Compensation in the New World of Work

It’s one year into the pandemic and so much about life and work has changed. As we enter a new era of remote, hybrid, and in-office work there are many questions. A central one on many founders’ minds: how should employees be compensated in an equitable way? This blog breaks down the tips and tricks to building a strong compensation strategy — including understanding levels and career paths, cash compensation vs. equity, remote work and geography, and how to communicate it back to your organization.

Each month GSV Ventures invites experts to educate our portfolio around a topic pivotal to founders in our Club GSV meetup. Due to popular demand, we are making some of those learnings from the sessions public. Samantha Feldman and Charlie Gray of Gray Scalable, a company that specializes in people solutions for startups, shared their secrets on how best pay your employees.

Equity vs. Salary

The stage of the company directs the compensation mix. For early stage companies, the most competitive compensation tool they can offer is equity. As companies scale, salary becomes more important.

The World of Remote Work

Remote work has brought many advantages including the opportunity to tap into a larger, more diverse, and competitive talent pool. However, there are also downsides, as people who live far away from the office may find it harder to bond with management. As people can work from virtually anywhere, it is important to think through the implications of where employees can work and how that affects time zones, taxes, benefits and beyond.

While Gray Scalable doesn’t suggest founders adjust pay now when there is no other option than to be remote, adjusting pay based on geography has been a common practice since before the pandemic. As companies firm up their strategy of remote, hybrid, or in-office they should consider where employees are located and where they will be hiring. Traditionally, metro cities are grouped on a pay scale like the image below, where pay adjustments are based on the differences in market salary cost, not the difference in cost of living.

“Flexibility is going to be the main driver in how companies navigate this successfully, ” said Charlie Gray, President at Gray Scalable.

Are you paying fairly?

There are may factors to consider when you are creating a fair pay strategy, which does not mean everyone will receive the same salary. They include the level of the employee, their title, and the salary ranges. It’s important to keep in mind “title debt.” For instance, what you call a Director at an early stage startup might not mean the same thing as Director at a later stage company. Thus, pay may not be equal by title depending on stage.

Remember that fairness doesn’t necessarily equal equality: “Practicing compensation is both a science and an art. We believe if you want to be fair to everyone equality is not way to do that. People bring different things to each role. We don’t believe in (full) transparency. But you have to act like you do. Incase it came out, you should be able to defend every single salary choice you have,” said Charlie Gray.

Tools for market comparison, including Advanced HR, Radford Global Compensation Database, PayScale, and Willis Towers Watson, help give an accurate picture of data with a large sample size. When evaluating data, the most important part is to make sure the dataset is robust and current.

In 2021, women earned 82 cents for every dollar a man did with women of color earning less. I general, the tech industry has more fair pay but diversity measurements are still key. Companies should look across factors including gender, ethnicity, age, and disability status to make sure there aren’t disparities brought on by unconscious bias. This will help create trust through out the organization.

Communication is Key

When creating a compensation strategy, the #1 consideration is how you will communicate it to everyone at the company. According to Harvard Business Review, two-thirds of people who are being paid the market rate believe they are actually underpaid. To form an effective communication plan founders should first make sure all key stakeholders are in agreement with a consistent compensation strategy across the organization. Next, they can make sure that management is informed and can clearly articulate it. Management then should communicate directly with employees.

“Compensation is 20% data, 80% communication, ” said Samantha Feldman, Head of Compensation and People Analytics.

Overall, compensation is an art and a science. Make sure to align the goals of your organization with its mission while taking into account career levels, salary vs. equity, and geography. In practice, policies will not impact everyone equally so each employee should be individually considered and communicated to.

For more conversations about HR, recruiting and compensation projects, you can reach out to Charlie at charlie@grayscalable.com.