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Pay equity playbook
Reduce manager discretion
Start by removing 'manager discretion' at 3 critical points in the employee lifecycle.
Principle #1: Reduce manager discretion in new hire offers
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.
💬 Conversation Starter
"What are some of the reasons why it’s better for managers to avoid getting involved in individual new hire compensation components?”
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
Option Impact
Mercer
Software and tools*
(optional module to purchase if Workday is your underlying HRIS)
(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)
Principle #2: Reduce manager discretion around comp-dependent ratings
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,”
75% of a performance rating is noise!
Additionally,
💬 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):
Individual Contributors (ICs)
4
Self-assessments/reviews
000
3Peer reviews
000
101:1 manager conversations
000
2Performance Review training sessions
000
1Mid-level Managers
7
Written reviews for their team
000
24Reviewing others’ reviews
000
21In calibration conversations
000
18Talking to their teams about reviews
000
13Performance Review training sessions
000
3Participation in backchannel conversations related to ratings or reviews
000
30Allocating available discretionary compensation
000
Sr-level Managers & Execs
5
Creating and approving performance-related budgets
000
14Designing or discussing performance review systems and processes
000
16Participation in calibration sessions
000
13Revising outcomes from calibration sessions and communicating those changes to their team
000
5Talking about performance at team or company meetings
000
8HR employees
3
Managing the end-to-end process of performance review seasons
000
60Writing emails to notify them of performance review timelines, to remind people to participate, and go through any related training
000
16Setting up the performance review system, including time with IT and outside consultants and service providers
000
132
STEP 2. For each of the roles listed, enter a rough estimate of the following:
Individual Contributors (ICs)
100
Mid-level Managers
30
Sr-level Managers & Execs
6
HR employees
3
There are no rows in this table
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.
The total estimated cost per performance review cycle for your organization is: BREAKDOWN OF EST. COSTS PER ROLE
$45,721.15
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
🛠️ Tools/Resources
Principle #3: Reduce manager discretion in decisions about annual compensation adjustments
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.
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.
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?”
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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