. We thought we act like here's why we have misalignment. That is a much easier conversation and then coming and having your first equity conversation saying we need 13% and actually it's not that we want to spend it now. We've actually planned the spend now, right? Or can you approve this? And we're also looking for an option pool increase because we've spent this. Like that's not a good way to have a conversation. Being proactive on the spend is a better way to have the conversation.

The further you are on the right side of that curve of overhang, the more questions you're going to get about the link between pay and performance. Are you giving people a refresh grant because they've been around a long time or is it a promotion or performance, something that's really triggered by their value to the organization? That's when those questions really become most important. And when you're having that value to the organization conversation with your board and you can actually point to the value, like, you're really. rarely going to have a lot of pushback. If you're having zero conversation and you come with, and this is the hardest thing, right? It's like we, and it happens frequently. So it's not like

there's a company that does this, but it is like here's our approval for our equity performance grants that we did or our refresh grants we did. And we need an additional 2%. Well, that seems like we could have gotten ahead of that conversation so that all this, because in all actuality, like you are looking for the approval, right? Can you build a bottoms up plan? And that will help you. I think that's a key question based on where you guys are at. Can you build a bottoms up plan? In doing so, you're going to be able to segment your employee population

and understand where the levers are. And then by understanding that, you can present to your board overlaying your headcount plan of the future, your retention strategy, your executive hires. And then once you understand that, it kind of opens up. Because then you're able to really speak specifically to the board and the deferring strategies. on how you're going to focus on exec comp, or you're going to focus on engineering, et cetera, right? But until you're able to really kind of get your arms around that

and have those details, I think you're going to struggle putting that overall strategy out. And I would say overcommunicate. People really don't like being blindsided when it comes to burn. Burn and delusion, right? And recognize your players, right? So if you have a first-time CEO and they've not worked with a comp consultant before,

They've not had to face a comp committee or a board that's super tight around equity dilution. And you've got lots of new players in there. It really behooves you to really extra invest in the communication, the understanding, and helping the CEO, helping her see what's down the road. Because a lot of them are like, get the person we need to just hire them right now. Well, we could, but next time we go to the board, it's not going to work. You know? Great.