Compensation Philosophies aren't Nietzsche - you Kant have pay transparency without them

This post is about how (and why) you need a compensation philosophy, not about old philosophers.

Tick, tick, tick, tick…do you hear it? We’re 18 days away from New York City’s pay transparency law going into effect.

For early-stage startups, compensation work is often done backwards because you're building as you grow. It’s time to hire your first engineer, product manager, recruiter, etc. and so you pull up market rates to inform a salary range and start interviewing.

Then, that system breaks and pay gaps grow.

But, here’s the thing, a not insignificant number of companies are needing to do this work at the very same time:

Just like the “remote best practices” highlight reels of 2019, I’m hoping for a collective shift and sharing of knowledge that escalates this work at a higher rate.

18 days is not a lot of time to implement pay transparency - when I work with early stage startups to roll this out, we minimally scope out 3 months for the work and create a roadmap for future updates (just like any product cycle).

But, if I had to cram it into 18 days there is one step I would absolutely not skip: Defining your Compensation Philosophy.

Read on below for:

• What is a Compensation Philosophy?

• Examples of real Compensation Philosophies from startups

• Questions to ask to outline your Compensation Philosophy

Thanks for being here ✌️,

Mary

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What is a Compensation Philosophy?

If you have employees, you probably have a Compensation Philosophy already.

In your job descriptions, you may have statements like “we pay 70th percentile” or “we don’t adjust pay based on location”. These are compensation decisions in action that are based on your company’s philosophy on pay. You just need to do the work to write it out.

A Compensation Philosophy is an explicit overview of a company’s views and decisions about total compensation.

Having a Compensation Philosophy outlined and agreed upon keeps your Career Framework consistent and systematic while also giving your team a shared understanding of how compensation decisions are made.

To quote Melanie Naranjo from last week’s newsletter on what happened when Ethena rolled out pay transparency:

“I'm not hearing people talk about their salaries. But I actually think that was the goal, people feel comfort. They are comfortable with the salaries they are paid, they're comfortable in the knowledge that they understand that they are being paid equitably at the company.”

A Compensation Philosophy is how you answer questions about how your compensation and career framework is structured.

As a builder of these frameworks it is 1000% worth the upfront time to gather the leadership team at your company and go through an exercise to write out your Compensation Philosophy. More on that below the examples. 👇

Examples of real Compensation Philosophies from startups

Nextmv

Something unique about Nextmv’s Compensation Philosophy is that “every function provides equal value”. Their Head of People and Head of Engineering will have the same base salary because of this principle.

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Tuff

In the ‘we balance growth’ section, Tuff provides more details on their compensation matrix and why profit sharing is part of it.

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Whereby

I like the headers Whereby has used. You could borrow the framework but add your companies approaches to market competition, data, geography, etc.

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ConverKit

This one comes with a visual! This whole thread from Nathan is very worth reading as he breaks out how salary, profit sharing, 401k match, and equity each ties back to their compensation philosophy.

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Aptible

This is a good example of sharing why specific compensation options have been chosen: “Aptible does not use bonus compensation based on performance, opting instead to reward employees with generous top of market salaries in exchange for the expectation that every employee will make significant contributions to Aptible’s success.”

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Questions to ask to outline your Compensation Philosophy

Okay! We’ve talked about why you need a Compensation Philosophy and reviewed examples from startups who have been doing this work for some time.

To have a meaningful Compensation Philosophy, you have to write your own. There are pieces of pay transparency like salary data, Leveling frameworks, competency definitions where you don’t need to reinvent the wheel.

But Compensation Philosophies are specific to how your company wants to balance revenue growth with team member growth and the unique talent required to achieve your specific core business objectives.

So, now it is your turn.

Here are the key buckets I guide teams through to uncover their Compensation Philosophy:

Market Position

What percentile does your company need to pay to attract the specific talent needed to achieve your business goals? aka, do you need highly specialized talent? Are certain functions key to your business where you should pay above market?, Are experienced ICs just as important to your team as People Managers?, etc.

There isn’t a better resource on determining Market Position than the three part series written by Whereby’s COO, Jessica Hayes. If you’re doing this work, don’t miss her writing.

Location Strategy

What is the market you’re using to determine percentile? If your team is in an office, it is more straightforward. But if you are distributed, will you pay the same rate no matter location or introduce a cost of living adjustment?

Hot tip: the cost of living adjustment has been popular for a number of years but many startups who have used this adjustment over the years are transitioning to equal pay for equal work. A trend has been to base location on 2nd tier cost of living U.S. cities like Austin or Boston.

Total compensation mix

ConverKit and Aptible above are good examples of this. There are a lot of compenents that make up total compensation beyond base salary.

Start by listing all of the pieces of your total compensation today. Then, write 1-2 sentences about why your company offers that type of compensation. Does your company offer more or less equity or cash because of your current stage? How can you balance your compensation to motivate employees in both the short term and long term?

Transparency

How much compensation data will you share with your team? Will people be able to see the salary data for their role? their department? the whole company? Will people be able to see the salary for specific team members? Or, like Buffer, will you publish everyone’s salaries?

Performance

What cadence can your team realistically support for discussing performance and promotions? How does your team define growth?: expanding scope of role, a promotion, a tenure based bump, etc.

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Thanks for joining me for the second edition of List the damn salary range. This post is public so please share with anyone you think might like or learn from it!

And, shoot me an email at hello@maryjantsch.com if you’d like help with your Compensation Philosophy or have feedback on my appraoch.