With recent landmark legislation being passed around salary transparency, many companies are playing catch up as they interpret and implement changes.

In this episode, members of the a16z People Practices Team,  Shannon Schiltz and Brandon Cherry explore how companies can best prepare themselves to not just survive, but thrive in this new environment.

The earlier you think about putting a compensation structure in place, the stronger and healthier your company is because you have consistency, not fairness, consistency.

You need to own the philosophy that you believe will drive the kinds of outcomes that you want as a company.

There is a top 10 percent of your organization that isn't just the best performer, but they're critical.

What I mean by critical is if they left tomorrow, something stops working.

Ultimately, these laws are forcing companies to put the kind of infrastructure in place that a manager can use as the backstop.

Sometimes the back to the matter is we might agree to disagree.

states started enacting laws requiring employers to post their pay ranges.

And now at least 10 states require it, amounting to over a quarter of the U.S.

Labor force covered by salary transparency legislation.

And with these recent landmark changes, many companies are playing catch-up.

So In this episode, we'll explore how companies are reacting, misunderstandings that exist around these nascent laws, and how companies can best prepare themselves to not just survive, but thrive in this new environment.

And today we're joined by Shannon Schiltz, operating partner leading A16Z's People Practices team, and Brandon Cherry, partner on the same team.

As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund.

Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast.

For more details, including a link to our investments, please see a16z.com slash disclosures.

So pay transparency, I feel like this is a new-ish concept.

Maybe 10 years ago, certainly 20 years ago, pay was not very transparent.

And so you guys have both been working in this industry for a while.

Tell me a little bit more about how you've seen that change, maybe that information asymmetry, especially in the last few years.

I was just trying to think of what year pay transparency became a thing.

Yeah, it became more of a cultural thing, right?

And it became very much a Silicon Valley thing too, that you should feel confident with what you pay each employee, and if somebody else finds out about it, you should be able to justify it.

And historically that was generally reserved for government jobs, teachers.

You get a master's degree, you get this many more dollars.

There was like real clarity and it was structured around achieve this or do this or have this, you get more money.

But in non-government, non-education industries, it was probably a widely known secret that people talked about their compensation.

We're gonna just bring it to the front so that there's actually insight and rational thinking around how much you're paid and why, which was really powerful for employees.

I mean, it seems like a no-brainer that that should exist, that companies should think critically about how their compensation is structured.

But to your point, that's not always the case.

But now it may be forcibly the case, because there are new laws in some states, not all, where they are required when you post a job to have transparent ranges.

What have you seen in terms of some of the legislation or the rules that are now in place that kind of force companies to think a little bit harder about this.

I think it was 2016 was the first time the law came out that if you are interviewing a candidate,

can ask for the pay range for the role, and you have to be able to within 24 hours share with the candidate what the pay range is.

And I remember when that happened, like we worked with a lot of our portfolio companies on thinking through what is your pay structure?

And then it's just been a slow and steady progression around compensation, you know, around equality of compensation.

Brandon and I were talking about this yesterday.

The interesting thing is, is there is this law of pay transparency.

If you think about the best practices on how to build a company, the earlier you think about putting a compensation structure in place, the stronger and healthier your company is because you have consistency, not fairness, consistency.

Wait, maybe you can actually differentiate.

Like what is the difference there that you see?

People will say, I don't think it's fair that that person is making what they're making.

Well, let's dive into what that role is, the scope, the impact, the influence.

That's what someone's being comped against.

When somebody comes and says, my comp's not fair compared to that person, you should be able to come back and say no for each role we are benchmarking it against this data and we target the 50th percentile.

That might mean this role makes $100, 000 a year and this role makes $80, 000 a year.

But an employee comes talking about fairness.

You don't get a lot of people saying, you know what, I don't want a merit increase, that's too much money for what I'm doing.

And so what a company needs to have in place are those conditions for success that will enable them to react and respond to pay transparency.

If you've got a comp philosophy that tells you how you look at the competitive market, how you position yourself against the competitive market, a leveling architecture that clarifies where a role sits in the career progression of any potential job, you can then lean on that to drive a consistent conversation with the backstop of that consistent infrastructure.

And then it clarifies and sort of codifies how the company thinks about compensation relative to their employees, as opposed to having this black box, ambiguous way in which compensation is set.

I'm going to advocate for myself as opposed to in relationship to that person.

I'm just going to advocate for myself against what I know the career progression will look like here.

It's interesting because it's the outcome is actually driving for core infrastructure in your compensation strategy.

The outcome is incredibly beneficial to companies.

It's just painful to be able to articulate it if you don't have those things in place.

Which many companies, I assume, did not in 2016 when some of these changes started happening.

And I want to get into how you actually developed that compensation philosophy, the strategy.

