Rarely will you find someone at a startup who won’t have advice on how to build or spot a good company culture. Maybe the tip’s to pay attention to the tenor of a “beer interview.” Or to be discerning on how office design reflects company values. And maybe you noted that pets are allowed at work? It must be pretty laid back.
That may all be true, but for longtime engineering leader bethanye Blount, it’s also a bit too nebulous. Because the clearest indicator of the values driving a company — your own or one you’re considering joining — is already in motion from the start, in one of the last places you’re probably looking: compensation.
After two decades leading engineering teams for giants like Facebook and EMI to Linden Lab and Reddit, Blount realized that the most meaningful, even existential, problems she’d encountered were not in code but in comp — and that there are data-driven best practices for solving them. Now, as co-founder of Compaas, Blount is on a mission to help startups ensure that the story their comp practices are telling is the right one.
In this exclusive interview, Blount gives a rundown of the seven compensation scenarios where startups and employees are most likely to trip up, and how to come through them unscathed. For instance, she outlines three approaches to adjusting early employees’ comp as a company matures — and which one she prefers. Blount also shares the interview question on comp that should never be asked. Let’s begin.
Compensation is company culture made manifest. It’s really hard to have vanity metrics around comp.
One of the greatest sources of compensation inequity is that question every candidate dreads: What are you making now? “It’s a really common practice, and it compounds a lot of biases,” says Blount. “If someone is not a great negotiator, for example, or took a lower salary to work in the nonprofit sector, they’re set up to under-earn for their whole career. The truth is, the last job is history, and compensation should be based on the future: how substantial do you expect the employee's contributions to the company to be."
“Underrepresented groups are significantly more affected by this question, which just compounds any compensation disparity within organizations,” says Blount. And legislators are taking notice: as of this post’s publish, this practice is illegal in New York City, will be against the law in Boston and San Francisco in 2018. Blount adds, “Depending on where you are, asking about salary in the interview or offer process may be illegal by the time you read this. But even if it's not, it's a bad practice.”
Employers, don’t ask about salary history. Just strike the question.
Still, candidates will inevitably hear it, so Blount advises them to be prepared. Think about how you can redirect the conversation if you’re asked for current or previous salaries. “It's perfectly reasonable to say, ‘I'm very interested in talking about the responsibilities for this role, and the compensation for this role.’"
Another technique is to answer a different, and more productive, question. “Asking someone, ‘How much are you making now?’ is not the same as asking, ‘What is the minimum salary you will accept?’ The latter is a totally fair question. If I can only afford to pay you $120,000 and you can't pay your mortgage unless you make $150,000, then we should have that conversation.”
So begin your response to salary questions with “My salary expectations are” — even if that’s not what you’ve been asked. And do your homework to understand what is appropriate for someone at your level and in your region. “There are organizations that do some cool support for this,” says Blount. “LinkedIn has a salary survey that’s pretty good, and there are crowd-sourced surveys out there, like PayScale. If you’re in the Bay Area, OfferLetter.io can be a helpful product to help you negotiate for what’s fair for the role that you're considering.”
There’s no shortage of advice out there for startups deciding how to balance equity and salary (and for candidates deciding what they should take). Blount’s number-one piece of advice is simply to decide. Have a strategy. Because if you make ill-considered offers early, you’ll be cleaning up messes for years.
Many startups choose to offer high-equity/low-salary packages early on, a perfectly logical move in those high-risk-high-reward days. But even if your runway’s just months long, your comp strategy needs to take a much longer view. “When you're looking at compensation distribution inside your company a year or two or three down the road, and you have someone in your organization who's making a lot less in cash, how will you address that?”
In her experience, companies most often end up overpaying employees in these scenarios. “When they do the analysis a few years in, they think, ‘Oh my God. This person is super underpaid.’ Then they raise them up. At that point, though, if the expectation was that they were paying that employee mostly in equity, they’re essentially — and accidentally — double paying them.”
Blount identified three approaches to adjusting early employees’ compensation as a company matures:
Decide that the employee made their choice to accept an equity-heavy offer, and leave any salary disparity alone. “It’s an easy plan to establish, but one that's very hard to maintain. You have to have a clear system for recording everyone’s choices at the time of hire. If you're going to go this way, decide what your discount is for each person and track it.”
Give equity when you can’t swing the cash. When you do have cash, bring everyone up to market salary. “The thought here is: ‘These people took a risk on us, and now we’re going to raise them up.’”
Depreciate early employees’ risk over time. “This falls in the middle of options one and two and, full disclosure, it’s my favorite,” says Blount. “The idea is that by the time an early employee’s initial grant is over — which is probably her biggest — their salary is at least even with the role’s market rate. This approach bounds the period of time that the employee chooses equity over cash; it’s not a ‘forever decision.’ You essentially amortize the risk that they’ve taken on your company.”
