The Keys To Compensation: Consistency And Simplicity

Complex, ‘slick’ plans can backfire, says compensation expert Kaitlyn Knopp, co-founder and CEO of Pequity.

The Great Resignation has brought compensation concerns into greater focus. For some, that has meant creating complicated pay structures or pushing titles as a way to attract and retain talent.

Kaitlyn Knopp, who has spent more than 10 years designing and maintaining HR programs for companies like Google, Instacart, Cruise and Lockheed Martin, as well as coaching senior leadership on various compensation philosophies and how they impact organizational culture, argues against such approaches. Instead, she emphasizes the importance of simple and clear approaches.

Knopp, co-founder and CEO of Pequity, a San Francisco-based company that provides a compensation platform designed for more equitable pay, spoke with StrategicCHRO360 about what employees appreciate when it comes to compensation, the dangers of algorithmic compensation and how comp is tied to DE&I efforts.

What is the best piece of advice for compensating your team?

Be consistent. Don’t assume you have to build some complex, slick plan—complex likely won’t translate well. Simple consistency is better. As part of that, the compensation should translate back to something solid for the individual. 

It’s not enough to just say, “We pay for performance.” Some employees feel like that’s a veiled threat if you don’t give context—they might think, “Well if I don’t know what performance means, I’m not going to get paid fairly.”

If you don’t have a path for how high performers get compensated, don’t say that. Identify the metrics that you use to determine compensation, and share those metrics. 

One example of how we do that at Pequity is that we use market data to compare ourselves to companies of a similar size, raise and stage. We pay at or slightly above market, which is typical for tech companies. We use a leveling chart based on market data. We pay according to certain percentiles, and we make increases in pay levels around certain events such as company fundraising.

Ideally, if you go through a pay equity check, you should be paying substantially similar compensation for substantially similar work. At a small company when there are many hats involved, it can get complicated. But differentiation can be done according to experience and performance.

So be consistent, and have open conversations with employees around the message, “We’re trying to move you in a certain progression in your career, and that translates to compensation.”

How does pay equity translate into DE&I?

Pay is a good metric of what you’re investing into your company. You can have equal representation at your company and still not be paying fairly. To say you care about DE&I and then don’t have representation at the top of your organization or to not pay equitably, it’s very misleading.

How are people progressing through your organization? Are they paid similarly? Are females and underrepresented minorities sitting at a lower level in the organization, at lower levels of the pay scale? This is all indicative of your overall DE&I efforts.

Most pay issues are non-intentional, almost accidental. Decision makers might have subtle implicit bias when evaluating employees, like “I don’t think she’s ready for that promotion yet.” But if that same employee was in a white male body, the decision maker might say, “He has so much potential, we should challenge him.”

Some companies don’t negotiate pay. Setting a single market rate takes out the element where diverse talent might be worried about, “Are they trying to keep me from getting the market rate? How hard can I push? What are they hiding from me?”

Companies such as Lyft and Coinbase just moved to one-year equity grants. They want to see that people who are actually performing are paid the most—not the ones who negotiate well. Anything that can be so heavily skewed by one good interview can be dangerous for the company and bad for DE&I.   

How do you define and create diversity around compensation?

The solution has to be better analytics plus education. Data alone is not the solution, because algorithmic bias happens. In 2018, Amazon tried to use machine learning and AI for recruiting, and they had to turn it off because the tool was biased against women.

I’ve seen companies where they put the candidate’s gender and race on the actual interview packet because they’re trying to debunk the issues that come with that. I saw a study recently, where they took the same resume but changed the candidate’s first name, awards and associations to signal gender and social class position and the candidate got excluded from the offer process much more often than the higher-class “white male”-presenting candidates.

There’s danger in surfacing some of this data. Hopefully you can start to train the system by training the people first. You could say, “Hey recruiters, we see you bringing in women at a compensation level below men, what is driving that? How can we fix that?”

When it comes to algorithmic compensation though, if you bake a little bit of bias into the first decision that an algorithm makes, it will compound. I don’t think you can automate these decisions, because it’s just baked into our social decision making. In an AI sense, you have to change the humans doing the input and analysis, and get them on the right page. Which takes analytics and better tracking systems.

How early is too early to have HR processes and systems in place when it comes to compensation levels and titles?

It’s never too early to have a philosophy of compensation. Build your structure to match where you’re at. Start from early days with setting expectations around compensation levels: this is what your work is in scope and expectations, so this is what we’re compensating you for. Without this baseline, you risk creating misunderstandings and hard feelings, and you risk having a critical hire that doesn’t work out.

You often hear about title inflation at startups. This happens when there’s a misalignment between the company and employee on the role and pay expectations, so they say, “I just want to keep you at the company, so here’s a director title.” Then you go down the road and the company grows and suddenly you need a real director. So what happens? Do you layer that person, take away their title? Do you exit someone who’s otherwise a great employee? 

At Pequity we say, “We’re not title forward—we don’t have higher than ‘head of’ titles—and whatever you’re titled now might change. However, according to a survey, you’re an L5 engineer.” As for my own title, I don’t like using the title CEO—we’re a sub-30-person team. I’m a founder. My role varies. I’m here to make the entire company successful. I want to maintain this position, but I need to grow, or else the company could eventually replace me.

We’re all in the same playing field right now because we’re a small business. For us this works because it’s a philosophy that fits our size. I know it’ll change and add more structure as we grow though—so that’s likely soon!

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