Startups of all stages and sizes have to create, manage and often adjust leveling and compensation structure within their companies. It’s important that every company develop a comp strategy - and although compensation is a topic central to every HR person’s role, it’s not one that every HR person has experience in.
Last week, we partnered with the team at Lifion by ADP to host a Roundtable Discussion on Employee Compensation Strategy. Led by Gray Scalable President, Charlie Gray, the roundtable turned into a large group conversation and open ended Q&A, with 20+ Start-up HR leaders from tech companies all over NYC.
If you weren’t among the HR professionals in attendance, we’ve summed up the key takeaways below. If you are interested in learning more about Gray Scalable and our future events, follow us on LinkedIn, Twitter or Facebook!
Discussing Employee Compensation
Think about your company’s current comp strategy... Typically, an initial compensation strategy that many companies have is “pay people what you need to pay them to accept the job, and pay them more when they ask for more” - and that often gets really messy as any company grows.
The most important factor to having any strategy is to get in front of it - be the initiator of the strategy.
As your company grows and ages what is the total rewards picture? Base pay comp is just one piece of this - when you’re hiring people, you’re offering many things besides just compensation. You’re offering benefits, equity, office perks - it’s important to understand what the whole picture is when you’re giving a candidate an offer. Most people will just assume that you want your pay to be strong and competitive. You don’t always have to be the top payer, but you need to decide where are you going to pay to be competitive in your field (in combination with everything else you include in your total rewards package). Comp is a very sensitive topic and lately we’re getting into a lot of conversations about transparency in compensation. If you’re in a company that competes for talent, and are just paying people whatever you need to pay them to accept the job- you probably can’t be fully transparent with all of your employees. But it’s important to figure out a way to have the conversation so people know that they’re being paid fairly. People generally think they’re underpaid, unless you educate them otherwise.
Q: How do you know if you’re paying fairly?
A: You as an HR person have to be able to tell your people that you’re paying fairly, and you have to be able to explain to them why. Some companies think being fair is being fully transparent, but that’s not true - figure out the fine line between being transparent and being fair.
Q: “What if you have been doing things that are not fair? An example, someone came to me and said, ‘I just found out that so and so got a bonus and I didn’t, what’s up?’ How do you fix that?”
A: If the management team is not with you on the principle of fairness, you’re not going to win. The management team needs to be on the same page when it comes to being fair. Correct things as you discover them, but create a annual or semi-annual cycle in which to review all compensation and test for fairness proactively. The anniversary thing is not sustainable past about 50 people. You’re making independent decisions without the grand scheme of things.
The best way to align yourself with the market is to know that there are ten levels. If you’re a company of less than 1000 employees, maybe less than 500, the number is generally ten.
Once the hierarchy starts becoming a growing pain and people are wondering how the company is growing within their own career, you have to think about leveling and how you can show people where they can go within the company and how they can get there.
Q: “At what number do you decide on ten levels? With my company of 110, ten levels seems excessive.”
A: I would say 70-100 people is the right time to differentiate the ten levels.
Q: How do you fix title debt (ie people whose titles need to be re-leveled)?
A: It’s not easy and it takes a lot of time. Once you make a determination about where you want your company to be and what you want the title levels to be, set it there - people can grow into that structure. Although it is important to recognize that it is easier to level someone up then it is to level them down.
Q: “How do you get the right data?”
A: There is a ton of information out there, but you need to look at internal data first before you just look at market data. You have to look at leveling and structure within your company before you can compare yourself to the market. Employees in general will be wildly misinformed about data unless you inform them - they’re looking at this information, but it may not work for their stage within your company.
Paying for Performance
In theory, this works absolutely - but how are you going to do that if you don’t have performance reviews? And if you are using performance reviews, you have to have a way to quantify performance, like ratings.
Q: “Should the performance and comp conversations be separate? How do you tell people that there is a link/isn’t a link? We find that people fixate on the numbers when the conversations happen together.
A: I don’t think you need to separate the two things. Performance is going to affect how you pay people whether it’s clearly aligned or unclearly aligned.