4 Questions to Guide Your Approach to Compensation
Everyone hates compensation.
For HR leaders, compensation is a time suck, distraction, and the worst all-hands question you’ll answer.
For employees, compensation is a black box. Nobody understands market dynamics, if they’re paid fairly, or how their company makes compensation decisions.
How do we solve these problems? Pay transparency. But almost every company gets pay transparency wrong.
My friend Colleen McCreary said it best: Pay transparency isn’t WHAT companies pay employees. It’s HOW companies make compensation decisions.
When companies embrace pay transparency for what it should be — clearly communicating how compensation decisions are made — they end up with more trust and loyalty from employees, and spend more time solving their customer’s problems.
Pay transparency is on a spectrum between opaque and extremely transparent.
Most companies operate in pay opacity land - they don’t explain how compensation decisions are made. Many comp decisions are made one-off.
Others — like Coinbase and Buffer — differ in their level of transparency.
Buffer is a great example of insanely transparent. They’ve shared employee salaries for 10 of their 13 years of business. Their decision-making formula and every employees salary(!) is shared online.
Coinbase is somewhere in the middle. They’ve publicly shared their decision-making framework, but keep individual salaries confidential.
Colleen was at the top of my list for people to talk to about this article because she advocated for pay transparency before pay transparency became mainstream.
Colleen joined Credit Karma in 2018. Like most companies, compensation decisions were inconsistent and lacking transparency. The decision-making process was breaking and not scaling with the growth of the business. According to employee engagement surveys, responses to the “I believe my total compensation (cash, bonuses, equity, benefits, perks) is fair” were below 50%.
When humans experience gaps in understanding, we sometimes fill those gaps with worst-case scenarios (there’s a term for it, catastrophic thinking).
In Credit Karma’s case, employees didn’t understand how comp decisions were made, or why they were paid what they were paid. Because of the opacity, employees felt their compensation — regardless of how well they were paid — was unfair. This mental tax negatively impacted employees, the leadership team, and company productivity.
To fix the problem, Colleen spent significant time with the leadership team to define and codify the compensation philosophy.
Her hypothesis was that by giving employees more clarity on how compensation decisions were made, everyone — including leadership — would spend less time thinking about comp and more time solving problems related to the business and its customers.
It worked. After Colleen implemented the changes, ~90% of employees responded positively to the “I believe my total compensation (cash, bonuses, equity, benefits, perks) is fair” question. You can read more about the program Colleen rolled out at Credit Karma here.
Before deciding if pay transparency is right for your business — regardless of the model you follow — consider the following questions:
Is your HR roadmap aligned with the business? How does pay transparency map to the business’s priorities?
Perfect people programs do not exist. When something goes wrong in the ordinary course of business – like losing a candidate or top employee to a competing offer – will the business blame you? The business needs to own compensation decisions, not HR.
Don’t force it if the business isn’t ready. It might be best to let your leadership team experience more pain before putting pay transparency on your roadmap. Pain is the best teacher :)
Also consider how you’ll communicate your program details throughout the employee lifecycle — from recruiting, to new hire orientation, to promotions and the annual compensation cycle (once everyone has forgotten).
Pay transparency is one aspect of your culture. It lives underneath your mission statement, values, and performance standards.
When done right, just like other aspects of a strong culture, pay transparency will serve as a magnet for the employees you want to attract, and a deterrent for the employees you want to avoid.
