The a16z Show - Salary Transparency: Clarity or Chaos?

Episode Date: September 5, 2023

With recent landmark legislation being passed around salary transparency, many companies are playing catch up as they interpret and implement changes.In this episode, members of the a16z People Operations team,  Shannon Schiltz and Brandon Cherry explore how companies can best prepare themselves to not just survive, but thrive in this new environment. Topics Covered:00:00 - Salary transparency legislation01:52 - The culture around pay transparency 03:39 - What is the legislation?07:01 - How are companies reacting?11:03 - Structuring a compensation philosophy 12:30 - Pay ranges15:35 - Exceptions to the pay range18:17 - Leveling staff22:30 - Ranges and roles and company growth28:24 - Location based pay30:05 - What should employees look for when applying for work?32:19 - Job postings35:05 - Reviewing compensation ranges 35:42 - At what stage do you hire help? Stay Updated: Find a16z on Twitter: https://twitter.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zSubscribe on your favorite podcast app: https://a16z.simplecast.com/Follow our host: https://twitter.com/stephsmithioPlease note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The earlier you think about putting a compensation structure in place, the stronger and healthier your company is because you have consistency, not fairness, consistency. You need to own the philosophy that you believe will drive the kinds of outcomes that you want as a company. There is a top 10% of your organization that isn't just the best performer, but they're critical. What I mean by critical is if they left tomorrow, something stops working. Ultimately, these laws are forcing companies to put the kind of industry. infrastructure in place that a manager can use as the backstop. Sometimes the back to the matter is we might agree to disagree. Starting in 2016, states started enacting laws requiring employers to post their pay ranges.

And now, at least 10 states require it, amounting to over a quarter of the U.S. labor force covered by salary transparency legislation. And with these recent landmark changes, many companies are playing catch up. So in this episode, we'll explore how companies are reacting, misunderstandings that exist around these nascent laws, and how companies can best prepare themselves to not just survive, but thrive in this new environment. And today we're joined by Shannon Schiltz, operating partner leading A16C's People Practices Team,

and Brandon Cherry, partner on the same team. Let's get started. As a reminder, the content here is for informational purposes only. Should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16c.com slash disclosures. So pay transparency. I feel like this is a new-ish concept.

Maybe 10 years ago, certainly 20 years ago, pay was not very transparent. And so you guys have both been working in this industry for a while. Tell me a little bit more about how you've seen that change, maybe that information asymmetry, especially in the last few years. You know, it's funny that you say that. I was just trying to think of what year pay transparency became a thing. I think of 2010, because that's 13 years ago. Yeah. It became more of a cultural thing, right? And it became very much a Silicon Valley thing, too, that you should feel confident with what you pay each employee. And if somebody else finds out about it, you should be able to justify it. And historically, that was generally reserved for government jobs, teachers.

You get a master's degree, you get this many more dollars. There was like real clarity, and it was structured around achieve this or do this or have this. You get more money. But in non-government, non-education industries, it was probably a widely known secret that people talked about their compensation. We're going to just bring it to the front so that there's actually insight and rational thinking around how much you're paid and why. which was really powerful for employees. Yeah, it is powerful. I mean, it seems like a no-brainer that that should exist,

that companies should think critically about how their compensation is structured. But to your point, that's not always the case. But now it may be forcibly the case because there are new laws in some states, not all, where they are required when you post a job to have transparent ranges. And so let's talk about that. What have you seen in terms of some of the legislation or the rules that are now in place that kind of force companies to think a little bit harder about this. And I think it was 2016 was the first time the law came out,

that if you are interviewing a candidate, they can ask for the pay range for the role. And you have to be able to, within 24 hours, share with the candidate with the pay ranges. And I remember when that happened, like we worked with a lot of our portfolio companies on thinking through, what is your pay structure? And then it's just been a slow and steady progression

around compensation, you know, around equality of compensation. Brandon and I were talking about this yesterday. The interesting thing is, is there is this law of pay transparency. If you think about the best practices on how to build a company, the earlier you think about putting a compensation structure in place,

the stronger and healthier your company is because you have consistency, not fairness, consistency. Yeah. My favorite. I love to differentiate there. Wait, maybe you can actually differentiate. Like, what is the difference there that you see? People will say,

I don't think it's fair that that person is making what they're making. Well, let's dive into what that role is, the scope, the impact, the influence, what is the role? That's what someone's being comped against. When somebody comes and says, my comp's not fair compared to that person, you should be able to come back and say, no, for each role, we are benchmarking against this data, and we target the 50th percentile. That's consistency. That might mean this rule makes $100,000 a year. in this role makes $80,000 a year. But an employee comes talking about fairness.