Wherever you land, track your choice — and have an early, open conversation about it with candidates. “It's vital that they know what they’re signing up for. Take the guy who opts for less cash and more equity. If he thinks he can swing that for two years and then you’ll raise him up, but that was never your intention — that’ll cause problems later,” says Blount. “And, as a company, review this part of your comp strategy annually. That’s true even if your conclusion is: ‘Well, we don't have any money, so we’re sticking where we are.’"
Candidates, drill down on the long-term details of your comp package, too. Obviously it’s always critical to understand what you’ll be earning. But beyond that, the details of comp offer a huge and valuable window into a company’s culture. Blount plays out how each comp philosophy can reflect the persona of companies:
Take the company that’s offering high-equity, low-salary packages, with no plans to ever revisit them. They skew toward younger, where leaders haven’t considered the higher-cash needs of, say, raising a family. “The attitude is often: ‘Our company is up and coming, and you’ll get your payoff. Be glad to be here,’” says Blount. “The people at the top may be well-compensated and insulated from risk, so they don’t always understand that there’s a limit to how long someone can live with limited cash flow. These can be perceived as lower-empathy organizations.”
At the other extreme is the company that’s prepared to dole out hefty raises the second they can. “These companies tend to value fairness at all cost, which introduces its own set of problems,” says Blount. “They may end up double-paying employees by giving raises too soon, for example, and compromise growth. There may also be a ‘we’re-all-a-family-here’ culture, which can be inaccurate and problematic for some people.”
Companies that take the middle path — between backpay and payback — tend to be more mature. “They’re already thinking about retention; they know it’s naïve to assume that anyone will shoulder risk in perpetuity. They’re thinking about progression,” says Blount. “They’re saying, ‘We’re all taking a little bit of risk together, but nobody's taking on so much that it's an unreasonable burden.’”
There are pros and cons to each of these environments. The most important thing is to understand how to mine an offer for insights into both the company’s values and your own risk tolerance and financial needs. If you’re a candidate considering an offer and having these discussions, make sure you get future plans for your compensation progression in writing.
As your company grows, articulating a comprehensive compensation strategy only becomes more crucial. When the same two people make every hiring decision as a team, it’s easy to stay on the same page. “Eventually, you don't want those two people to be the bottleneck for everything. You want to empower other people to hire,” says Blount. “And as you do that, you start to see a broadening distribution in how closely offers and ongoing compensation align with the company's baseline values.”
Absent a clear strategy, each hiring manager often has only the broadest guidelines — don’t spend more than $200,000, for example. “The question at that point falls to: ‘what is that hiring manager’s philosophy?’ Do they feel responsible for getting the company a good deal, and therefore paying as little as possible? Or do they want to earn the company a reputation for paying people really well?” asks Blount. “Both types of hiring manager believe they are doing the right thing for the company. But definitions of ‘right’ can vary wildly.”
“Without consistent comp guidelines, you end up with a lot of randomness within the organization. And that randomness compounds,” says Blount. “What you end up with is, say, two mid-level engineers on two different teams, with similar seniority and skill, making dramatically different salaries because of who hired them.”
The solution is to have a clear, consistent directive for every hiring manager. “It's about making sure you tell your managers what your company values are, and trying to quantify those with numeric ranges.”
At the start it doesn’t have to be fancy, but it must be specific. “You want to be able to say: ‘This is our philosophy. We want to pay slightly more than mid-range, but we are not going to try to compete with Google and Facebook. In exchange, we can offer: a great vision, more equity, etc. This is how we see ourselves,’” says Blount. “Give them the language and philosophy first, and then the numbers—a ceiling, but also a floor. Tell them, ‘If you need to go above that, I want you to have a conversation with me. But don’t go below it. Saving $10,000 is not that much money for us, and it’s not worth compromising our values.’”
A comp range ≠ a comp philosophy. The first is how you value a role; the latter reflects your company values.
The idea is to equip hiring managers — whether you’re an organization of 10 or 1,000 — with recruiting tools and common practices to make smart decisions. Because the alternative, a hiring free-for-all, is a ticking time bomb. “Salaries get all over the map, and people always find out what others make,” says Blount. “If it’s all over the place for similar roles, they get mad. They feel undervalued.”
Compensation doesn’t stop being an issue once the offer letter is signed. But the reality is that not everyone is great at asking for a raise, or renegotiating their comp throughout their tenure at a company. So how can a good manager open the door to those conversations?
