00:00starting in 2016 State started enacting
00:03laws requiring that companies post their
00:05pay ranges and now at least 10 states
00:08require it with over a quarter of the
00:10U.S labor force covered by salary
00:12transparency legislation and as all of
00:16this is happening a lot of companies are
00:18playing catch-up so in today's episode
00:20we'll discuss how people are reacting to
00:22these new laws the misunderstandings
00:24that do exist and also how companies can
00:27set themselves up to not just survive
00:29but thrive in this new environment and
00:32we do that together with two people from
00:34a16c's people practices team Shannon
00:36Schultz operating partner leading a16z's
00:39people practices team and Brandon Cherry
00:41partner on the same team
00:43let's get started as a reminder the
00:46content here is for informational
00:48purposes only should not be taken as
00:50legal business tax or investment advice
00:52or be used to evaluate any investment or
00:54security and is not directed at any
00:56investors or potential investors in any
00:58a16z fund please note that a16z and its
01:02Affiliates may also maintain investments
01:04in the companies discussed in this
01:05podcast for more details including a
01:08link to our investments please see
01:10a16c.com disclosures
01:21currency I feel like this is a new ish
01:24concept maybe 10 years ago certainly 20
01:26years ago pay was not very transparent
01:29and so you guys have both been working
01:30in this industry for a while tell me a
01:33little bit more about how you've seen
01:34that change maybe that information
01:37especially in the last few years you
01:39know it's funny that you say that I was
01:40just trying to think of what year paid
01:43transparency became a thing I think in
01:452010 because that was 13 years ago yeah
01:47so before any of this was truly enacted
01:49in law it became more of a cultural
01:51thing right and it became very much a
01:53silicon belly thing too that people
01:55should just be you you should feel
01:58confident with what you pay each
02:00employee it and if somebody else finds
02:02out about it you should be able to
02:03justify it and historically that was
02:06generally reserved for
02:08government jobs teachers you get a
02:10master's degree you get this much more
02:12this many more dollars there was like
02:14real Clarity and it was structured
02:15around achieve this or do this or have
02:18this you get more money but in
02:20non-government non-education Industries
02:22it was probably a widely known secret
02:25that people talked about their
02:27compensation it just decided that we're
02:29going to bring it to the front so that
02:30there's actually insight and and
02:32rational thinking yep around how much
02:34you're paid and why yep which was really
02:36powerful for employees yeah it is
02:38powerful I mean it seems like a
02:39no-brainer that that should exist that
02:41companies should think critically about
02:43how their compensation is structured but
02:45to your point that's not always the case
02:47but now it may be forcibly the case
02:50because there are new laws in some
02:52states not all where they are required
02:55when you when you post a job to have
02:57transparent ranges and so let's talk
02:59about that what have you seen in terms
03:00of some of the legislation or the rules
03:03that are now in place that kind of force
03:05companies to think a little bit harder
03:07about this I think it was 2016 was the
03:10first time the law came out that if you
03:12are interviewing a candidate they can
03:14ask for the pay range for the role and
03:17you have to be able to within 24 hours
03:19share with the candidate with the pay
03:21and that I think was 2016. and I
03:24remember when that happened like we
03:26worked with a lot of our portfolio
03:27companies on thinking through what is
03:29your pay structure and then it's just
03:31been a slow and steady progression of
03:33around compensation around equality of
03:37compensation the interesting thing is is
03:40there is this law of pay transparency if
03:42you think about the best practices on
03:44how to build a company the earlier you
03:47think about putting a compensation
03:49structure in place the stronger and
03:51healthier your company is because you
03:53have consistency not fairness
03:55consistency yeah my favorite I love to
03:58differentiate there wait maybe you could
03:59can actually differentiate like what is
04:01the difference there that you see well
04:02you people will say like I don't think
04:04it's fair that that person is making
04:05what they're making well let's Dive In
04:07into what that role is the scope the
04:11impact the influence the what is the
04:14role that's what put someone's being
04:17comped against when somebody comes and