You don't get a lot of people saying, you know what, I don't want a merit increase. That's too much money for what I'm doing. Not many people will say that. And so what a company needs to have in place are those conditions for success that will enable them to react and respond to pay transparency.

If you've got a comp philosophy that tells you how you look at the competitive market, how you position yourself against the competitive market, a leveling architecture that clarifies where a role sits in the career progression of any potential job, you can then lean on that to drive a consistent conversation with the backstop of that consistent infrastructure.

Right. And then it clarifies and sort of codifies how the company thinks about compensation relative to their employees, as opposed to having this black box, ambiguous way in which compensation is set. It's a trust thing. It is.

It limits cross-employee competition. Yeah. I'm going to advocate for myself as opposed to in relationship to that person. I'm just going to advocate for myself against what I know the career progression will look like here. It's interesting because it's the outcome is actually driving for core infrastructure in your compensation strategy. The outcome is incredibly beneficial to companies.

It's just painful to be able to articulate it if you don't have those things in place. Which many companies, I assume, did not in 2016 when some of these changes started happening. And I want to get into how you actually develop that compensation philosophy, the strategy. But before we get there, companies are now having to react to some of these changes in law. And I'm just so curious to hear what you're seeing in terms of the reactions, are they abiding? Are they struggling to catch up? Are they kind of circumventing the system in different ways? How are you seeing companies react?

Because it does sound like many were not quite in that place when these things started rolling out. Yeah. So I would say a couple things. I would say, one, we've probably never had so many requests for compensation. counsels, consultants, and how do I? Right. So one, I think people are reacting the right way. They just want to get their arms around it. Yeah. And then I would say there's multiple ways that people are reacting. One, some are just saying we're going to be in a wait and see. Okay. We're going to see how enforceable these laws are, how much audits are taking place. What becomes of this new law? There's companies

that are saying we're not going to do it. So we're not going to post our jobs. Because that's the most visible thing that's come out of it is you have to have a salary range posted with your jobs. Yep, yep. And then the third piece is you have companies that are saying you could make between, you know, this role pays $65,000 a year up to $2.5 million a year, right? And somewhere in there, we're going to pay someone. And so I would say those are probably the three things that we see companies doing. Absolutely, those are three choices companies have. And there's nuance to it. In some states, there's not laws. You know, there's minimum thresholds and things that people can explore around and what the requirements are in different locations.

But I think there's just a lot of concern over making sure that not only do they understand how to comply from a regulatory standpoint, but also what does this do to our employee population? Who's going to see this? How is this going to work? And if we do have $60,000 to $2.5 million, are we prepared? And do we have the ability to say, no, for you, it's 60. For other people, it's $2.5. How do you have that conversation?

And so I think companies are navigating through all of that. And so I would say that those are the three choices, but for every company, it's going to be very specific to where they're located, the kinds of employee populations they have, how clear and how strong their infrastructure is, and how they feel like they're prepared to have those conversations. Yeah. And again, it goes back to the basics, right? If you have the structure, so for us, it was relatively straightforward. We have the structure here. Yeah. And so we could post roles and, you know, put a salary range out there.

We set it up so we can defend it. The interesting thing that happens, though, is, again, the number of times that somebody sees a job posted and thinks, well, that's what I do, but I don't make that. Yeah. And so, like, it does. Like, you have to be ready to have those conversations and get your managers ready to have a conversation on why actually this is a level above you and you can progress into it. Yeah. But that's not where you're at right now. And that's a hard conversation.

I was going to get into the hard conversations, but let's just talk about that now. like, A, have you started to see that as you started to post roles? And you're like, yep. Both of you are like sitting up. And it helps us iterate on our process, right? No process is ever great. And so I feel like weekly we're like, okay, are we checking this? Are we doing this?

And we're iterating on it. Because your future hire is super important, but they're not actually going to be contributing to productivity and output for six to nine months in most situations. So you have to be able to defend it. your current employees. That's the biggest thing that people are missing is, yes, there is this law that you're supposed to post a range, but your biggest asset is your current employee population. And isn't it true also that it's not just that current employees can see the new jobs, but they can also ask, right? And so what is the rule around that that I, Steph Smith, can go and

say, hey, I do this job, and what specifically can I ask for? You can ask for your pay range. And that's where your manager should be able to come back to you and say, here's the pay range, here's where you're slotted. This is where you came in. Here's how long you've been in this role. We're seeing the progression. Here's how we think about compensation. You would walk away thinking they've been super thoughtful and how I'm paid. All right. Let's start to think about how companies actually build this because a lot of companies don't have this in place or just in the early innings. And so if you are a company that, let's say, has, I think the California threshold is 15 employees. And all 15 of those employees have been hired in disparate ways, paid in disparate ways, there's no sort of underlying

strategy or structure. Like, how do you even go about thinking about how to start setting that up? Yeah, you know, I think the three core tenants are what we've talked about before. You need to be able to articulate your philosophy on compensation. Not everybody is going to be able to compete with a, you know, $10 billion in revenue publicly traded company on a cash basis. So you need to own the philosophy that you believe will drive the kinds of outcomes that you want as a company. So your compensation philosophy in terms of how you define your competitive market, companies of your size and scale, and where you position against that competitive market data is really important. That sets the tone for then how you think about driving market data through

your comp philosophy to determine those ranges. The other element is your leveling architecture, how you define what it means to be an early career employee versus a seasoned individual contributor versus a first-time manager versus a seasoned leader. That's your leveling architecture. So between your philosophy and your leveling architecture and the third-party market data that you use to determine that relationship, you can set your ranges very consistent with what you should be providing to candidates and articulating the current employees when they request. By the way, on ranges, is there a right answer around how big a range should be? Because it does seem wrong, right, that a role could be 60K, up through a couple million.

That feels off. But what is a realistic range? And how do you think about what a range is? appropriate. Well, I think, first of all, just to state, like, it depends on the state, sometimes county and city. So the right range is going to be somewhat indicated by the law. Yeah. Because every level has a range. And every role, like market data dictates what your ranges really look like. It's not like you're going to see like 100K difference in every range. Like some ranges are compressed, some ranges are larger. And some of it is because if you think

about senior leadership, you're not promoting. Your ranges are going to be big because you're going to continue to go through that range. And so it also, you see it change depending on level, role, market data, all of that stuff. The basic common construct is that earlier career roles have a narrower range because people are progressing in those roles more quickly. So think of it as an inverted triangle in terms of the width of the range around a target market position. And that's kind of an easy rubric, but it's going to change for every role. To Shannon's point, the more senior you are, the likelihood that you'll stay in that role longer. is greater. And so you'll need more flexibility as a company to ensure that people aren't progressing

beyond the range. And that becomes a problem from a communication perspective. But it's going to change for every role and every function because a manager of, say, finance isn't necessarily going to get paid the same as a manager of engineering. And so the absolute dollars will be different, but the structure may be very similar. And that's where the market data comes in. You know, the thing that's interesting about the pay transparency, pay transparency laws are only focused on base salary. That's right. Yeah. Which is actually so funny. And it kind of goes back to, you know, when this first came out, a lot of folks' response was like, this feels very government. Right?

Because that's how they're mostly paid, right? That's how they're paid, right? So it's funny because you would think you would see more companies having these, like, smaller ranges, knowing that they have cash compensation that still, or a bonus, potentially, that's, you know, you can move around. You have equity. Yes. If you're in the tech industry. There's all these different other levers that actually don't come into place. like what does somebody's pay within an organization?

So it's kind of a loophole in a sense. Well, it's just not completely thought out yet. And then to answer the other question, you know, there's great tools. So if this had been rolled out 10 years ago, you would be relying on what Brandon used to do as a compensation consultant, coming in, building it for you,

tons of legwork, you know, and we even have a company, Pave, who you can go in, and you can work with them and their tool, and you can build out your levels. That's right. Yeah. Right.