But before we get there, companies are now having to react to some of these changes in law.

And I'm just so curious to hear what you're seeing in terms of the reactions.

Are they kind of circumventing the system in different ways?

Because it does sound like many were not quite in that place when these things started rolling out.

I would say 1, we've probably never had so many requests for compensation.

Councils, consultants, and how do I, right?

So 1, I think people are reacting the right way.

They just want to get their arms around it.

And then I would say there's multiple ways that people are reacting.

1, some are just saying we're going to be in a wait and

We're going to see how enforceable these laws are, how much audits are taking place, what becomes of this new law.

There's companies that are saying we're not going to do it, so we're not going to post our jobs, Because that's the most visible thing that's come out of it, is you have to have a salary range posted with your jobs.

are saying, you could make between, you know, this role pays $65, 000 a year up to $2.5 million a year, right?

And somewhere in there, we're going to pay someone.

And so I would say those are probably the 3 things that we see companies doing.

You know, there's minimum thresholds and things that people can explore around what the requirements are in different locations.

But, you know, I think there's just a lot of concern over making sure that not only do they understand how to comply from a regulatory standpoint, but also what does this do to our employee population?

And if we do have $60, 000 to $2.5 million, are we prepared?

And do we have the ability to say, no, for you, it's $60, 000.

And so I think companies are navigating through all of that and so I would say that those are the 3 choices but for every company it's going to be very specific to where they're located, the kinds of employee populations they have, how clear and how strong their infrastructure is, and how they feel like they're prepared to have those conversations.

And again, it goes back to the basics, right?

so for us it was relatively straightforward.

And so we could post roles and put a salary range out there.

The interesting thing that happens though is again the number of times that somebody sees a job posted and thinks well that's what I do but I don't make that.

And so like it does like you have to be ready to have those conversations and get your managers ready to have a conversation on why actually this is a level above you and you can progress into it.

But that's not where you're at right now.

I was gonna get into the hard conversations, but let's just talk about that now.

Like A, have you started to see that as you started to post roles?

Both of you are like sitting at O, absolutely.

And it helps us iterate on our process, right?

And so I feel like weekly we're like, okay, are we checking this?

Because your future hire is super important, but they're not actually going to be contributing to productivity and output for 6 to 9 months in most situations.

So you have to be able to defend it to your current employees.

That's the biggest thing that people are missing, is yes, there is this law that you're supposed to post a range.

But your biggest asset is your current employee population.

And isn't it true also that it's not just that current employees can see the new jobs, but they can also ask, right?

And so what is the rule around that, that I, Steph Smith, can go and say, hey, I do this job, and what specifically can I ask for?

And that's where your manager should be able to come back to you and say, here's the pay range, here's where you're slotted, this is where you came in, Here's how long you've been in this role.

Here's how we think about compensation, right?

You would walk away thinking, they've been super thoughtful in how I'm paid.

All right, let's start to think about how companies actually build this because a lot of companies don't have this in place or just in the early innings and so if you are a company that let's say has I think the California threshold is 15 employees and all 15 of those employees have been hired in disparate ways paid in disparate ways there's no sort of underlying strategy or structure.

Like how do you even go about thinking about how to start setting that up?

Yeah, you know, I think the 3 core tenets are what we've talked about before.

You need to be able to articulate your philosophy on compensation.

Not everybody is going to be able to compete with a $10 billion in revenue publicly traded company on a cash basis.

So you need to own the philosophy that you believe will drive the kinds of outcomes that you want as a company.

So your compensation philosophy in terms of how you define your competitive market, companies of your size and scale, and where you position against that competitive market data is really important.

That sets the tone for then how you think about driving market data through your comp philosophy to determine those ranges.

The other element is your leveling architecture, how you define what it means to be an early career employee versus a seasoned individual contributor versus a first time manager versus a seasoned leader.

So between your philosophy and your leveling architecture and the third party market data that you use to determine that relationship, you can set your ranges very consistent with what you should be providing to candidates and articulating to current employees when they

By the way, on ranges, is there a right answer around how big a range should be?

Because it does seem wrong, right, that a role could be 60K up through a couple million.

But what is a realistic range and how do you think about what a range is appropriate?

Well, I think first of all, just to state, like it depends on the state, sometimes county and city.

So the right range is going to be somewhat indicated by the law.

Yeah, because every level has a range and every role, like market data, dictates what your ranges really look like.

It's not like you're gonna see like a hundred K difference in every range, like some ranges are compressed, some ranges are larger, and some of it is because if you think about the senior leadership, if you're not promoting, your ranges are gonna be big because you're gonna continue to go through that range.

And so it also, you see it change depending on level, role, market data, all of that stuff.