“First, if you're not having regular one-on-ones, you're doomed,” says Blount. “You have to have established time when it's okay to surface these topics.” Once you’ve created that space, be a detective. Few people are comfortable talking about money, so feelers will often be indirect. “If someone's asking about the company's performance, or dropping a lot of hints about how long they've worked at the company, those are good indications they’re hopeful for a raise.”
It may be easier for people to broach the topic through other people, so look out for anyone expressing concern about how others are compensated. Life changes can also trigger a heightened interest in cash flow; don’t pry, but pay attention if anyone is bringing them up. “My partner got laid off. We had a baby. My kid’s been sick,” says Blount. “Understand when someone is signaling to you that expenses are changing that that may be related to their current compensation, too.”
Of course, it can’t always be on the employee to bring up their comp. “One of the best things that you can do to make these communications better is to have a regular cycle, as an organization, during which you initiate these conversations,” says Blount.
How you time those regular reviews is yet another way you are underscoring your company culture. In most organizations, comp and performance reviews happen concurrently, but that’s not the only way to do it. “Companies who don’t link them explicitly typically claim a very high bar, and assume that they have hired only the best. They’re saying, ‘You’re amazing, we’re glad you’re here, and we’re going to pay you well for it,’” says Blount.
The majority of companies, though, do tie comp to some sort of performance target. In that case, your opportunity to discuss comp inevitably happens around performance reviews — but it’s key to create a little space between the two. “When somebody knows that their review is going to directly affect their comp, they are just waiting for you to stop talking and tell them what it says on that piece of paper you're holding,” says Blount. “Simply tell your report from the outset that they won’t be getting their comp change then and there. Then you can open the door for vastly more productive conversations around other agenda items, like performance.”
Compensation is many things — among them: a person’s livelihood, a record of their career evolution, and acknowledgment of a daily job that’s done. “Recognition is one of the hardest problems to solve, a sort of holy grail for managers. Because not everybody wants the same thing,” says Blount. “The key to meeting each report’s need for recognition is identifying what they want, and how you can give it to them.”
Comp is a non-trivial subsegment of recognition. For some, it's the most motivating one. But for many, it's not.
Beyond the nuts and bolts of salary and equity, recognition comes in many non-monetary forms. Consider, for example, a few other ways that a manager or organization can acknowledge and celebrate a person’s contribution:
Experiences: “For a lot of people, especially younger people, experiences are a particularly meaningful reward. That might mean the opportunity to travel to a conference abroad, or even just a gift card for an overnight at a nice hotel,” says Blount. “Again, this is where it’s key that you begin to understand the profile of everyone on the team. A parent of young kids, for example, might find a night away overwhelming, not celebratory.”
Mentorship: “Extra face time and career-development support from a manager or senior colleague can be invaluable at many career stages, but less appreciated at others,” says Blount. “Some people need to know that you’re investing in them and their future at the company. Others may think, ‘Why are we still doing this?’”
Visibility: “Some people crave public recognition, and want to be celebrated in front of the whole org. Others want to fly under the radar, and simply know that the right people are well aware of their wins,” says Blount. “Do you want to give a talk? Do you never want to talk? Do you want recognition from your peers? Or is it more important to you that my boss and my boss's boss see how awesome you are?”
It’s a big, but critical, task to understand and track each of your team members’ preferences for recognition. Don’t expect to get it right immediately, and do communicate closely with each person as you see what fits. “You can ask people directly what would make them happy, but be aware that few people will know. We’re generally poor at doing that kind of diagnosis for ourselves,” says Blount. “Just settle in, because you’ll have to start by making guesses. Do the best you can. One approach to test the waters is to offer your people opportunities, but not make them mandatory. That can help you start to see the things that excite them. This will likely be a process of trial and error, of learning to read your reports’ signals.”
Guesswork does not equal laxity, though. As you test — and learn — always track your results. “I keep spreadsheets of all my one-on-ones,” says Blount. “What did we talk about? What did I promise them? What did they promise me? Are there any bits of insight into important life events that are happening to them? I don't share these notes with anyone. I keep them to ensure that at any moment, I have all the info I need to effectively connect with each of my reports.”
Incidentally, alongside that qualitative data, Blount keeps three key high-level figures in each person’s spreadsheet: hire date, date of last promotion, and date of last compensation change. “Human beings are notoriously bad at remembering when anything happened to them. And so it goes with managers and work milestones. You should have that information at your fingertips,” she says.
“One hundred percent of career managers inherit a team at some point. The first time they go into the payroll system and see how everybody's being paid, they think, ‘What the heck is going on here? How did this happen? One hundred percent of the time,” says Blount. “That is the most unifying manager experience.”
The reasons are varied: Someone was hired at the wrong comp level, perhaps, or transferred from another internal role. The company used to pay better, or it’s started rewarding new hires more. “What that means in practice is that, when you inherit a team, you will always encounter disparity that does not resonate with you.”
