Democratizing compensation

Tech companies want to pay fairly, and developers want to be paid fairly, but compensation is still a mess, let's fix it.

The tech industry is stuck in a dangerous cycle with compensation, and today we will be talking about how you avoid the scenario where your inexperienced managers promote and bloat the salary of your team to the point where it’s untenable.

The first problem is the painful lack of information on what an individual should be making when they joing your organization. Often, this number comes from looking at what the rest of the team is making and the imagination of what other companies could possibily be paying. A narrative is created that our offer is definitely going to be lower than what they are getting from Airbnb and we are lucky to have a shot at them. This way, when you make the offer and they tell you that they need 20k more a year, you already saw that coming and are prepared to bend.

The second problem is that no one wants to sit down in a performance review session and tell the person across from them that even though they did a great job they won’t be rewarded with compensation. Without proper push back and oversight, managers will throw 10k at each team member in each performance review process, because it’s simply easier than the alternative. Over time, your intermediate team of front-end developers, through fund raises, promptions and moving teams, amass a huge salary that doesn’t make sense for the company.

How do you avoid this? In short, using tools and an initial framework to decide how compensation and performance work at your company. The goal here is to decouple performance reviews from salary completely. Your team should be making market rate at all times, you pick the relationship you want to have to market rate based on how desirable it is to work at your company and you stick to that for all team members. As time marches on, and closure developers become to the most saught after in the market, the market raise will rise and unless you want to fire your closure developers - you adjust their salary to match.

Our opinion about performance reviews is that they should go away completely as you migrate to our continous feedback system. However, if you refuse to join us in the future - we suggest setting a scale in relation to the persons incoming grant, adjusted for the decreasing risk as the company moves from round to round. This way at least your interests are aligned as everyone involved continues to concentrate on making that stock more valuable.

Where does this magical market data come from? Well, we continually do research and receive data from venture capital firms and as new companies join our platform we ask nicely whether we can anonymously use their salary data to help democratize the compensation field. Everyone who participates gets realtime suggestions from our assistant manager based on lots of juicy data as to what someone should be paid, and will then happily interface directly with your HR system to make those changes - if you so choose. When you first build out your team profile and hiring plans with activecove, we will tell you what we think the indivuduals you plan to hire should be paid and whether it fits inside the forecasted team model. However, at the end of the day if you want this to work, you need to be willing to accept that if you offer top of market but aren’t willing to budge and go above and beyond - you won’t always close that candidate, but at least with the candidates you do hire your team will scale over time.

You can of course do nearly all of this on your own, by collecting lots of data and regularly comparing your team compensation spreadsheets, the model you built and the data you’ve collected.

We wish you the very best of luck, and you can thank us later!

Posted by: Archimedes