The basic common construct is that earlier career roles have a narrower range because people are progressing in those roles more quickly.

So think of it as an inverted triangle in terms of the width of the range around a target market position.

And that's kind of an easy rubric, but it's gonna change for every role.

To Shannon's point, the more senior you are, the low likelihood that you'll stay in that role longer is greater.

And so you'll need more flexibility as a company to ensure that people aren't progressing beyond the range, and that becomes a problem from a communication perspective.

But it's going to change for every role and every function because a manager of, say, finance isn't necessarily going to get paid the same as a manager of engineering.

And so the absolute dollars will be different, but the structure may be very

And that's where the market data comes in.

You know, the thing that's interesting about the pay transparency, pay transparency laws are only focused on base salary.

Which is actually so funny, and it kind of goes back to, you know, when this first came out, a lot of folks' response was like, this feels very government.

So it's funny because you would think you would see more companies having these smaller ranges, knowing that they have cash compensation that's still, or a bonus potentially that you can move around.

There's all these different other levers that actually don't come into play.

Like what is somebody's pay within an organization?

And then to answer the other question, you know, there's great tools.

So if this had been rolled out 10 years ago, you would be relying on what Brandon used to do as a compensation consultant, coming in, building it for you.

Tons of legwork, You know, and we even have a company, Pave, who you can go in and you can work with them and their tool and you can build out your levels.

And so there's a part of me that's like, if it's easier to do and you can do it, and it actually builds a better trust environment, like, why not go for

I think 1 thing that many companies would be maybe scared of is developing this system.

And then again, as we talked about, it impacts employees who are already there not just new employees.

I feel like this is something that comes up as different managers are talking about you know top talent you hear about the 10x engineer.

Can a compensation philosophy that's going to build out well

enough fairness versus consistency Right.

Can you build that in where the star players, you know, the Michael Jordan equivalent in a business, can they really fit into something so structured like that?

They can, and the nuance that you're going to have is that, and this goes back to, like, I'll bring in another topic.

When I talk to portfolio companies about performance management, right, the thing I always talk about, and it comes back to compensation a lot of times, especially around equity, which is, there is a top 10% of your organization that isn't just the best performer, but they're critical.

what I mean by critical is if they left tomorrow, something stops working.

Those ranges, like they might not fit into a range, but pay transparency says why.

And so this is where I always go back to the fairness versus consistency.

If you define critical talent as being above range, that's being consistent.

Like you have to be classified as that type of individual.

And this happens in companies all the time that like their software architect, their you know, designer, their person that is like doing something that's so incredibly critical that everything stops.

And so as long as you're working it into your overall philosophy, it's still consistent.

And is that about saying these critical people are just above range or is it actually developing a separate track?

You usually have like a philosophy around how you're gonna handle your absolute top talent.

Yeah, you know a lot of times we'll talk about the building the ranges.

Shannon's brought up an incredibly important point.

The consistency is really about the design and the process that you use to determine where you sit.

The flexibility comes in other tools that the HR ecosystem should have in place, things like performance management, assessment of talent, assessment of candidates.

Those are the things that give you the flexibility and the freedom to say, this person is a single point of failure.

The opportunity cost of losing this person and their criticality to this company commands that we have to make sure that we put them in a position to retain them.

And so the consistency in the application of the data and the design of the compensation infrastructure is incredibly important.

The application is where you need to be able to recognize the flexibility that's necessary to grow and run a business.

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So once you've designed something, and let's say you do have an existing organization, you're not starting from scratch, what do you do there?

Do you level people who are already in the organization?

We always try and get companies to do it before they're like 50 employees.

And we've always said to people, the bigger your organization, the harder this project is.

So the first thing you do is you have to remove all the humans from the project.

Yeah, the names, the actual human beings, and you build the infrastructure of how many levels are we gonna have, what scope, and it's, what is it typically?

It's years of experience, it's scope, it's impact, it's influence.

Like, these are all the different pieces that you put into a leveling criteria.

And then from there, you build out different levels.

You then pull in your market data, right?

You identify who are our peers, what's our market data.

Once you have all of that structure, you start leveling people just off of the leveling criteria.

And you always find folks that are either way above range or way below range.

then you can dive into those as like almost a talent review.

Like when you're typically not gonna take people's compensation away from them.

So you might have a conversation with someone saying, hey, you know what, Brandon, you're awesome at what you do.

We just went through this leveling criteria.

You're about 40, 000 above like where you should be.

I just need you to know you're not going to see an increase for quite some time unless you progress to the next level.

Or you know if you continue doing what you're doing like I need the world to catch up to your call.

Or if you have someone who's well below saying you know what's our affordability and can we actually bring people to the minimum of the range that they should be at?

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Salary Transparency: Clarity or Chaos?