2021 KP People Report

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2021 KP People Report

Compensation Trends
Compensation Trends

Compensation Philosophy 🌐

As we continue to work in this hybrid, mostly remote environment, compensation has been top of mind for employers and employees. In this ultra competitive talent market, it is easy to give into candidate / employee demands. Therefore, it is critical to determine your compensation philosophy upfront so you create an equitable work environment.

Cash Comp Frameworks within the US 🇺🇸

Framework

Description

✅ Pros

🛑 Cons

💡 Opinion

Not Localizing

Same pay range per level/function. Typically either SF/Bay Area or NYC. More common for startups with less than 100 employees (early to mid-stage companies).

Highly competitive.

Highly costly. High cash burn.

Potentially incentives employees to move away from company HQ to lower cost areas. Not ideal if you want to build an in-office culture. This has become a common comp philosophy for companies that are fully distributed or have the majority of their employees located in a high cost of living city.

Geographic Tiers

Create tiers and map similarly paid locations together (e.g. cities such as Boston, LA, DC are paid similarly and at a % discount to SF/Bay Area). More common for mid to late stage/ public companies.

Differentiation between high cost and low cost labor markets. Lower administrative cost than locally competitive.

Potentially not as competitive because top talent are demanding to be paid same rate to SF/Bay Area regardless of location; Another alternative is a flat discount across any non-metro location.

The most balanced approach. Acknowledging there is some differentiation. Pays more than if you would be doing the pure localized compensation model.

Locally Competitive

Compensation for the same role differs by location.

Lower cash burn.

Talent feels it is unfair since they are in the same role and delivering the same results.

Not competitive in this tight labor market for early to mid stage startups. For larger companies with more mentorship and offer benefits, this is doable.

There are no rows in this table

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During this current pandemic, some employees have left high-cost of living cities and permanently relocated to other cities within the US. For existing employees, many of our growth stage companies are making the adjustment upon relocation and aligned to the upcoming pay period or upcoming review cycle. There are a few cases where the company is planning to wait until 2022 to make these comp adjustments. Some companies will not adjust compensation for employees that meet certain qualifications, but will hold on raises until the salary catches up to the employee’s local compensation.

Equity Trends 💴

1. Equity Ranges

We are seeing most companies set the same equity ranges regardless of location within the US. For international markets, we are not seeing as many companies paying the same equity ranges as the US.

☝️ Opinion: This is a fair way to compensate employees for their work regardless of location and the company’s views on localizing cash compensation. For international markets, there are a variety of factors why equity ranges are not the same as the US. They include: experience within tech, equity taxation, employment laws and employees preference towards cash vs valuing equity.

2. One year equity awards

Over the past year, a few late-stage and public tech companies, Stripe, Coinbase and Lyft as examples, have made changes to their compensation packages so new hires (and in some cases existing employees) vest their entire stock awards in one year instead of the typical 4 year equity vesting schedule.

☝️ Opinion: This model has some pros for employees: 1) there isn’t a 1 year cliff as most are vesting on a monthly or quarterly basis, and 2) if the stock price continues to decline, the equity package would get adjusted in the following year. The downside to this methodology if the stock price goes up, means the employee receives fewer shares (not capturing as much of the company’s upside compared to a 4 year plan). This is not a common model for pre-IPO companies. The main reason we see companies considering this new model is to reduce dilution.

3. Removal of 1-year cliff vesting

Earlier this year, DoorDash celebrated its 8th anniversary as a company. They announced that they are removing the 1-year cliff-vesting provision on all equity grants for employees below the VP level — including current employees, new hires, and any future teammates who join the company in equity-eligible roles. Other companies that eliminated the 1 year cliff from their offers are Snap and Google.

☝️ Opinion: Traditionally most equity grants have a 4-year vesting schedule with a 1-year cliff which means the initial 25% of shares do not vest until after one year of employment. This benefits employees as their equity vests in real-time either quarterly or monthly depending on vesting schedule. It also allows both the employee and employer to part ways sooner than 1 year if it is not a mutual fit instead of employees feeling like they have to stay for the 1 year equity.

