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

Regularly check pay equity systems

On a regular cadence, do some basic analyses to identify any systemic pay differences. If they exist, fix them.

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Principle #1: Do the analysis

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Cadence

Choose a regular cadence for this analysis and put it in your annual planning docs and cycles. For most companies in the series A → D round, an annual cadence should suffice. For later stage or public companies, some will do pay equity reviews more frequently, such as twice-yearly.

If you are maintaining employee ratings, do an analysis between when the ratings are drafted and when they are given to employees so that you can fix any systemic issues from the review cycle.

Enlist key stakeholders early

Key stakeholders that should be included (at a minimum informed) are:

Finance: will need to budget for any changes that result.

Board of directors: should at least be aware this is happening; they may also need to approve of additional equity grants or a top-up of the equity pool, if needed to remediate.

Legal: Always include employment counsel (both inside and outside counsel if you have both) in any pay equity study.

Analyses

Scope the analyses you plan on conducting:

Decide what non-compensable factors are in scope to examine. Many companies start with gender and race.

Decide what elements of compensation are in scope. Many companies start with cash only, but including equity is very important because that is where many of the significant differences can arise, especially in pre-IPO companies.

Do the following analyses by function and level:

Review employee ratings (if you haven’t gotten rid of them); pay outcomes; promotions; and voluntary and involuntary promotions cut by gender and race, versus the overall distribution of employees.

Review all compensation for new hires made in the prior period by race and gender.

💡 Note: Consider using a software solution (

suggestions below⁠

), or a compensation consultant (ask your friendly neighborhood VC).

Possible challenges

Data inefficiency issues. Within small companies especially, there may not be a large enough number of employees to cut the data as granularly as I’ve suggested above. In these cases, combine functions as much as possible to increase the populations size.

A basic way to review pay equity in smaller organizations is to cut employees by technical and non technical on one axis, and then individual contributor, manager, and executive on the other axis.

Additional factors. There are legally compensable factors, which may vary by state, such as on-the-job performance, education, years of experience, tenure, and location, among others. Ie, an employer can (and in some cases should) compensate differently to account for these differences. Without good data and software/consulting services, it can be difficult to normalize for these factors.

🛠️ Tools/Resources

Most software companies spend 85%+ of their cash on salaries. Spending $5-40K for software or consulting may seem like a lot, but it’s truly a drop in the bucked to ensure the millions of dollars the company is spending on salaries is equitable and optimized well to achieve your people and business goals!

Software* to consider:

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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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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

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

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Loading synd.io⁠

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Principle #2: Close the gap and remediate any systemic differences

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If you find differences that you cannot explain due to compensable factors, budget to close the gap as quickly as possible. This may mean layering a new equity grant on the employees’ existing grants, and/or increasing their salary, and/or changing their bonus targets.

In the case of large necessary compensation adjustments

Sometimes companies prefer not to increase an employee’s salary beyond a certain threshold. E.g., if your analysis determines that an employee should get a $30,000 salary increase relative to her peers, some companies prefer to tranche it out over two pay adjustments (e.g., $15K increase now and $15K in 6 months). I would caution companies against doing this for two reasons:

It can be difficult to document, track and implement. You’d be surprised how easily a team loses track of past decisions, even significant ones.

It isn’t as employee friendly as changing the person’s salary immediately. You’ve just uncovered that an employee has been underpaid for some period of time; why make them wait any longer to get the salary increase they deserve?

Communicating comp changes

At a minimum, you will need to communicate these changes to affected employees and their managers. The CEO alongside the Head of HR (if there is one) should explain three key components:

Context: The company has decided to undertake regular/annual pay equity studies and to adjust all affected employees’ compensation.

Rationale: They are receiving a compensation adjustment as a result of the analysis only.

Single adjustment: The specific increase should not be expected in the future. E.g., if they get a $25K increase, you do not want them assuming they will continue to get an annual $25K increase.

🌟 Note: I advocate for broader communication of any pay equity work you are doing, including the analyses and remediation, discussed at a high-level or with aggregated data. Committing to paying employees fairly through these practices is a critical component of your employer value proposition and every employee (and prospective employee) will want to know!

As noted above and in the

disclaimer⁠

for this full playbook, ALWAYS consult your legal counsel, especially with any employee-facing compensation communications.

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