And so it's much easier to do so. And so there's a part of me that's like, if it's easier to do and you can do it, and it actually builds a better trust environment, like, why not go far? Right, exactly. I think one thing that many companies would be, maybe scared of, is developing this system.

And then again, as we talked about, it impacts employees who are already there, not just new employees, should there ever be exceptions? I feel like this is something that comes up as different managers are talking about, you know, top talent. You hear about the 10x engineer. Can a compensation philosophy that's built out well enough? This goes back to my fairness versus consistency. Right. Can you build that in where the star players, you know, the Michael Jordan equivalent in a business, can they really fit into something so structured like that? They can. And the nuance that you're going to have is that, and this goes back to you, like, I'll bring in another topic.

When I talk to portfolio companies about performance management, right, the thing I always talk about, and it comes back to compensation, a lot of times, especially around equity, which is there is a top 10% of your organization that isn't just the best performer, but they're critical. Yes. And what I mean by critical is if they left tomorrow, something stops working. Single point of failure. Single point of failure. Those ranges, like, they might not fit into a range, but Patriot, you know, but Patriot, you know, transparency says why.

Why is this a one-off, right? And you can justify it. And so this is where I always go back to the fairness versus consistency. Consistency is consistency. If you define critical talent as being above range, that's being consistent. Like, you have to be classified as that type of individual. And this happens in companies all the time that, like, their software architect, their, you know, designer, their person that is, like, doing something that's so incredibly

critical, that everything stops. And so as long as you're working it into your overall philosophy, it's still consistent. And is that about saying these critical people are just above range, or is it actually developing a separate track? You usually have like a philosophy around how you're going to handle your absolute top talent. Yeah, you know, a lot of times we'll talk about the building the range is it's not done in a vacuum. Shannon's brought up an incredibly important point. The consistency is really about the design and the process that you use to determine where you it. The flexibility comes in other tools that the HR ecosystem should have in place things like performance management. Assessment of talent, assessment of candidates. Those are the things

that give you the flexibility and the freedom to say, this person is a single point of failure, the opportunity cost of losing this person and their criticality to this company commands that we have to make sure that we put them in a position to retain them. Yep. And so the consistency in the application of the data and the design of the compensation infrastructure is incredibly important. the application is where you need to be able to recognize the flexibility that's necessary to grow and run a business. So once you've designed something and let's say you do have an existing organization, you're not starting from scratch, what do you do there? Do you level people who are already in the organization? So there's two things to do.

We always try and get companies to do it before they're like 50 employees. And this has actually helped us, right? Pay transparency, we much easier. And we've always said to people, the bigger your organization, the harder this project is. Yeah. So the first thing you do is you have to remove all the humans from the project. What do you mean by that? Like the names and the names, the actual human beings.

And you build the infrastructure of how many levels are we going to have? What scope? And it's what is it typically? It's years of experience. It's scope. It's impact. It's influence. It's freedom to operate.

Like these are all the different pieces that you put into a leveling criteria. Okay. And then from there, you build out. different levels, you then pull in your market data, right? You identify who are our peers, what's our market data. Then you go through the process. Once you have all of that structure, you start leveling people just off of the leveling criteria. And you always find folks that are either way above range or way below range. And then you can dive into those as like almost a talent review. Like one, you're typically not going to take people's compensation away from them.

Yep. So you might have a conversation. with someone saying, hey, you know what, Brandon, you're awesome at what you do. We just went through this leveling criteria. You're about 40,000 above, like, where you should be. You're super valuable. I just need you to know you're not going to see an increase for quite some time unless you progress to the next level. Or, you know, if you continue doing what you're doing, like, I need the world to catch up to your call. That's right.

Or if you have someone who's well below saying, you know, what's our affordability? and can we actually bring people to the minimum of the range that they should be at? So those are you required to do that? You're not required to do it, but it makes it easier to stand behind. Yes. And that's why I say it's affordability.

Mm-hmm. Because not every company can afford to do that. To your point, if you're, especially if you're a larger company, there can be a lot of money required, a lot of capital required to level a lot of thinking up. But if you find that 80% of your organization is not fitting into your leveling criteria,

you're probably not doing your leveling criteria correctly. Okay. So you're probably going to have a handser to have a handful of one-offs that you need to go and address, not like 40% or even 20% of your organization being wonky to your criteria. That's actually a great point. So you're saying basically, if people, if companies go through this exercise and they're actually seeing that 50% are not following this criteria, there's massive gaps across the company that they should revisit it. When you look at the basics of leveling, you know, software engineers levels, I think there's

typically six or seven individual contributors, right? Five to six individual contributors. What it might mean is that you pulled the levels and the data and you built out four levels. And so you grab the data and went one, two, three, four. Maybe the way that you've actually structured and hired is you have a level one, which is like entry level. And then you don't hire that level two. You hire a level three. And so you might go back and just have to play with, we're not going to use all six levels. I see.

And so that's where it's validating the type of talent you're hiring. It's so important to remove people from the conversation because it drives an or design and or development conversation as opposed to, let's build a role around this person that holds a little bit of finance, a little bit of HR, and maybe touches on legal occasionally. That's not a scalable role. That's a Frankenstein role. And what you really want to do is you want to make sure that you're building the roles

and defining the levels in a way that's consistent with how you are going to scale as a company. Right. And to Shannon's point, then you can start to break your four levels into five if you think that's appropriate. Or in a seven level structure, you only have a couple of roles at the early stage, and a bunch of roles at the top individual contributor technical talent, because you've got a strong leader already in place that sort of fills those gaps. Yeah. And so that concept of putting market data against the leveling

and having a clear conversation with your leaders is really important to be agnostic of the people in the roles because you don't want to design roles and levels around existing employees. You want to design it about what's going to enable the company to scale and grow at the pace that is necessary. Right. And real quick, just because you mentioned it, there are Frankenstein roles out there, right? Especially early on, where people are doing a little bit of everything.

And what do you do with that if people are in those roles? So a company starts that way. And then as a company progresses, you actually do need people. So as you grow as an organization, like, people have to become very specialized in what they do. And this is why using executives as an example is the easiest one, because when you're a small company, you might have a VP of product and a VP of HR. as you grow to be like a 5,000 person company, you're probably going to have a chief product officer.

You might have a CHRO. Then, you know, you can have VPs, SVPs, EVPs. Like, it really goes with the scale and the type of people you need to hire. And so you start seeing the layering taking place. That makes sense. Yeah. So if you are rolling this out to the company, one, how transparent should you be, as in how much information are you revealing to each individual,

but also to the company kind of revealing how you're thinking about this or even the fact that you're pursuing a really robust structure. And then also some of those difficult conversations, what do you do when someone is just really unhappy with where they fall in that new structure, where they come and they say, there's no way I'm at the bottom of this range. You know, like I'm sure you get that a lot too, where people have a different perception around their value, maybe even the scope of their role and what they add to a company.

Yeah, I mean, I think from my perspective, the success of rolling this out is not about, you have to look at all your stakeholders, obviously, your candidates, your employees. It's really about the success of how you enable your managers and HRBPs if you've got them to have these conversations. From a required transparency, you're going to have to provide a range, and you should always have a really clear understanding of who's going to see what. So you want to do audits before you roll this out. You want to make sure you know where people fit in those ranges and that you've empowered the HR team and managers and leaders to be prepared. and potentially be proactive in their conversations. Is there a good way to have that conversation, though, as in if someone just, again, misunderstands or just disagrees, quite frankly,

with where they sit in that structure? I mean, I think it's a hard conversation, right? And so I think a lot of times when that comes up, you bring in your HR business partner, you bring in the manager and you have an employee, and you walk them through why the role's leveled where it's leveled. You walk them through why they're leveled where they're leveled. It can be performance-based.

it could be tenure, it could be years of experience. There's all these different things. And, you know, sometimes the fact of the matter is we might agree to disagree. Right? It happens all the time that people are like, well, you don't understand. I'm doing this, this, this, this, and this. And it's totally understand, but this is the role you're in. Yeah. And this is what you're being compensated for. Yeah. In a way, it's great because those conversations were probably already happening in terms of someone saying, hey, I should get paid more. And instead of companies just being like, I guess the person who complains the most. The squeaky wheel.

Yeah. Gets paid the most. In this case, they really have to sit down and say, are they correct? How does this compare to the philosophy that we spent weeks, months, building up, that we are, you know, willing to stand behind? And the hidden gym here is that ultimately these laws are forcing companies to put the kind of infrastructure in place that a manager can use as the backstop, the leveling, the career progression, performance management. So it becomes less about compensation. That's the leading topic. But it's really the richer infrastructure that you've wrapped around your compensation strategy

that supports, like I said, performance management that really supports that conversation and drives to that consistent conversations that managers can have across their team or across the company. And I will go back to one other thing that I think is super important. I've been doing HR for a long time. So this is not just A16-Z related. But when a person comes and says that they're unhappy about their compensation, it's not a compensation person that comes in and has the conversation, right? It's their manager.

It's the HR business partner. And when you start asking questions and you start pulling away the layers of the onion, just like I say, no one leaves for comp. No one ever leaves for comp. If you actually really dive in and you start talking about why someone is leveled at this level, and your manager can say, here's the things you have to do to get to the next level, because this is career progression and it's all about leveling, all of a sudden you hear, well, I don't get feedback.

I don't know how I'm performing. I just know that I don't feel I'm paid the way my peers are paid. And so all of a sudden it's really around the person wants to know how they develop. They want to know how they progress. And so it's a much richer conversation. But I bring this up because it's not a compensation person that comes in and has that discussion. It's typically something other than just comp that is bugging the employee that they're bringing it to your attention. Yeah.

And if it is a compensation conversation, you've probably missed an opportunity. because you've devolved down to the ones and zeros. You haven't actually engaged in a richer conversation around the things that should be. And there can be mistakes. There are times in which we're like, oh, crap, what happened? Well, the markets move faster than the survey data has. All of a sudden, you're like, holy shit, right? Exactly.

Yeah. Exactly. And in those cases, you dive into it and you figure out, like, what should we be doing here? Who all is impacted? Yeah. How do we address this? And it happens with new technology, right? New technology comes out, people who have experience with it.

Everyone always wants the market data in and it's one of the market. market data is always six to 12 months lagging. Like we can't even in real-time APIs, it's still like behind. And so then it's, okay, we've done this enough times. What you need to do is take what you have and pay a premium. Right? And so it's having those discussions versus it all being driven by data. That's the only thing I don't like.

I feel like when something becomes a law, everyone's like, what's the data? Right, right. It's actually there's a whole philosophy behind it. Right. And it's the application of that data that really matters. Maybe one other aspect that is emerging. You mentioned like new technology is location-based pay. Remote work is rolling out.

Many companies have already adopted it. Some are flip-flopping going back. But the idea still stands where I think many more companies are hiring across borders, whether that's state borders or international borders. And there's all of these new implications of that, one of them being location-based pay. Should someone in New York get paid more than someone in Ohio? This goes back to the philosophy, though. Right. It goes back to what a company's philosophy is. And I think it becomes really hard. This is why the conversations are so important because, for instance, a company can decide to do location-based pay. So their employees in San Francisco and New York are going to make more than somebody who's sitting in Cincinnati. Or they can say, we're going to pay everyone San Francisco-based. Or they're going to say we're going to do the national average. It doesn't matter where you're located. And so all of a sudden,

when an employee comes to you and says, my friend who works at X is making Y, and I'm doing the same thing, and I'm making this amount. It's like, and we've been saying this for years. Like, it's never apples to apples, right? You have to understand what the comp philosophy. I mean, how many times, I get phone calls all the time. I'm negotiating an offer. Can you help me? What am I worse? I'm like, well. To who? Yeah, but actually. What's their comp philosophy? Where do They pay their executives, and people get so frustrated with me, and I'm like, I don't know what you're worth for that company. I don't know where you fit in. Yeah.

And that's the most important thing. That's actually such a great point, though, because so far we've talked mostly from the company side, but just for the people who might be listening, who are on the talent side, who are looking to get hired. Like, how do they even start thinking about that? Where should they start painting a picture? Is it looking at whatever market data they can get? Is it looking at the open jobs? I actually don't think it's market data. Like, at the end of the day, pay transparency is a law that we'll see where it goes.

