Compensation Best Practices

E X P E R T Q /A

Compensation Best Practices with Grant Battle, Head of HR at Hired What’s the best way to leverage third party salary data?

Third party salary data is a crucial ingredient to building out a scalable, competitive, and (if you are bold enough) transparent total rewards philosophy. I would strongly recommend all companies take advantage of one of the curated salary surveys that isn’t exclusively driven by unfiltered participant information. While saving money and using LinkedIn salary or Glassdoor might be tempting (particularly for SMB organizations), the reality is that this data is limited for a number of reasons, including: 01

Limited ability to segment data in manners relevant to your organization (i.e. company size, funding stage, industry or job function)

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Data is not curated and is entirely dependent on respondent integrity

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Limited sample sizes relative to salary surveys

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Lack of additional data for other aspects of the total rewards package like OTE (On-Target Earnings) and %TSO (total shares outstanding) Data that typically lags behind rapidly changing trends, particularly in high-demand/ low-supply positions like blockchain or machine learning (as highlighted in our own State of Salaries Report)

Two third party data options I’ve used with great success at Hired and at my previous organizations are Option Impact by Advanced HR and Aon Radford.

Third party data is most effectively used when paired in consideration with an evaluation of internal norms. This is critical in helping guide your HR and leadership teams’ determination of how you invest in your team.

For instance, if you have aspirations to pay a certain function, say engineering, at the 75th percentile of market (OTE) on average but look at your internal organization and see that you are closer to the 50th percentile, there is likely going to be a significant material investment required to rightsize the organization.

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I want to implement a total compensation philosophy at my organization; where do I start?

Career development ladder In my experience, a total rewards philosophy needs to be grounded in the foundation of a consistent, future-proofed, transparent career development ladder. The career ladder, ideally crafted with universal, graduated foundations around baseline expectations for each level/role (agnostic of location or function) can serve as an anchor for guiding the benchmarking of each of your job levels to the corresponding leveling leveraged in 3rd party salary surveys (see below).

This is crucial in ensuring that the span and nuance of your roles are a reasonable fit with the job levels in the various salary surveys. Failure to properly anchor your roles on benchmarks can lead to inflation or deflation of the positions and, correspondingly, over or under compensation relative to the market norms.

Existing organization audit Once you’ve settled on a leveling structure, the next step would be to do an audit of your existing organization. From there, you can get a clear sense of the internal ranges for each role and function and how they compare with market norms. This is particularly helpful as it gives you a sense of how much investment is required to fit the organization into your new philosophy (more on that later) and can help you to identify and solve for any non-defensible pay gaps.

Total rewards framework Setting a framework for your total rewards philosophy is ultimately one of the most challenging aspects of the entire process. A couple of things I always advise companies to weigh include: • Company size/funding stage • Position in the market/talent brand • Company culture • Growth targets (HC) • Company demographic profile • Company aspirations from a retention/employee development perspective • Company product/vision • Tech stack/Challenge/Visibility of the work 2

Once you have determined where you land relative to the above considerations, you are much better positioned to make a recommendation as to how you want to invest in your organization from a total rewards perspective. A few ways to go about this:

Pay targets by function A company may strive to pay ~ X percentile by function on average: Engineering and Product: 90th percentile of market on average Marketing, Finance, and G&A: 50th percentile of market on average Sales: 75th percentile of market on average

Pay targets for the organization A company may strive to pay ~ X percentile on average: ~ 60th percentile of market on average

Pay targets within compensation bands A company may strive to pay no less than the 25th percentile and no greater than the 90th percentile of market for all roles, agnostic of function. A few factors to consider: What influences salary band • Job level • Job function • Location • Manager vs. IC (Individual Contributor) Track What influences where in the band a role or person sits • Performance (for those in seat) • Potential/upside • Experience pre-hire • Technical skill-set • Tenure (for those in seat) • Strength of market for role ( supply vs. demand) 3

One thing to note is that all of these determinations should be done in concert with the leadership team of your organization (particularly finance).

Universal Hired Job Levels

Option Impact IC Track

Radford

Management Track

IC Track

C Suite I

C Suite E8

VP

H

Management Track

E7

G

M6 Director

F

L6

E

L5

D

L4

C

L3

P3

B

L2

P2

A

L1

P1

Manager

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P6

M5

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M4

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What’s the most effective way to introduce a new compensation philosophy to employees and candidates?

Introducing a new compensation philosophy to candidates is actually quite easy given there is no historical context or baggage with the organization. In the case of incoming and potential hires, I’m always an advocate for highlighting your approach to total rewards and compensation early on in the process for the following reasons: • Increases transparency • Solves for any concerns about whether the employee expectations for compensation align with company philosophy • Expedites the ability to build trust with prospective candidates (most companies, frankly, do this really poorly) • Sets clear expectations prior to joining, so employees can better determine if the role and the company matches their own personal development narrative (which leads to increased engagement and retention and ultimately, increased productivity) Once at the offer stage, I’m a strong proponent of talking through how you arrived at the offer and what the overall value is (including equity upside) with the candidate. At Hired, I actually shared the market data with all of my team members so that they could see where they sit in the pay bands, why they sit where they do, and how much room they had to grow within the band they sit in.

With existing employees, the introduction of a new compensation philosophy, like any change management communication, should be managed tightly via many mediums and delivered in with support from organizational leadership.

One thing I’ve seen done effectively is pairing a larger organization-wide announcement with working sessions where employees can sit down with HR leadership and ask questions about the implications of the approach.

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How can I combat internal wage gaps?

The first thing to note is that not all wage gaps are bad. For instance, a defensible wage gap driven by disparities in experience, job function, or technical skill-set is perfectly reasonable and normal for an organization (particularly if you take the approach of rolling out a compensation philosophy with a focus on creating pay targets within wide pay bands).

