2022 KP People Report

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2022 KP People Report

Compensation

Highlights

Top insights in this section are:

Focus on fundamentals: set a strategy around your compensation philosophy and ensure you have established levels before you can address additional topics such as equity refreshers, promotions, top talent and pay equity.

Pay transparency is not all or nothing. Transparency around compensation is a continuum. Decide how much to share based on your company’s culture, and train your managers so they are able to articulate / communicate your company’s compensation strategy.

Salaries (base) and inflation are based on two different things. Common mistake: using cost of living instead of cost of labor in deciding compensation.

Pay Transparency

Summary

Several regions have passed pay transparency laws including California (most recent), Colorado, Connecticut, Nevada, and NYC which require, or will soon require, employers to publish a salary or hourly wage range in their job postings. 💡 This is an opportunity for companies to establish their philosophy around the topic of pay transparency not just for candidates, but for their existing employees.

🧩 Fundamentals: It is critical to lay the talent foundation for growth. Below are fundamental steps to get right prior to moving on to more advanced topics such as pay equity, equity refreshers, promotions, and top talent retention.

Step 1: Set and define your workplace culture / talent strategy

Advantages

Disadvantages

In-office and Office Centric Primarily hardware companies, early stage, and some hypergrowth startups.

Collaboration.

Easier communication & real-time feedback loop.

Building trust / camaraderie.

Building costs.

Talent may not want to go into the office or move to your location.

Hybrid

Most common for companies with 200+ employees.

Provides flexibility for employees.

Larger talent pool (some roles not restricted by location).

Building costs.

Communication is more challenging.

Remote

During COVID, many companies shifted to 100% remote. In this current environment, we see a split across Hybrid and fully-remote as companies figure out how to balance employee preference vs productivity/engagement.

Greater flexibility for employees to live where they want.

Larger talent pool (not restricted by location).

Invest in tools to connect employees.

Need to over communicate.

Harder to build camaraderie.

There are no rows in this table

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Step 2: Develop your company’s pay policy

Ensure that you have a pay policy that is within your budget and allows you to attract the kind of talent you want.

2a - Target percentile

Your company’s target percentile is where you pay employees related to market rates. Decide what percentile of the market you want to target for both cash and equity. It is common for companies to target a higher percentile for technical talent (Engineering, Product and Design) than non-technical talent. Some companies have a separate comp philosophy for executive comp.

2b - Framework

Framework

Description

✅ Pros

🛑 Cons

💡 Opinion

Not Localizing

Same pay range per level/function. In some cases: SF/Bay Area or NYC. International startups are targeting the US national avg. More common for startups with less than 100 employees (early to mid-stage companies).

Highly competitive.

Highly costly. High cash burn.

Potentially incentivizes 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). For international, benchmark is against country avg. 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 other benefits, this is doable.

There are no rows in this table

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Step 3: Leveling

Before you can set up compensation bands, please ensure individual departments have set clear job expectations aligned with the correct leveling. The key is to have levels that tie back to compensation independent of the data source that you’re using. This step is the hardest to get right. We often seen title inflation with early to mid stage startups. Recommendation: work with a compensation expert.

Step 4: Transparency continuum

How much should you share with employees with regards to compensation? Keep in mind, it’s not all or nothing! Transparency around comp is a continuum. Below are the various levels of transparency:

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"Compensation transparency is not a one and done, and even when you explain the what, how, and philosophy 10x, know that you'll need to say it another 10x. We've found doing regular cadences related to All Hands on our pay philosophy, reminding our Gems where they can find pay band information, having easy to access FAQs on our main wiki, and doing regular sessions with managers to be critical in making sure our employees are clear in the development, execution, and maintenance of our programs."

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- Heather Dunn, Chief People Officer at Gem

Pay Equity

Equality in your compensation practices will help in building trust with employees. In addition to the fact that it is the right thing to do and good business practice, a growing number of states have passed pay equity laws. We encourage you to reach out to an employment attorney for more specifics.

Pay equity does not mean paying everyone in the same role the same thing. It means considering the same variables in the same way for everyone - the outcome may vary. Compensation may be different for employees in similar roles if it is for one or more of these reasons:

Experience

Education/Training

Tenure

Performance

Inflation and Salaries

We started hearing inflation mixed in the conversation around salary adjustments back in Q4 2021 and it continues to come up. Salaries (base) and inflation are based on two different things.

Salaries should be based on the cost-of-labor (or supply/ demand for talent), and not cost-of-living. However, it can be a hard concept to communicate to employees because cost-of-living is something they're feeling every day, where cost-of-labor is a much more abstract concept. In a tight labor market, salaries go up because companies are competing for a small group of employees and salaries are increased to remain competitive.

Inflation reflects the cost of goods and services over time. Inflation does not impact the cost of labor as much as you would think.

Salary increase budgets have outpaced inflation for years, and salaries have only risen. Instead of making adjustments to salaries due to inflation, use other factors such as performance and impact as the reason for why an employee receives a salary increase.

“Handling inflation in compensation is a tricky topic. We want to do right by our employees and for us that means in a way that can be sustainable long-term. As many large international companies know, providing salary raises tied to cost of living can easily become an unaffordable, chaotic practice that may set an expectation the company is not able to live up to over time.

At the end of the day, the economics of compensation are a matter of supply and demand, even in times of low inflation, cost of living is not evenly accounted for across markets. I suggest educating employees about this reality even if of course at the end of the day we can't blame them for trying to ask for more salary.”

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