Yeah. At the end of the day, if you are applying to a company, you should understand the programs within the company. You should take the time to understand from the manager how they think about compensation. You should take the time from a manager to understand how they do performance management because those are the things. And then you figure out how you fit in there. And there is absolutely nothing wrong with asking someone, can you share, like, where you benchmark and who you consider your peers?

Like, that's a really healthy conversation at the end of the day. You're either going to take the offer or you're not. Right. And I would say take the time to understand role clarity. A job description is helpful, but really have that manager that person articulate. Like, where do you fit into this? Like, how am I going to succeed in this role? What does success look like to show?

It's playing around performance management. Then you've wrapped a lot of information around this opportunity. and you understand that, yes, they may only pay you $75,000 in base for this role and this other company is offering $80, but you understand why in terms of how the role fits or maybe how they're using equity or other elements of the compensation strategy that they have in place. So the pay transparency is helpful, but it's just a small fraction of the conversation for all the reasons that Shannon just mentioned. Yeah, and to your point about compensation, like no one quits for compensation, ideally, ideally you're also not choosing jobs solely for compensation. You would have you. Yeah. Yeah.

Yeah. Yeah. Yeah. Yeah. Well, and it's one of those things that I say this to my kids all the time. I'm always parenting and HRing at the same time. But it's like how valuable are you to the company you're going to? What you do, your role.

And so it's one of those things that, you know what? At one company, you know, being a designer might be super, super important. If you go to another company, maybe design's not as important. So again, it goes back. to the philosophy per company. Well, we talked about how different companies are responding, but also one thing we didn't talk about, kind of like, the companies may not realize that even an employee posting about their open position on LinkedIn, like, that's technically a job posting.

And so is the easiest way really just to stay out of certain states if companies don't either know how to or want to comply? So I don't think it's come far enough to understand, like, what is the cost to not, right? But I think maybe we're just like being too hopeful. It's like it's a law that could have a lot of different like ramifications on doing business in different states. At the end of the day, there's a really easy way to get in front of it, which is just build the infrastructure. Right. Just do the work.

Just do the work. And it's hard work, but it's important work. If you meet the strictest standards, you're generally going to be in a pretty strong position. And what are the strictest standards? Is that just posting the pay range or? Actually, I think the stricter standards come from how many employees you have more than anything. It's all kind of the same laws. Now, there's some states that are saying that they're going to require reporting,

but some of these states are like two years behind and a lot of what they're enforcing. So that's where I say the law is TBD, the fines are TBD, but it's more of, it's easier to get in front of it and build it the right way because then you can turn it on so easily. But to your point earlier also, it's not just to comply with the law. it's actually beneficial for companies if they set this up. It makes their jobs easier. Companies start through an evolution, right?

When they first start and it's a founder with an idea, they have to do everything they can do to get the right talent to get to the right, like, next point in time to raise money or to release a product. So look, your first couple of hires, it's going to be a negotiation. And to your point, all of a sudden you get to like maybe eight, ten employees and you're like, oh, I have to make this make sense now. Yeah. Right?

And that's where some of these states that are saying at one or two employees, it would be really hard. I just don't even know that that's what someone should be focused on at that point of building a company. Well, you have to post a job, level four engineer. What does that mean? Mid-career, individual career engineer. But you find someone that you said, listen, on the roadmap, this is someone that we probably wouldn't have hired for another 12 months. But why wouldn't we strike while the iron's hot? It doesn't significantly change how we're thinking about the next 12 months.

Let's get this person in. And all of a sudden, they're quote unquote, above the posted range, you've got to think through like re-leveling the job and all those kinds of things. But ultimately, you're not going to slow down your hiring process in the first eight or ten employees because you're now going to go through, you know, we need in six weeks to figure out how to reset this job. You need to be able to react and respond because, again, we talked about opportunity cost. It's staring you right in the face in your first 18, 24 months as a company. Yeah. And if we are thinking about scaling, I mean, some of these companies may not

make it to 200, 2,000 employees. But like, for the ones that do, how often maybe you should should they be revisiting this? Is this like a one and done? If you do it right, then you're good. You're always refreshing it. Like I think probably every 18 months, 12 to 18 months. It's like material change, right? If you go through it, if you raise around,

it's probably worthwhile to make sure your ranges are consistent with sort of the new scope and scale that you are as a company. If you've got really hot jobs where the market's moving really quickly, you might even look, you wouldn't necessarily react to it, but you might look at it every six months and say, listen, this is something we want to make sure we keep a pulse on. I guess final question is we're talking about these smaller companies who at the beginning is just like the founders trying to figure this out, piece together data from Pave or somewhere else. And at what point is it really the time where you should be bringing in someone like yourselves to figure this out? In my opinion, your early stage, you have to get stuff done.

And then you get to, I would say, you know, we have early stage companies. We have, you know, our venture, which is A, B, C, rounds, right? And then we have growth. And I would say it's to, it's to. Typically, once they're getting a good infusion of money and they're going to start scaling on hiring, that it's like, this is a great time. It doesn't have to be complex. Put something in place so that you're being consistent. We hear companies say, well, this feels very limiting. And the ranges aren't necessarily rules, their guideposts. And more importantly, they surface the tradeoff decisions that you make as a company along the way.

And instead of just making decisions without understanding the consequences of those decisions, your compensation infrastructure, your ranges, your leveling criteria, all give you an idea of when you're making guiding principles. Guiding principles. That's right. To get you to where you should be. And then you can say, okay, we choose to do this. We need to make sure that we understand why. And then we're good with that because this is a key hire where we have looked for this role for 12 months and have not been able to fill it and now we're going to. And I would say even more importantly, I would say it's less we've looked for this role for 12 months. It's like this new technology came swooping in. Yeah.

And we actually found someone that knows how to do it. Right. It's like you don't want someone who's just everyone's negotiating and you're paying whatever somebody negotiates because there's like a lot of bias around that. Right. But there are going to be points in time. Like never in a million years did I think that we would see how the market was increasing as it was pre-2020, like second half of 2020.

You never had to move your ranges. Your midpoint might move. We were in a like constant progression of, You have to move your ranges almost every year because the market was dictating it. Right. So it's being flexible. Again, guiding principles, not laws. One of the biggest red flags is if you find yourself, I call it vapor lock.

I don't know what the right term is, but like, size spinning on should the range be plus or minus 7% or 5%? You know, and you're a 30-person company. That's not a good use of time. And it's great to see that kind of passion around that conversation. but if you spend 10 weeks trying to figure out exactly how your ranges should be built and you're a 20-person company, you should know that it's likely going to change in 12 months. Yeah. And so, again, the guiding principles point and also the evolution point,

it's important to have a way in which you define those things. But recognizing that that range will change or your loving architecture will change. Or the types of programs, you might roll a bonus plan at some point on top, and you don't need to move the base salary ranges as much. because you've got the performance management infrastructure. So it's a multivariable equation, and it's also important to balance the time that you dedicate to this process

with sort of the return on that investment. Totally. So final question is, what's my range? No, I'm... Well, 60 to 2.5. Yeah. I can confirm I'm somewhere in that range. That's awesome.

Well, we're doing our job. Yeah. Yeah. Well, this was awesome. I think it'll help a lot of companies who are trying to figure this out for the first time, maybe in their company trajectory. And so do you want to leave any sort of parting thoughts?

My parting thought is that Shannon and I have dedicated a large portion of a career to this. And so I can easily kill an hour talking about this. We block everyone. This is therapy. We have a two-hour session where we just talk about compensation and what's going on. No, I think my parting words are like, look, it is a new law. I wouldn't over-rotate on it, go back to the basics of building.

a company. At some point, it might become even more heightened. If you're building the company the right way, it should be very easy to follow the requirements and just realize that compensation iterates and iterates. And we have a whole people practice as team here. The firm that can help people think this through. Always help. I mean, in the ecosystem, we love helping companies think through how to build companies the right way. So we're always available. Right. Yeah. Great. Well, thank you so much. Thank you for having us. If you liked this episode, if you made it this far, help us grow the show. Share with a friend, or if you're feeling really ambitious, you can leave us a review at rate thispodcast.com slash A16c.

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