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Pay Transparency

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Homebrew Guides
How much information can we share about compensation and equity?
We’ve been getting this question from our founders and want to address it. What should we tell our employees and how much do we tell candidates in the pipeline? Some founders/companies go as far as publishing salary bands and specific employee information related to compensation internally. How a company approaches this topic really boils down to a company’s values and culture.
Buffer
⁠
, a company that holds transparency as one of its core values, posts a salary formula on its site showing how salaries are calculated:
open salary
⁠
. They take it a step further and publish an updated spreadsheet of salaries and equity for every employee by name.
If this sounds like the type of transparent environment you want to cultivate, you must be prepared to defend your
compensation philosophy
⁠
. We are not here to say whether this strategy will or won’t work for your company. We are saying you need to be prepared to defend the how, the what and the why around compensation. Whether you share company wide salary information or basic compensation philosophy with your employees, make sure you have the tools to explain your rationale. Founders need a toolkit for internal employees as well as potential new hires. We have created this Homebrew Guide to help you navigate issues around compensation -- specifically, how much can you share with employees and new hires? We welcome your feedback: beth@homebrew.co

What you need to know

The how

How did we come up with the numbers?
This part is pretty easy. Companies use data (usually a paid subscription service) from a comp design company such as
Pave
⁠
or
Aon
⁠
. They provide salary and equity data from venture backed startups ranging from seed through series D geos in the US and Canada. If you are looking for something that exists without a subscription, check out
salary.com
⁠
. Beware that this source lacks early stage company data.

The why

Why is this data so important? How is it helpful to me as a founder?
The data in a comp survey provides comp bands that you can use for your own company as you build levels for different functions. Negotiating becomes less about “I’m worth X” but rather “This is what the job pays based on the market.” You know where your employees stand based on other employees at the same stage company in the same geographic area. If you have a compensation philosophy that states, “we pay at the 50th percentile of the market,” you now have data to back it up. The data becomes a very helpful tool to help “depersonalize” conversations around compensation.

The what/what if

There are so many “what ifs” in the game of comp and negotiation. Here are a few common ones and best practices for handling.
I come from Google, Facebook, MSFT, etc. I’m worth $$$.
The response. I understand that you made a great salary at company X. We are not in the same stage as company X and don’t benchmark against company X. We base our salaries on market data from other companies at our stage. Here’s what this job pays at this level at this stage company. We pay at the Xth percentile with some degree of flexibility.
I really want to come to an early stage company and understand I’m going to take a pay cut. However, I never imagined the delta would be this big. How can we close the gap?
Response #1: We can explore a sign-on bonus with no guarantee that we can close the gap.
Response #2: We are willing to reevaluate your compensation when we raise our next round (contingent on KPIs) and management discretion.
I really want to work here but I don’t think you understand my value. I know I’m worth $$$.
Response #1: We do understand your value and think you are amazing. However, compensation is based on the job - not the person. Every role is scoped/leveled prior to the interview process. *This helps take some of the ‘me, me, me’ out of the conversation.
Response #2: If compensation is driving your decision and you aren’t willing to take a large cut, then focusing on later stage companies may be the best path for you.
I’ve been here for a year and think I deserve a raise. I am doing great work and receive excellent feedback. Everyone loves me.
Response: Raises are given when the scope of your job changes and your job level increases. Unlike public companies, we don’t automatically give raises every year.

What are the pros to being transparent around compensation?

Employee morale - people know their worth and they feel empowered.
People feel trusted when they are given information. Trust leads to engagement which helps retention
Salary data can be used as a recruiting tool for benchmarking against other companies.
Salary transparency can protect against gender and racial bias. How? Well, if you think certain people are better negotiators, does this mean they should get paid more for the job at hand? No, it just means they are better negotiators.

Is there a downside?

Information can be dangerous if used out of context. If employees have access to information they don’t fully understand, they may make incorrect assumptions.
If context isn’t provided regarding the “why” (nuances of roles and job families” people will be confused, frustrated and angry. The actual numbers aren’t the issue at this point. It is the lack of understanding regarding how the company came up with the formula to get to the numbers.

Some companies take more of a “middle of the road” approach where they publish salary and equity data based on comp guidelines but not related to each individual employee. Every employee knows the range they fall in but doesn’t know exactly what their respective number is.

Why this can work

People have the information that relates to them. Employees feel empowered and know what the next level looks like. They are not in the dark about where their peers are.
We are making a few assumptions here...
People talk about how much they make and there is no way you control the chatter… especially as your company grows. You may think you can control whether people talk about compensation when you are fewer than 10 people but as you hire more people and people exit the company, people will talk.
The more information you provide to your employees, the more empowered they will become which can be a good thing. Make sure you don’t just provide information around salary data without spending the time explaining how you got there and the “why” around how this maps to your company values. The more time you spend on messaging and communications alignment in the beginning will have a huge impact on employee engagement and retention in the long run.

*Check out this podcast from Threshold VC
https://www.threshold.vc/podcast/the-case-of-the-exposed-compensation-file/
⁠
⁠


Updated 12.1.23


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