04:19says my comp's not fair compared to that
04:21person it's you should be able to come
04:23back and say no for each role we are
04:25benchmarking against this data and we
04:28target the 50th percentile that's
04:30consistency that might mean this this
04:33rule makes a hundred thousand dollars a
04:34year and this role makes eighty thousand
04:36dollars a year but an employee comes
04:38talking about fairness
04:39you don't get a lot of people saying you
04:42know what I don't want a merit increase
04:44that's too much money so we're doing not
04:46many people will say that and so what a
04:48company needs to have in place are those
04:49conditions for Success that will enable
04:52them to react and respond to pay
04:54transparency if you've got a comp
04:55philosophy that tells you how you look
04:57at the competitive market how you
04:59position yourself against the
05:00competitive market a leveling
05:02architecture that clarifies where a role
05:04sits in the career progression of any
05:08potential job you can then lean on that
05:10to drive a consistent conversation with
05:13the backstop of that consistent
05:15infrastructure right and then it
05:17clarifies and sort of codifies how the
05:18company thinks about compensation
05:20relative to their employees and as
05:22opposed to having this black box
05:24ambiguous way in which compensation is
05:27it sort of it's a trust it is it limits
05:30cross employee competition the outcome
05:33is is is incredibly beneficial to
05:36companies it's just painful to to be
05:38able to articulate it if you don't have
05:40those things in place companies are now
05:42having to react to some of these changes
05:44in law and I'm just so curious to hear
05:46what you're seeing in terms of the
05:49reactions are they abiding are they
05:51struggling to catch up some are just
05:53saying we're going to be in a wait and
05:54see okay we're going to see how
05:56unforceable these laws are how how much
05:59like audits are taking place like What
06:03Becomes of this new law there's
06:04companies that are saying we're just not
06:06going we're not going to do it so we're
06:08not going to post our jobs because
06:10that's that's the most visible thing
06:12that's come out of it is you have to
06:13have a salary range posted with your
06:15jobs yep yep um and then the third piece
06:18is you have companies that are saying
06:20you could make between you know this
06:22role pays 65 000 a year up to 2.5
06:25million dollars a year right and
06:27somewhere in there we're going to pay
06:29um and so I would say those are probably
06:31the three things that we see companies
06:33doing absolutely those are those are
06:35three choices companies have there's
06:36just a lot of concern over making sure
06:38that not only do they understand how to
06:40comply from a regulatory standpoint but
06:42also what does this do to our employee
06:44population like who's going to see this
06:46how is this going to work and if we do
06:48have 60 000 to 2.5 million dollars are
06:52we prepared and do we have the ability
06:54to say no this is a for you it's 60 for
06:57other people it's 2.5 how do you have
06:59that conversation but uh for every
07:02company it's going to be very specific
07:03to where they're located the kinds of
07:05employee populations they have how clear
07:07how clear and how strong their
07:08infrastructure is and how they feel like
07:10they're prepared to have those
07:11conversations yeah and again it goes
07:13back to the basics right if you have the
07:15structure so for us it was relatively
07:17straightforward okay we have the
07:19structure here yeah and so we could post
07:22and you know put a salary range out
07:25there we set it up so we can defend it
07:28the interesting thing that happens
07:30though is again the number of times that
07:34somebody sees a job posted and thinks
07:36well that's what I do but I don't make
07:38that you have to be ready to have those
07:40conversations and get your managers
07:42ready to have a conversation on why
07:44actually this is a level above you and
07:46you can progress into it but that's not
07:48where you're at right now and that's a
07:50hard conversation all right let's start
07:52to think about how companies actually
07:53build this because a lot of companies
07:56don't have this in place or just in the
07:58early Innings and so if you are a
08:00company that let's say has I think the
08:02California threshold is 15 employees and
08:04all 15 of those employees have been
08:06hired in disparate ways paid in
08:09disparate ways there's no sort of
08:10underlying strategy or structure like
08:13how do you even go about thinking about
08:14how to start setting that up the Three
08:16core tenants are what we've talked about
08:18before you you need to be able to
08:20articulate your philosophy on
08:22compensation not everybody is going to
08:24be able to compete with a you know 10
08:26billion dollar in Revenue publicly
08:28traded company on a cash basis so you
08:30need to own the philosophy that you
08:32believe will drive the kinds of outcomes
08:33that you want as a company so your
08:35compensation philosophy in terms of how
08:37you define your competitive market
08:38companies of your size and scale and
08:40where you position against that
08:42competitive market data is really
08:43important that sets the tone for then
08:46how you think about driving Market data
08:48through your comp philosophy to
08:50determine those ranges the other element
08:52is your leveling architecture how you
08:54define what it means to be an early
08:55career employee versus a seasoned
08:58individual contributor versus a
08:59first-time manager versus a seasoned
09:01leader that's your leveling architecture
09:03so between your philosophy and your
09:04leveling architecture and the third
09:06party Market data that you use to
09:09that relationship you can set your
09:11ranges very consistent with what you
09:14should be providing to candidates and
09:17articulating to current employees when
09:18they request I think one thing that many
09:23um maybe scared of is developing this
09:25system and then again as we talked about
09:28it impacts employees who are already
09:29there not just new employees so should
09:33there ever be exceptions I feel like
09:35this is something that comes up as
09:37different managers are talking about you
09:38know top talent you hear about the 10x
09:40engineer can they really fit into
09:42something so structured like that when I
09:45talk to portfolio companies about
09:46Performance Management yeah the thing I
09:48always talk about and it comes back to
09:50compensation a lot of times especially
09:52around equity which is there is a top 10
09:54percent of your organization that isn't
09:57just the best performer but they're
09:58critical yes and what I mean by critical
10:00is if they left tomorrow
10:03something stops working it's a little
10:05point of failure single point of failure
10:07and that like those ranges like they
10:10might not fit into a range but pay
10:12transparency says why
10:14why does this why is this a one-off
10:17right and you can justify it and so this
10:20is where I always go back to the
10:21fairness versus consistency consistency
10:24is consistency if you define critical
10:26Talent as being above range that that's
10:29being consistent like you have to be
10:30classified as that type of individual
10:32and this happens in in companies all the
10:35time that like they're software
10:37architect they're you know designer
10:40their person that is like doing
10:42something that's so incredibly critical
10:44that everything stops and so as long as
10:47you're working it into your overall
10:48philosophy it's still consistent you
10:51know a lot of times we'll talk about the
10:52building the ranges it's not done in a
10:54vacuum Shannon's brought up an
10:55incredibly important point the
10:57consistency is is really about the
10:59design and the and the process that you
11:01use to determine where you sit the
11:03flexibility comes in other tools that
11:05the HR ecosystem should have in place
11:07things like Performance Management
11:08assessment of talent assessment of
11:11candidates those are the things that
11:12give you the flexibility and the freedom
11:14to say this person is a single point of
11:16failure the opportunity cost of learn
11:19losing this person and their criticality
11:21to this company commands that we have to
11:24make sure that we put them in a position
11:25to retain them and so the consistency in
11:28the application of the data in the
11:30design of the compensation
11:31infrastructure is incredibly important
11:32the application is where you need to be
11:34able to recognize the flexibility that's
11:37necessary to to grow and run a business
11:40so we always try and get companies
11:41before they're like 50 employees yeah
11:43and this has actually helped us right
11:45like yeah transparency would be much
11:46easier and we've always said to people
11:48the bigger your organization the harder
11:50this project is yeah right so the first
11:52thing you do is you have to remove all
11:53the humans from the project
11:55what do you mean by that like the name
11:57yeah the names the actual human beings
12:00and you build the infrastructure of how
12:03many levels are we going to have what
12:05scope and it's what is it typically it's
12:08years of experience it's scope it's
12:10impact it's influence
12:13like these are all the different pieces
12:15that you put into a leveling criteria
12:17okay and then from there
12:19you build out different levels you then