For starters, Blount advises, give up any thought of bringing inflated comp down. “Let it go. It's not going to happen. I've never seen that done well. The one thing you might consider is giving an ‘up or out’ opportunity to someone you think is overcompensated,” she says. “But the fallout of lowering comp isn’t worth it.”
Instead, focus your energy on anyone who is grossly undercompensated. If you can get the backstory — from your own manager, for example — do so. Then see what you can do to bring their comp in line with the rest of the org. “You tend to have more power to advocate for the success of those people,” says Blount.
The most common reason for these outliers is that someone was brought in at too low of a comp level for their impact. “Usually that means that the expectation of their contribution was much lower than their actual contribution ended up being. So bring them to a level that reflects their effective contribution,” says Blount.
There are two pitfalls to look out for when you do: First, don’t let that person’s joy at getting a raise be soured by the realization that they’ve been underpaid for years. If you need to, lean into your “new manager” status. “If they ask: ‘Have I always been undercompensated?’ just say, ‘I haven't always been here. Based on what I’m seeing and your current impact, you're getting paid for how badass you are right now.’"
Second, you may bump up against company-wide limits on how big a comp bump you can offer. “I've had so many fights about this over the years, with a range of CFOs. Sometimes I've won and sometimes I haven't,” says Blount. “My number one tip? Until there’s a resolution, this is your fight alone. Don’t tell the employee until you have a real number for them.”
Finance teams, in these situations, are generally concerned about setting a dangerous precedent—give someone a 15% boost this year, and they’ll expect it next year. “Explain that what you're really trying to do is right a past wrong. And give it to them in numbers: ‘It’s only a matter of time before this person realizes they can make a lot more elsewhere, and I can't replace them for less than ‘X’ more. Let's split the difference,’” says Blount. “Be clear, and open hearted, and help them see the very real attrition risk posed by doing nothing.”
Finally, if you do win the fight, take yourself back out of the equation. “Make sure that you tell the employee, ‘You did this. You earned this. You are awesome.’ Not, ‘I got this for you,’” says Blount. “It's not about you. It's about celebrating and recognizing that person’s contribution.”
If there’s a second unifying experience for managers, it’s the situation when a valued employee comes to you with another offer in hand.
“If you are making a counteroffer, you’ve already lost. You're inevitably going to overpay at that point if you retain that employee. There may be cases where that’s worth it to you—to finish out a major project, for example—but know that it’s not likely to be a long-term solution,” says Blount. “If you're offering someone a bucket of money more to stay, recognize that you're buying yourself a little bit of time: a year at most. The fuse has been lit.”
Counteroffers are more caveat emptor than carpe diem.
The one exception, in Blount’s experience, is someone who is leaving because they literally can’t afford to stay, sometimes due to a high-equity, low-salary compensation package. “Maybe someone’s equity is worth a couple million, but their cash is low — and now their partner’s lost their job. Raising them up in that situation can preserve the same employer-employee relationship,” says Blount. “But that’s just about the only situation I can think of where a counteroffer can actually restore loyalty and long-term commitment.”
Employees, that’s not to say that you shouldn’t look around from time to time, or that doing so means you must be on your way out. “Nobody cares about your career as much as you do,” says Blount. “It’s not cheating to look at something else. You should always understand what’s out there, and what your value is generally. If you decide to stay at your organization, that recommitment alone can be very powerful.”
Whichever side you’re on—whether you’re advocating for yourself or representing a company—compensation gets emotional. And getting it right is hard. But there are tactics that can guide you through some of the more challenging hurdles. In negotiations, veer away from discussing salary history, whether you’re the candidate or company. Of course, determine a comp strategy — but make sure that a comp-adjustment plan is part of it. Before any hiring manager posts a job, refresh her on your comp philosophy. As a manager, you must prepare for your people who’ll mask their request for a raise — so recognize the telltale signs. Don’t forget that comp is just one component of recognition, so know the other tools at your disposal. When you inevitably inherit a team, start with the undercompensated. Lastly, take pause with counteroffers — you’re likely buying time, not longevity.
“Most challenges around comp will start to dissolve when both managers and employees start to see the other person’s perspective. That’s an age old exercise in empathy — but one that becomes increasingly difficult and charged when money is involved. That burden is heavier on the company than it is on the employee to make headway, but it's a bi-directional effort,” says Blount. “Despite all these efforts, there will be cases when an employee will acknowledge that they aren’t going to get what they want and move on. That’ll happen when finite resources, like money and equity, are involved. But with the right design and intent around comp, empathy doesn’t have to be finite. That’s the foundation you want — and can forge.”
Photography by Bonnie Rae Mills.