4. Other non-traditional forms of equity vesting

Google announced earlier this year that they are moving away from the traditional four-year vesting cycle to their new equity model of 33% vesting for the first two years, 22% in the third year, and 12% in the fourth year. Conversely, Amazon is known for their back-weighted vesting (5% vested in the first year, 15% in the second year, 40% in the third year, 40% in the fourth year). Note: Amazon offers 2-year sign-on bonus to make up for their back-weighted vesting schedule.

☝️ Opinion: By front-loading equity in the first two years, this allows the company to be more competitive in their offers. This is not a common model as the majority of companies still maintain a 4-year vesting schedule with a 1-year cliff. We do not recommend pre-IPO companies to adopt this vesting schedule.

See

Addendum⁠

for additional information.

Framework around Compensation 🗂

All of our companies provide some level of visibility along the spectrum below. None share individual employee salaries to the company which is something we do not recommend.

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We recommend that companies be transparent about the process of how compensation is determined and reviewed. Some additional context:

“Executives have full visibility; Directors have access to cash ranges for their function; managers are provided details on need to know basis.”

“Managers have access to bands, pay grades, and ladders across the whole company. ICs do not, but will hear where they sit in their band.”

We recommend after each compensation review cycle that you also review for pay parity by gender and ethnicity.

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Ongoing Equity Grants ⏳

After new hire grants, we see companies offering additional stock under one or all of these three programs:

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1) Equity Refresh Grants (also known as Evergreen): rewarding for tenure (between 2nd and 3rd anniversary) and performance (Meets or Exceeds Expectations).

In previous years, we saw a higher percentage of eligibility only after the 3rd anniversary but the market has become increasingly competitive and we are now seeing eligibility after an employee’s 2nd anniversary. We are also seeing companies move away from providing equity refresh grants solely based on tenure.

The majority of companies award higher equity refresh grants to top performers (top 10%-20% of employees).

Vesting Schedule for Equity Refresher 🕒

The most common vesting schedule for equity refreshers is 4 years, no cliff, vesting either monthly or quarterly from date of grant. Some variation around cliffs below. Another creative method is with back-weighted vesting: 20% vests in the first year, 20% vests in the second year, 30% vests in the third year, and 30% vests in the fourth year. Vesting starting at month 13, then evenly thereafter through 4 years, 5 years.

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2) Promotion Grants: Rewarding for taking on significant/ increasing responsibilities (e.g. taking on people management responsibilities).

Generally after each performance cycle although some promotions are off-cycle.

3)Top Talent Grants: Rewarding only the top 10% - 20% of the company (execs excluded) for truly exceptional performance and results.

Timing: Once a year, generally after a performance cycle.

Size of Grant: Tiered grants, up to 2x of refresh grant size.

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Compensation Resources 📚

We encourage you to establish a compensation philosophy early on. Regardless of your stage, it is important to articulate your company values and assess candidates based on fit (technical as well as cultural). It is important to view compensation from a holistic perspective not limited to cash/equity, but also factors such as overall company benefits and career growth.

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Option Impact⁠

is a free survey for VC-backed companies. By contributing your data, you can receive access at no cost. PLEASE NOTE: The database only shows Total Equity, which may include refresher grants and not just initial new hire grants. Given the equity data is often high, we recommend staying within the bounds of the 25th to 75th percentiles and considering both $ value and %.

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Radford⁠

is a paid compensation database backed by a worldwide consulting practice. The Technology, Life Sciences, and Sales Surveys include small startups to Fortune 100. Equity is denominated in both $ value and %, and New Hire vs. Total Equity is displayed. With global coverage and many specific jobs reported, most companies at the growth stage (post series C) pay for Radford.

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Levels.fyi⁠

(started by a former KP Fellow) is an open-source database of engineering, design, and product salaries. Please note that this is self reported data from employees. Only 4% of the data is validated based on offer letters and W2s, but it may be helpful in providing a general market data.

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ThriveCash Salary Index⁠

is a salary database for 2020 new grads. They use a median to aggregate total compensation so factors like location aren’t taken into account.

New comp databases: TotalComp from

Carta⁠

and

Pave⁠

are two automated solutions which makes uploading data much easier. However, they are still building out their database and normalizing ranges. For the time being, we recommend if you want to try either of these solutions, to also cross check with OptionImpact or Radford depending on your stage. Another resource is:

OpenComp ⁠

which provides private company compensation market data (cash + equity), org analytics, and planning. It is free for pre-Series A companies.

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Notes: