Pay Equity Playbook: How to be a Fair Pay Employer

Insights from Renegade Partner's CPO on how to eliminate pay inequity

Pay equity playbook

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Pay equity playbook

Reduce manager discretion

Start by removing 'manager discretion' at 3 critical points in the employee lifecycle.

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Principle #1: Reduce manager discretion in new hire offers

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When an organization gives a hiring manager the ability to determine an individual employee’s compensation, it is opening the door to bias and discrimination. In a best case scenario, the organization is introducing an element of randomness into pay outcomes that doesn’t serve the organization or employees.

For example, a hiring manager with wide discretion may unwittingly compensate people with whom they have more in common higher than those with whom they have less in common (”Like me” bias). A hiring manager may reward or penalize a candidate for how they negotiate, or for something else that has nothing to do with how they will perform in role.

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New hire offers: Note to CEO & Executives⁠

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New hire offers: Note to Recruiters or Hiring Managers⁠

💬 Conversation Starter

"What are some of the reasons why it’s better for managers to avoid getting involved in individual new hire compensation components?”

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Instructions: Anyone signed into this Coda doc can submit and vote on discussion topics in the table below without the subconscious bias of new rows, blinking cursors, author avatars, and increasing vote counts. Then jot down notes during the ‘live’ discussion.

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🛠️ Tools/Resources

Data sources

Radford

Good for both private and public companies

Approximate pricing: $6-7K for Global Technology Survey; $2-3K for Pre-IPO survey

All Radford data users must submit their data

Option Impact

Used primarily by private pre-IPO companies

Free for any venture-backed company that provides their data 2x/year

Companies can pay to avoid submitting their data

Mercer

Wide range of uses, including international data & retail data

May also need to pay for their consulting services

Software and tools*

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Advanced Compensation Module of Workday⁠

(optional module to purchase if Workday is your underlying HRIS)

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Open Comp⁠

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Loading synd.io⁠

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Compaas is shutting down. Compaas is closing operations. compa.as⁠

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ChartHop - Connect & Visualize Your HR Data in One Place Build comp and headcount plans, manage performance and engagement, and analyze all your people data in one powerful platform, no spreadsheets needed. www.charthop.com⁠

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Pave | The Leading End-to-end Compensation Management Software Pave combines real-time market data with streamlined compensation workflows. Optimally manage your biggest expense. Build confidence in every comp decision www.pave.com⁠

(formerly known as Trove)

*Note: Renegade Partners is not an investor in any of these companies.

Consultants

If you’re a venture-backed company, reach out to your VC for recommendations on this. Most talent partners will have a short list of compensation consultants they’ve worked with recently and may recommend for your stage.

If you’re a larger company, your HR department likely has a short list of compensation consultants they’ve worked with in various areas of the business. It’s not atypical for a larger company to work with several different consultants who specialize in different areas (e.g., executive, sales, ops, etc)

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Principle #2: Reduce manager discretion around comp-dependent ratings

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Source: Syndio-hosted Pay Equity Webinar, Fall 2020⁠

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I don’t want to perpetuate a system that has very well-articulated and well-understood sources of unfairness.

When it comes to the issue of comp-dependent performance ratings, there are a few facts worth noting (Buckingham and Goodall,

“The Feedback Fallacy,”⁠

Harvard Business Review⁠

9 out of 10 HR professionals believe that the performance management cycles they were supporting were unfair

The idiosyncratic rater bias suggests that more than half of a rating reflects the rater’s characteristics rather than the person being rated.

UPDATE (August 2021) -

Nobel Laureate Daniel Kahneman and Olivier Sibony, in an interview with McKinsey &. Company share:⁠

"The research shows that when you evaluate someone’s performance, only about one-quarter of the rating is related to actual performance. The other three-quarters are related to noise. It can be “level noise,” which is that some raters are, on average, more generous than others. It can be “occasion noise,” reflecting the fact that the evaluator may be in a better disposition today than on other days. And it can be the idiosyncratic response of each person to another person, of a rater to a ratee. When you take all those things together, about three-quarters of a performance rating is based, in fact, on pure noise."

75% of a performance rating is noise!

Additionally,

In performance conversations, women and people of color are often discussed with language that is NOT the language of promotion and advancement. Instead the language often used is non-specific or general language, or language that is has specific biased associations.

Performance research increasingly suggests that financial compensation does not motivate higher performance.

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Perf & Comp: Note to CEO or Executives⁠

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Perf & Comp: Note to Managers⁠

💬 Conversation Starter

DISCUSS

“How much do we, as a company, invest in performance management?”

GATHER SOME INFO

STEP 1. For each of the following performance management tasks, provide a rough estimate of the number of hours spent each performance review cycle, per Full Time Employee (FTE) in each role (assuming 8 hr days/40 hr weeks/160 hrs per month):

Group

Task

Num. Hours each cycle

Individual Contributors (ICs)

Self-assessments/reviews

000

Peer reviews

000

1:1 manager conversations

000

Performance Review training sessions

000

Mid-level Managers

Written reviews for their team

000

Reviewing others’ reviews

000

In calibration conversations

000

Talking to their teams about reviews

000

Performance Review training sessions

000

Participation in backchannel conversations related to ratings or reviews

000

Allocating available discretionary compensation

000

Sr-level Managers & Execs

Creating and approving performance-related budgets

000

Designing or discussing performance review systems and processes

000

Participation in calibration sessions

000

Revising outcomes from calibration sessions and communicating those changes to their team

000

Talking about performance at team or company meetings

000

HR employees

Managing the end-to-end process of performance review seasons

000

Writing emails to notify them of performance review timelines, to remind people to participate, and go through any related training

000

Setting up the performance review system, including time with IT and outside consultants and service providers

000

132

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STEP 2. For each of the roles listed, enter a rough estimate of the following:

The number of FTEs currently in your organization

An estimated value of a fully-loaded compensation package

Role

Est. # of FTEs

Est. value of 1 person's total comp

Individual Contributors (ICs)

100

$200,000.00

Mid-level Managers

$300,000.00

Sr-level Managers & Execs

$500,000.00

HR employees

$150,000.00

There are no rows in this table

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VIEW THE RESULTS:

Based on the data you entered, here’s a report showing your total estimated costs spent on performance management tasks as an organization in just one perf cycle.

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The total estimated cost per performance review cycle for your organization is:

$45,721.15

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BREAKDOWN OF EST. COSTS PER ROLE

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Role

Est Cost per Cycle

Individual Contributors (ICs)

$1,538.46

Mid-level Managers

$15,721.15

Sr-level Managers & Execs

$13,461.54

HR employees

$15,000.00

There are no rows in this table

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🛠️ Tools/Resources

Potential biases that influence performance ratings | Chart [PNG]

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Bias Interrupters: Identifying & interrupting bias in performance evaluations | 2-pager [PDF]

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Avoid common assessment pitfalls | 1-pager [PDF]

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Principle #3: Reduce manager discretion in decisions about annual compensation adjustments

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In many organizations, after a rating is assigned, the HR team uses those ratings and the allotted budget to algorithmically distribute raises, bonuses, or additional equity grants across the company. Following this step, managers and executives often have an explicit opportunity to reallocate recommended outcomes.

As a CEO or an Executive

If you, as a CEO or an executive, have a discretionary pool of money or equity to allocate however they wish, eliminate it.

If you’ve already managed to have a fair performance review that has driven comp outcomes, consider why you still need an additional step where managers can adjust outcomes.

As a Manager

If this discretionary step exists in your organization, graciously decline to make adjustments to annual pay increase or new equity grants.

If you believe the ratings were fair, there should be no need to change the corresponding outcomes.

If there is additional discretionary budget that you control (e.g., x% of payroll is allotted to you to distribute across your team however you wish), use an algorithmic or rules-based approach for allocating this money. One example would be to distribute it based on base salary. Ask your HR team if you need help doing this.

💬 Conversation Starter

DISCUSS

“If an organization already has fair performance system that drives comp outcomes, what are some of the reasons why you’d still want to keep a discretionary pool of money or equity around?”

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