12:22pull in your Market data right you
12:24identify who are our peers what's our
12:26Market data then you go through the
12:28process of once you have all of that
12:30structured you start leveling people
12:31just off of the leveling criteria and
12:35you always find folks that are either
12:37way above range yeah or way below range
12:40I guess final question is we're talking
12:42about these smaller companies who at the
12:44beginning is just like the founders
12:45trying to figure this out piece together
12:47data from pay for somewhere else and at
12:49what point is it really the time where
12:52you should be bringing in someone like
12:53yourselves to to figure this out
12:56your early stage you just have to get
12:58you have to get stuff done yeah and then
13:01you get to like I would say you know we
13:03have early stage companies we have you
13:07Venture which is a b c rounds right and
13:10then we have growth and I would say it's
13:14once they're once they're getting a good
13:17infusion of money and they're going to
13:19start scaling on hiring that it's like
13:21this is a great time it doesn't have to
13:25but put something in place so that you
13:27you feel like you're being consistent we
13:30hear companies say well this feels very
13:31limiting and and the ranges aren't
13:34necessarily rules they're guideposts and
13:38more importantly they surface the
13:40trade-off decisions that you make as a
13:41company along the way and and instead of
13:44just making decisions without
13:45understanding the consequences of those
13:47decisions your compensation
13:48infrastructure your ranges your leveling
13:50criteria all give you an idea of when
13:53you're making guiding principles guiding
13:55principles to get you to where you
13:57should be and then you can you can say
13:58okay we choose to do this we need to
14:00make sure that we understand why and and
14:02then and then we're good with that
14:04because this is a a key hire where we
14:06have looked for this role for 12 months
14:08and have not been able to fill it and
14:10now we're going to and I would say even
14:11more importantly I I would say it's less
14:13we've looked for this role for 12 months
14:15it's like this new technology is
14:18swooping in yeah and we actually found
14:20someone that knows how to do it right
14:24you don't want someone who's just every
14:26everyone's negotiating and you're paying
14:27whatever somebody negotiates because
14:29there's like a lot of there's a lot of
14:31bias around that right but there are
14:34going to be points in time like never in
14:36a million years did I think that we
14:38would see how the market was increasing
14:41pre-2022 half of 20 like yeah second
14:45you never had to move your ranges
14:48your midpoint might move but we were in
14:50a set we were in a like constant
14:52progression of like you have to move
14:54your ranges almost every year because
14:55the market was dictating it right so
14:58it's it's being flexible again guiding
15:00principles not laws and one of the the
15:03biggest red flags is if you find
15:06I call it vapor lock I don't know what
15:08the right term is but like size spinning
15:10on should the range be
15:12plus or minus seven percent or five
15:14percent you know and you're a thirty
15:18it's not a good use of time and you're
15:20and and it's and it's great to see that
15:22kind of passion around the around that
15:24conversation but if you spend 10 weeks
15:26trying to figure out exactly how your
15:28ranges should be built and you're a 20
15:30person company you should know that it's
15:32likely going to change in in 12 days
15:34yeah and so right back at it again The
15:36Guiding principles point and and also
15:42um it's it's important to to have a way
15:44in which you define those things but
15:46recognizing that that range will change
15:48or your leveling architecture will
15:50change or the types of programs you
15:53might roll a bonus plan at some point on
15:55top and you don't need to move the base
15:56salary ranges as much because you've got
15:58the Performance Management
15:59infrastructure so it's a multi-variable
16:01equation and it's also important to to
16:05balance the time that you dedicate to
16:07this process with sort of the return on
16:10that investment all right that is all
16:12for today's video however if you enjoyed
16:14it we have a lot more where it came from
16:16in fact we just released a full length
16:19episode on the a16z podcast with these
16:22guests so if you'd like to listen go
16:24check it out in your favorite podcast
16:25app of choice or you can find it in the
16:29description below thank you so much for
16:31listening and we'll see you next time
16:35thanks for listening to the a16z podcast
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