Having said that, wage gaps that are non-definsible (particularly those that adversely impact protected classes) are unfortunately quite prevalent today. Should you find yourself in a situation where you feel you have non-defensible wage gaps, taking the following steps can help (assuming you don’t have a compensation philosophy in place):

Step 3

Step 1

Compare any gaps between individuals and groups (considering function and location) against the qualifiers listed above.

Determine, in concert with leadership, qualifiers that influence pay (ideally that can be qualified and quantified). Some easy examples include:

If gaps are deemed defensible, no change may be needed so lo long as both individuals fall within acceptable market norms and ranges as determined by your company. If gaps are deemed non-defensible, recommend escalating to leadership with a recommendation for a change, so long as the employee in question is in good standing.

• Performance • Years relevant experience • Time in role • Technical skill-set

Step 2 Run an analysis of the organization by job function and level with information regarding relevant demographic information (i.e. gender, self identified race/ ethnicity) Assuming you have a baseline job titling and leveling structure, look at the salary and OTE of all folks in the same role and location (e.g. Level 3 software engineers in San Francisco)

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Name

Stanley Hudson

Phyllis Vance

Account Executive

Account Executive

Base salary

$90,000

$70,000

OTE

$180,000

$140,000

Median OTE for role

$150,000

$150,000

Gap vs. Median

$30,000

-$10,000

Gap vs. Selected peer

$40,000

-$40,000

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20

Meets expectations

Exceeds expectations

4

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Fine work award

Salesforce, Hubspot inbound sales certified

Title

Years experience Performance Time in role (years) Technical skills/ certifications Example of a non-defensible gap

What are the pros and cons of creating a transparent pay structure?

With the changing demographics of the workforce (folks are much more comfortable discussing salary info) and the proliferation of information available online (e.g. Hired’s Salary Calculator) the reality is that companies need to start getting comfortable with the notion that salary transparency is the way of the future. While we are still relatively far away from a future where all employee salaries are visible like Molly Moon’s, I expect companies that don’t at least have transparency around their comp philosophy will find themselves at a competitive disadvantage when it comes to attracting and retaining premium talent.

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Having said that, the effective integration of a truly transparent pay structure is extremely challenging and has pitfalls if not managed appropriately. Given the up front work required for effective rollout, I’d recommend companies take a step down approach to getting there. For instance, a company can start out by sharing their compensation philosophy, the sources which they obtain their market data from, the percentiles that make up their pay bands, and how they arrived there. From this point, pending successful education and training, an organization can take things further by outlining the actual salary ranges associated with each band as well as the minimum, median, and maximum actual salaries for each band.

Pros Clarity

Decreases anxiety associated with the performance review and talent calibration cycle(s)

Employees have clarity on compensation expectations for their respective role.

Transparency around compensation philosophy should mitigate the level of back and forth associated with the compensation-related aspect of the employee review cycles. While more and more companies are moving away from the antiquated annual review and salary cycles, the majority of organizations don’t actively review pay more than semi-annually.

Given the limited frequency of discussions, compounded by rising cost of living and increased barriers to entry into the housing market (e.g. San Francisco, New York City, and Boston), it’s not surprising that these time periods are typically high stakes. That said, if employees have clear expectations for what they can expect from a compensation perspective, how frequently said changes might occur, and what they can themselves do to move the needle in a favorable direction, a company can make the process much less painful via removing the element of surprise or misalignment between employees and managers.

Value alignment These days, the majority of successful organizations are mission-driven. With that in mind, it is rare to see an organization that doesn’t have transparency woven in as a foundational commitment. Accordingly, this sort of transparency is a clear way for a company to build trust with their employees by demonstrating that their values have real currency.

Reduces likelihood of non-defensible pay gaps A transparent pay philosophy puts an extra level of pressure on an organization to ensure they are looking at things objectively when it comes to all compensation decisions. In particular, a philosophy that highlights performance, experience, or technical skills as clear influencing factors increases the likelihood of pay parity.

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Cons Initial disruption associated with rollout

Requires consistent assessment and significant commitment both from a financial and human capital perspective

The scale of the initial disruption associated with the rollout will be largely influenced by the following factors: 01 02

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Once an organization is committed to a transparent compensation philosophy they are under increased pressure to ensure that employee compensation fits within their outlined framework. For roles where the market is shifting more aggressively, this likely means audit/review of comp on a semi-annual basis and may correspond with an increased budget for market based compensation adjustments.

Organizational maturity Presence of non-defensible internal gaps and your approach to resolve General approach to compensation

From a human capital perspective, creating and managing a more nuanced compensation framework will require an HR resource with extensive subject matter expertise. This isn’t the type of HR program/ strategy that can be developed/managed by someone who is learning on the job.

At Hired, we’ve implemented a transparent compensation philosophy, which rewards performance, leans on objective market data, and champions fair pay. To ensure that all employees — regardless of race, age, LGBTQ+ status, and gender — are paid equally, we re-evaluate our salaries every 6 months to ensure that a wage gap doesn’t emerge as people get promoted and receive raises as employees come and go.

And when we find gaps, we fix them. We made a $2M investment to close our internal wage gap and we publish our results publicly to promote transparency and encourage other companies to take steps towards pay transparency and equity.

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About Grant Battle Grant leads the People and Talent Acquisition teams at Hired. Among other things, Grant and his team are focused on helping Hired attract, engage, and develop a diverse, happy, and productive workforce. Prior to Hired, Grant held HR leadership roles at Bleacher Report and GSN Games.

Interested in learning more about compensation philosophies and Hired’s Total Offer Advantage?

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